IMF Reaches Staff-Level Agreement for Completion of Ninth and Tenth Reviews of Albania’s Extended Arrangement

IMF News, January 24, 2017

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Canonical URL: IMF Reaches Staff-Level Agreement for Completion of Ninth and Tenth Reviews of Albania’s Extended Arrangement

IMF team led by Anita Tuladhar visited Tirana from January 18 - 24, 2016, to conduct discussions on the combined ninth and tenth reviews under Albania’s Extended Fund Facility (EFF) Arrangement.
The IMF team reached staff level agreement with Albania’s authorities on the policies needed to complete the ninth and tenth reviews, the last ones, of the country’s EFF.
The economic program remains on track and has achieved its core objectives of correcting large macroeconomic imbalances and boosting economic growth.
Most quantitative targets were met. Despite some delays, there is overall good progress in implementing structural reforms.
The Executive Board of the IMF is expected to discuss the ninth and tenth reviews in February 2017. Approval of the review would enable the disbursement of SDR 57.28 million (about €72.44 million).
Albania's 36-month EFF arrangement was approved on February 28, 2014.

GDP growth:
- GDP growth is expected to have reached 3.4 percent in 2016.
- Growth is projected to accelerate to around 4 percent over the medium term, driven by large energy-related foreign direct investment and a pickup in domestic demand.
Inflation:
- Average inflation has reached 1.3 percent last year.
- Inflation is expected to continue increasing gradually until reaching the target rate of 3 percent by 2018.
Current account:
- The current account deficit is projected to widen because of large imports needed for the energy projects, from around 12 percent of GDP in 2016 to 13.5 percent of GDP in 2017-18.

2016 budget:
- Preliminary data suggests that the 2016 budget achieved a small primary surplus, slightly below the programmed level.
- Revenues came below target, mainly due to a softening of value-added tax receipts.
- Expenditures picked up significantly towards the end of the year.
Public debt:
- Public debt has started to decline but remains high at over 70 percent of GDP.
- To achieve the medium-term debt objective, the authorities have agreed to target a primary surplus of 0.7 percent of GDP in the 2017 budget.
- Authorities also agreed to save large, unbudgeted one-off revenues of around 0.5 percent of GDP.

Monetary policy:
- Bank of Albania’s accommodative monetary policy stance remains appropriate and is consistent with its price stability objective.
Banking system:
- The banking system remains stable, liquid and well capitalized.
- Credit to households is recovering.
- Non-performing loans (NPLs) remain high at over 20 percent of loans and are deterring lending to corporates.
- Implementation of the Bankruptcy and Private Bailiff’s laws will be key in resolving these NPLs.
Recommended actions:
- Rapid implementation of the strategy for resolving non-performing loans is needed to strengthen lending to the private sector.

Main priorities going forward:
- Continue expanding revenue to strengthen public finances and to ensure debt sustainability.
- Reduce NPLs to strengthen financial stability and support credit recovery.
- Advance structural reforms to improve the business climate.
Specific reform measures highlighted:
- Strengthening of tax administration.
- Broadening the tax base.
- Introduction of a value-based property tax.
- Improved public financial management to ensure more efficient public spending and control of arrears.
- Structural reforms to enhance the business environment, address infrastructure gaps, and improve labor skills to strengthen competitiveness.
Note on EU process:
- The recent conditional recommendation to start EU accession negotiations marks an important milestone, recognizing the authorities’ commitment in this reform process.

Source: IMF Press Release No. 17/17, January 24, 2017.