IMF Executive Board Concludes 2017 Article IV Consultation with Albania
IMF News, December 14, 2017
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- Published: December 14, 2017
Recent economic performance and vulnerabilities
- Albania’s economy grew by 3.4 percent in 2016 and continues to strengthen due to rising domestic demand, large energy-related foreign direct investment (FDI), and a recovery in key EU trading partners.
- Inflation has been pushed up to just under 2 percent due to the declining output gap and pass-through of higher external inflation.
- Overall credit growth remains stagnant as banks continue to clean up their balance sheets.
- Short-term external vulnerabilities are limited: the current account deficit is predominantly funded by concessional borrowing and large FDI inflows, and official foreign reserves are ample.
- Fiscal and financial vulnerabilities have been lowered over the past four years, but challenges remain from the high level of public debt and financing needs, non-performing loans, and pervasive institutional weaknesses that hinder investment.
Medium-term outlook and risks
- GDP growth is projected to accelerate to around 4 percent, driven by continued strong domestic demand, reforms that improve the business climate, and a strengthening EU recovery.
- Inflation is expected to edge up toward the 3 percent target as the output gap closes.
- The current account deficit is expected to narrow as import-intensive energy projects wind down, the Euro Area continues to recover, and higher non-energy FDI propels export diversification.
- Risks to the outlook are balanced:
- Upside: accelerated donor support as part of the EU accession process could lead to higher investment and a stronger credit recovery.
- Downside: volatile domestic politics or shocks to global growth could pose risks to reform implementation and fiscal consolidation.
Executive Board assessment and priorities
- The growing economy and the new government’s clear electoral mandate provide an opportunity to continue reform efforts to increase growth potential, enhance resilience and competitiveness, and strengthen the financial system while maintaining fiscal discipline.
- Directors emphasized the need to reduce public debt to build fiscal space and ensure debt sustainability and recommended considering a more ambitious and front‑loaded consolidation path.
- Strengthening fiscal institutions is key for mitigating fiscal risks and enhancing efficiency; public debt management should focus on lengthening the maturity of public debt and diversifying the investor base.
- Directors underscored the need for higher revenues while refraining from lowering tax rates or granting any new exemptions or preferential tax policies; they supported the tax administration’s efforts to improve compliance and welcomed the plan to introduce a value‑based property tax.
- It is critical to strengthen public investment management given the planned scaling‑up of investment spending and to ensure proper implementation of the framework for public‑private partnerships in line with international best practices; minimize recurrence of arrears, including by improving the VAT refund process.
- Reforms in the state‑owned electricity sector need to resume: improve operational efficiency, speed up financial restructuring, and advance institutional and market design reforms.
- The Bank of Albania’s accommodative monetary policy stance remains appropriate; any unwinding of monetary easing should await evidence of a sustained rise in inflation. Directors supported the authorities’ de‑euroization strategy and stressed aligning the central bank law with modern central banking legislation.
- Directors supported continued efforts to strengthen financial supervision, focusing on the fastest‑growing and systemically important banks, improving crisis preparedness, and ensuring candidates for new banking licenses possess adequate banking experience and avoid conflicts of interest.
- Progress in restructuring NPLs of large borrowers was commended, including revising bailiff regulation, implementing the new Bankruptcy Law, and facilitating out‑of‑court debt restructuring.
- Addressing structural impediments to competitiveness remains key: further advance institutional reforms in the judiciary, property rights, and anti‑corruption; invest further in vocational training to encourage labor participation, especially among women and youth.
