Washington, DC –
An International Monetary Fund (IMF) team, led by Ms. Yan Sun, conducted
remotely a staff visit to Albania during June 25-July 1. At the end of this
mission, Ms. Sun issued the following statement:
“The near-term outlook for the Albanian economy remains challenging,
reflecting the significant impacts from the November 2019 earthquake and
the COVID-19 pandemic. As in other parts of the world and reflecting
Albania’s dependence on tourism and remittances, the economy is expected to
contract sharply in 2020 and see a rebound in 2021. The outlook is subject
to unusually high uncertainty, given the nature of the pandemic.
“Albania’s macroeconomic stability has been maintained so far thanks to
skillful policy management and globally accommodative financial
conditions. A considerable increase in the fiscal deficit in 2020 is
necessary to deal with the fallout of the pandemic and earthquake, by
supporting the economy and providing for health spending and
reconstruction.
Once the effects of the shocks subside, it will be critical to resume
revenue-based fiscal consolidation and put public debt on a sustained
downward path, so as to rebuild space for fiscal policy maneuver. In this regard, we
strongly encourage the authorities to continue their preparation of a
Medium-Term Revenue Strategy (MTRS), so as to build a fairer, simpler, more
efficient, and more transparent tax system that will generate the resources
needed to achieve Albania’s sustainable developmental goals and ensure debt
sustainability.
Efforts should also be stepped up to manage increasing fiscal risks,
including from PPPs, and strengthen the quality of public investment
management.
“We note with concern a recent proposal to remove until 2029 the profit tax
for all businesses with annual turnovers up to 14 million Albanian lek
(ALL) and VAT for all businesses with annual turnovers up to ALL 10
million. Support for people and firms hurt by the shocks is warranted, but
needs to be temporary, targeted, and transparent, embedded in a credible
and prudent medium-term fiscal framework. Thresholds for business profit
tax and VAT should be unified at a carefully designed level, consistent
with MTRS objectives. Setting the threshold too high for too long would
erode the tax base and undermine tax compliance. Furthermore, we reiterate
our advice against a possible tax amnesty, as it might undermine tax
compliance. Effective systems must be created first to detect tax evasion
and to prevent opportunities for money laundering and corruption.
“The Bank of Albania’s accommodative monetary policy remains appropriate.
Continued flexibility in the exchange rate will help absorb the shocks and
restore external balance. The banking system overall entered the pandemic
liquid and well-capitalized. However, its resilience will be tested and
pockets of vulnerabilities, including a likely rise of the still high stock
of NPLs, will need to be closely monitored, assessed, and managed.
Maintaining loan classification and provisioning rules is important for
appraising banks’ potential losses as accurately as possible. We support
prudent bank loan restructuring where necessary to sectors or firms heavily
affected by the shocks.
“We would like to thank our counterparts for open and fruitful discussions
and wish the government and people of Albania success in overcoming the
shocks.”
