IMF Staff Concludes a Remote Staff Visit to Albania

IMF News, July 1, 2020

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Press Release No. 20/252
Date: July 1, 2020
An IMF team, led by Ms. Yan Sun, conducted remotely a staff visit to Albania during June 25-July 1.
End-of-Mission press releases convey preliminary findings; the views are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.
IMF Communications Department contact: PRESS OFFICER: Gediminas Vilkas; Phone: +1 202 623-7100; Email: MEDIA@IMF.org

“The near-term outlook for the Albanian economy remains challenging, reflecting the significant impacts from the November 2019 earthquake and the COVID-19 pandemic.”
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 dependence on tourism and remittances is an amplifying factor for the downturn.

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 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.”
- Authorities are “strongly encourage[d] … 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.”
Support measures for people and firms should be:
- Temporary
- Targeted
- Transparent
- Embedded in a credible and prudent medium-term fiscal framework

The IMF staff “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.”
Recommendations regarding thresholds and tax policy:
- “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.”
- The staff “reiterate [their] 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.”
Banking system assessment:
- The banking system “overall entered the pandemic liquid and well-capitalized.”
- 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.”
- The IMF staff “support prudent bank loan restructuring where necessary to sectors or firms heavily affected by the shocks.”

The mission head expressed appreciation: “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.”

IMF Press Release No. 20/252, July 1, 2020

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