IMF Executive Board Concludes 2019 Second Post-Program Monitoring for Albania
IMF News, July 3, 2019
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- Published: July 3, 2019
Executive Board action and capacity to repay
- On July 1, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Second Post-Program Monitoring review for Albania and considered and endorsed the Staff Appraisal on a lapse-of-time basis.
- Albania’s capacity to repay the Fund is assessed as adequate, reflecting:
- a strong record of repaying the Fund,
- relative macroeconomic stability,
- progress in reforms.
Medium-term economic outlook and projections
- 2019 growth is expected to slow to 3.5 percent due to the base effect of the 2018 peak in power generation and the economic slowdown in Albania’s main partner countries.
- Over the medium term, GDP growth is projected to converge to its 4 percent potential rate, driven by:
- a pickup in EU growth,
- increasing labor market participation,
- a gradual strengthening of exports including tourism,
- investments to close Albania's large infrastructure gap.
- Inflation is expected to converge slowly towards its 3 percent target by 2021, as the output gap narrows and imported inflation from the euro area recovers.
- The current account deficit is projected to narrow further over the medium term, supported by strong export growth and planned fiscal consolidation.
- The level of FX reserves remains comfortable.
Risks and vulnerabilities
- External risks:
- Increasing risks to growth in the EU, notably in Albania’s main trading partners.
- Domestic vulnerabilities:
- High public debt,
- Increasing contingent liabilities,
- Weaknesses in public institutions and economic governance,
- Demographic prospects and heavy dependence of growth on weather conditions (notably vulnerability to drought),
- Ongoing emigration of skilled workers.
- Financial vulnerabilities:
- Still high public debt, relatively large financing needs, and rising contingent liabilities could quickly undermine the public balance sheet and impair access to affordable financing in the event of severe adverse shocks or deterioration in regional financial conditions.
- Offsets:
- Albania’s flexible exchange rate and ample reserves provide shock-absorption tools.
- Recent fiscal consolidation and lengthening of public debt maturities have been helpful.
- Capacity-to-repay risks are described as contained, but more is needed to limit public finance risks.
Executive Board assessment and priorities for reform
- To raise potential growth and leverage Albania’s favorable location and low labor costs, more ambitious improvements are needed in:
- governance and anti-corruption efforts,
- skills formation,
- other aspects of the business environment.
- Fiscal policy and public debt:
- It is critical to implement further fiscal adjustment combined with improvements in the quality of budgetary policies.
- Accelerating the reduction in public debt over the medium term will create space for countercyclical fiscal policies.
- Fiscal consolidation should be underpinned by improvements in tax policy and tax administration to raise revenues; this requires careful analysis of the revenue system and a medium-term strategy to enlarge the tax base and level the playing field for businesses.
- Fiscal arrears:
- Authorities’ ambition to address fiscal arrears is welcomed; these arrears have undercut the business climate and trust in government.
- All validated new VAT refund requests should be honored without delay, and existing arrears should be cleared as soon as feasible—even if, in the short term, this may raise the deficit (measured on a cash basis).
- Public investment and contingent liabilities:
- Put in place a more consistent framework for public investment management and limit risks from PPPs and other contingent liabilities.
- The Ministry of Finance and Economy should use its gatekeeper role for new PPP projects to ensure value for money and containment of risks.
- The proposed establishment of the AIC should be revisited to ensure any such institution would act on a strictly commercial basis and without direct government interference or reliance on future budget support.
- Energy sector:
- Financial restructuring of the energy sector should be undertaken without delay, combined with continued liberalization and unbundling of key players.
- Debt management and domestic debt market:
- Reconcile the search for lower financing costs and longer maturities with supporting a robust and liquid domestic debt market to mobilize domestic savings and reduce currency and rollover risks.
- Resume the issuance of short-term T-bills.
- Financial sector supervision:
- Continued strong supervision is important to ensure that the expected increase in bank lending does not weaken financial stability.
- The banking sector has seen large-scale consolidation and a shift in ownership away from EU banks.
- The Bank of Albania’s recent measures for further alignment with EU standards and increased frequency of on-site inspections should help contain risks from large exposures and related-party lending.
- Further actions are needed to address weaknesses in the AML/CFT framework.