Key statistics and macroeconomic framework (selected items, 2013–17)
- Real GDP growth (growth rate in percent): 2013: 1.0; 2014: 1.8; 2015: 2.2; 2016: 3.4; 2017 (est.): 3.9
- Consumer Price Index (avg.): 2013: 1.9; 2014: 1.6; 2015: 1.3; 2016: 2.1
- Consumer Price Index (eop): 2013: 0.7; 2014: 2.3
- GDP deflator: 2013: 0.3; 2014: 1.5; 2015: 0.1; 2016: -0.2
- Foreign savings (Percent of GDP): 2013: 9.3; 2014: 10.8; 2015: 8.6; 2016: 7.6; 2017 (est.): 8.0
- National savings (Percent of GDP): 2013: 17.9; 2014: 15.9; 2015: 16.3; 2016: 16.2
- Public: 2013: -0.8; 2014: 0.6; 2015: 1.2; 2016: (blank)
- Private: 2013: 18.7; 2014: 15.4; 2015: 15.6; 2016: 14.7; 2017 (est.): 15.0
- Investment (Percent of GDP): 2013: 27.2; 2014: 26.7; 2015: 25.0; 2016: 23.5; 2017 (est.): 24.2
- Revenues and grants (Percent of GDP): 2013: 24.0; 2014: 26.3; 2015: 26.4; 2016: 27.4; 2017 (est.): 28.2
- Tax revenue (Percent of GDP): 2013: 22.0; 2014: 24.1; 2015: 23.9; 2016: 24.9; 2017 (est.): 25.9
- Expenditures (Percent of GDP): 2013: 29.2; 2014: 32.2; 2015: 31.0; 2016: 29.6; 2017 (est.): 30.2
- Primary (Percent of GDP): 2013: 26.0; 2014: 29.3; 2015: 28.3; 2016: 28.1
- Interest (Percent of GDP): 2013: 3.2; 2014: 2.9; 2015: 2.7; 2016: 2.5
- Overall balance (excluding arrears payment, Percent of GDP): 2013: -5.2; 2014: -5.9; 2015: -4.6; 2016: -2.3; 2017 (est.): -2.0
- Primary balance (excluding arrears payment, Percent of GDP): 2013: -3.0; 2014: -1.9; 2015: 0.2
- Net domestic financing (Percent of GDP): 2013: 4.4; 2014: -1.3; 2015: 0.9; 2016: -1.7
- of which : Privatization receipts: 2013: 0.0
- Foreign financing (Percent of GDP): 2016: 3.7
- Public Debt (Percent of GDP): 2013: 70.4; 2014: 72.0; 2015: 74.1; 2016: 73.3; 2017 (est.): 71.5
- Domestic (Percent of GDP): 2013: 43.4; 2014: 42.4; 2015: 39.7; 2016: 39.0; 2017 (est.): 35.3
- of which : Unpaid bills and arrears: 2013: 4.8; 2014: …
- External (including publicly guaranteed, Percent of GDP): 2013: 27.0; 2014: 34.4; 2015: 34.3; 2016: 36.2
- Broad money growth (percent): 2013: 4.0; 2014: 4.3
- Private credit growth (percent): 2013: -1.4; 2014: 2.0; 2015: -2.8; 2016: 0.4
- Interest rate (3-mth T-bills, end-period): 2013: 3.1
- BoA repo rate (in percent): 2013: 3.0
- Trade balance (goods and services, Percent of GDP): 2013: -18.0; 2014: -19.0; 2015: -17.3; 2016: -16.9; 2017 (est.): -16.5
- Current account balance (Percent of GDP): 2013: -9.3; 2014: -10.8; 2015: -8.6; 2016: -7.6; 2017 (est.): -8.0
- Gross international reserves (in billions of Euros): (In months of imports of goods and services) 2013: 5.4; 2014: 5.6; 2015: 7.2; 2016: 6.4
- (Relative to external debt service) 2013: 4.9; 2014: 2.6; 2015: 3.6
- (In percent of broad money) 2013: 24.6; 2014: 25.7; 2015: 32.5; 2016: 31.5; 2017 (est.): 29.5
- Change in real exchange rate (eop, in percent): 2013: 5.1; 2014: 5.0; 2015: 4.7; 2016: 4.6
- Memorandum items:
- Nominal GDP (in billions of lek): 2013: 1350; 2014: 1395; 2015: 1428; 2016: 1473; 2017 (est.): 1562
- Output gap (percent, - = gap): 2013: -0.7; 2014: -1.2; 2015: -1.6; 2016: -0.6
Imf Communications Department, December 14, 2017.