Selected economic indicators, 2015–2020 (as reported)
- Real GDP:
- 2015: 2.2
- 2016: 3.3
- 2017: 3.8
- 2018: 4.1
- 2019 (Proj.): 3.5
- 2020 (Proj.): 4.0
- Domestic demand contribution:
- 2015: 0.6
- 2016: 3.2
- 2017: 3.6
- 2018: 5.0
- 2019: 4.3
- 2020: (not separately listed)
- Consumption (contribution):
- 2015: 2.0
- 2016: 2.1
- 2017: 2.5
- 2018: 2.7
- Investment (Incl. inventories and stat. disc) (contribution):
- 2015: 0.0
- 2016: 1.1
- 2017: 1.5
- 2018: 2.9
- 2019: 1.6
- External demand contribution:
- 2015: 0.2
- 2016: -1.0
- 2017: -0.5
- 2018: -0.3
- Consumer Price Index (end of period):
- 2018: 1.8
- 2019: 2.6
- Consumer Price Index (average):
- 2015: 1.9
- 2016: 1.3
- 2017: 2.4
- GDP deflator:
- 2015: -0.6
- 2016: 0.7
- Saving-investment balance — Foreign savings:
- 2015: 8.6
- 2016: 7.6
- 2017: 7.5
- 2018: 6.8
- 2019: 6.6
- 2020: 6.4
- National savings:
- 2015: 15.8
- 2016: 16.8
- 2017: 17.0
- 2018: 17.3
- 2019: 17.6
- 2020: 17.8
- Public savings (component shown as “Public”):
- 2015: 1.2
- Private savings (component shown as “Private”):
- 2015: 15.1
- 2016: 15.6
- 2017: 14.7
- 2018: 14.6
- 2019: 16.1
- Investment (incl. Inventories and stat. disc.) — levels (percent of GDP):
- 2015: 24.4
- 2016: 24.5
- 2017: 24.2
- 2018: (table formatting unclear for 2018 value in source)
- 2019: (table formatting unclear for 2019 value in source)
- 2020: (table formatting unclear for 2020 value in source)
- Fiscal sector:
- Total Revenues and grants:
- 2015: 26.3
- 2016: 27.4
- 2017: 27.7
- 2018: 27.6
- 2019: 27.2
- 2020: (not listed)
- Tax revenue:
- 2015: 23.7
- 2016: 24.9
- 2017: 25.7
- 2018: 25.8
- 2019: 25.0
- 2020: 25.2
- Total Expenditure:
- 2015: 30.9
- 2016: 29.6
- 2017: 29.7
- 2018: 29.3
- 2019: 27.3
- Overall balance 2/:
- 2015: -4.6
- 2016: -2.3
- 2017: -2.0
- 2018: -1.6
- 2019: -2.5
- Primary balance:
- 2015: -1.9
- 2016: 0.1
- Financing (summary lines in table):
- 2015: 4.6
- 2016: 2.3
- Domestic financing (selected years shown):
- 2015: -1.3
- 2016: 0.9
- 2017: -0.8
- Foreign financing: (values in table not fully disaggregated in source)
- General Government Debt 1/ (percent of GDP):
- 2015: 73.7
- 2016: 73.3
- 2017: 71.9
- 2018: 69.9
- 2019: 66.3
- 2020: 64.5
- Domestic debt:
- 2015: 39.5
- 2016: 39.1
- 2017: 39.0
- 2018: 37.6
- 2019: 34.2
- 2020: 32.8
- External debt:
- 2015: 34.3
- 2016: 32.9
- 2017: 32.4
- 2018: 32.0
- 2019: 31.7
- Monetary indicators:
- Broad money growth:
- 2015: 3.9
- 2016: 0.3
- 2017: -0.2
- 2018: 6.5
- Private credit growth:
- 2015: -2.8
- 2016: 0.4
- 2017: -0.9
- External sector:
- Trade balance (goods and services):
- 2015: -17.3
- 2016: -16.9
- 2017: -15.1
- 2018: -14.0
- 2019: -13.6
- 2020: -12.8
- Current account balance:
- 2015: -8.6
- 2016: -7.6
- 2017: -7.5
- 2018: -6.8
- 2019: -6.6
- 2020: -6.4
- Gross international reserves (billions of Euros):
- 2015: 3.0
- 2016: 3.4
- 2017: 3.7
- Reserves (In months of imports of goods and services):
- 2015: 7.0
- 2016: 6.2
- Reserves (Relative to external debt service):
- 2015: 3.1
- Reserves (In percent of broad money):
- 2015: 32.5
- 2016: 31.5
- 2017: 31.4
- 2018: 33.2
- 2019: 34.0
- 2020: 33.8
- Memorandum item:
- Output Gap (percent):
- 2015: -1.8
- 2016: -1.4
- 2017: -0.7
Press Release No. 19/263 — July 3, 2019 — IMF Communications Department; Press Officer: Gediminas Vilkas; Phone: +1 202 623-7100; Email: MEDIA@IMF.org.
