IMF Executive Board Concludes 2020 First Post-Program Monitoring with Albania
IMF News, November 30, 2020
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- Published: November 30, 2020
Background and IMF Assistance
- Executive Board concluded the First Post-Program Monitoring review with Albania on November 23.
- Albania benefited from IMF emergency financial assistance "around US$190.5 million" disbursed under the Rapid Financing Instrument in April 2020 to meet urgent balance of payments needs from the November 2019 earthquake and the COVID-19 pandemic.
- The authorities’ response helped maintain macroeconomic and financial stability so far; Albania’s capacity to repay the Fund is described as adequate, but risks have risen.
Economic outlook and risks
- Short-term outlook:
- "The economy is expected to contract by 7½ percent in 2020 and rebound gradually in 2021-22 as the shocks subside and reconstruction spending picks up."
- "Inflation is expected to remain subdued before converging to the 3 percent target over the medium term."
- "The current account deficit is projected to widen to more than 10 percent of GDP in 2020, but international reserves are likely to increase slightly, remaining at a comfortable level."
- Main downside risks:
- Increasing COVID-19 infections in the fall could lead to a more severe pandemic with weaker tourism, remittances, external demand, and FDI, and tighter financial conditions.
- Large depreciation pressures could entail balance sheet risks because of unhedged foreign currency loans, though sizeable reserve coverage would mitigate this.
- Fiscal vulnerabilities: elevated public debt, large rollover needs, growing fiscal risks, and weaknesses in public financial management.
- Financial sector risks: relatively high level of non-performing loans (NPLs) and euroization.
Executive Board assessment and recommendations
- Directors commended authorities for maintaining macroeconomic and financial stability and for their emergency responses.
- Key assessment points:
- Albania’s capacity to repay the Fund is adequate, supported by sizeable reserve cover and a flexible exchange rate.
- Risks have risen from the pandemic, elevated fiscal deficits and public debt, weaknesses in public finances management, relatively high NPLs, and euroization.
- Considerable uncertainty and downside risks surround the projected recovery for 2021-22.
- Policy recommendations (summarized):
- Maintain contingency planning and be ready to take further measures to preserve macroeconomic and financial stability.
- Continue support for the economy in 2021, but ensure it is temporary, targeted, transparent, and accountable.
- Regularize extraordinary PFM measures taken during the emergency as soon as possible; subject reconstruction funds to adequate PFM controls.
- Use the cyclical boost to revenues to achieve a larger deficit reduction in 2021 than is consistent with the budget and to build a buffer for contingencies.
- Implement and adopt a sound medium-term revenue strategy without further delay; avoid frequent, ad hoc tax policy changes and tax amnesty schemes.
- Strengthen public financial management and manage increasing fiscal risks, including from public-private partnerships and recent government guarantees.
- Prevent new arrears and continue strengthening the AML/CFT framework.
- Safeguard financial stability while supporting borrowers: supervisors should closely monitor and manage risks, guide bank restructuring of credit portfolios, retain restrictions on dividend distributions to safeguard banks’ capital positions, improve the NPL resolution framework, and align the regulatory framework with international standards.
Selected economic indicators (as presented)
- Real GDP (annual growth rates and projections): 3.3; 3.8; 4.1; 2.2; -7.5; -5.0; 5.4; 8.0
- Domestic demand contribution: 3.1; 3.6; 3.9; 1.6; -5.8; -0.9; 4.0; 5.2
- Consumption: 2.0; 2.3; 2.4; 2.8; 0.0; 1.2
- Investment (Incl. inventories and stat. disc): 1.1; 1.3; 1.4; -1.2; 1.8
- External demand contribution: 0.2; 0.7; -1.6; -4.1
- Consumer Price Index (eop): 1.0; 2.6; 2.9
- GDP deflator: -0.6; 1.5; 0.4; 2.7
- Saving-investment balance / Foreign savings: 7.6; 7.5; 6.8; 10.6; 11.2; 8.3; 8.1
- National savings: 16.8; 17.1; 14.5; 12.1; 14.8; 15.4
- Public (savings component): 3.0; -3.6; -3.1; -2.1; -0.1
- Private (savings component): 15.3; 14.7; 14.2; 12.6; 15.7; 13.8; 17.0; 15.5
- Investment (incl. Inventories and stat. disc.): 24.4; 24.6; 23.9; 22.5; 22.7; 21.9; 23.1; 23.5
- Fiscal sector — Total revenue and grants: 27.6; 27.8; 27.5; 27.4; 25.3; 26.3; 26.9
- Tax revenue: 25.1; 25.7; 25.6; 25.4; 23.2; 24.7
- Total expenditure: 29.6; 29.7; 28.8; 29.4; 32.1; 31.7; 33.0; 29.9
- Primary (expenditure or balance items shown): 27.2; 27.7; 26.6; 27.3; 30.0; 30.8; 28.3
- Interest: 2.5; 2.1
- Overall balance 1/: -2.0; -1.3; -6.8; -5.4; -6.1
- Primary balance: 0.5; 0.1; 0.9; -4.7; -3.3; -4.0; -1.4
- Financing: -0.4; 6.1
- Of which: Domestic: -0.5; -1.5
- Of which: Foreign: 1.9; -2.5; 0.8
- General Government Debt 2/: 73.3; 71.9; 69.5; 67.8; 81.9; 75.6; 81.5; 70.7
- Domestic debt share: 39.1; 39.0; 37.3; 37.2; 42.2; 43.0; 41.7; 40.5
- External debt share: 34.3; 32.9; 32.2; 30.7; 39.8; 32.6; 30.2
- Monetary indicators — Broad money growth: 0.3; -0.2; 4.3; 6.2; -2.6; 10.9
- Private credit growth: -0.8; 4.9; 11.4
- Trade balance (goods and services): -16.8; -15.1; -13.7; -13.8; -15.5; -17.2; -14.1; -14.0
- Current account balance: -7.6; -8.0; -10.6; -11.2; -8.3; -8.1
- Gross international reserves (billions of Euros): 3.4; 3.5; 3.2
- Reserves (in months of imports of goods and services): 6.5; 6.6; 8.8; 7.8; 6.4
- Reserves (In percent of broad money): 31.5; 31.4; 33.2; 31.0; 30.1; 29.0
- Memorandum — Real GDP (growth per capita): -7.3; -4.9; 8.2
Notes from the publication:
- 1/ "The fiscal balance includes guarantees for new loans to the energy sector through 2019, and potential calls of COVID-19 related guarantees from 2021. The 2021 budget was adopted by the parliament after finalization of the staff report and is expected to result in a slightly lower fiscal balance of -6.3 percent of GDP."
- 2/ "The stock of general government debt includes arrears from central and local government."
- Definitions: Post-Program Monitoring (PPM) is a regular surveillance tool for countries with IMF credit outstanding above 200 percent of quota.
International Monetary Fund. Press Release No. 20/358, November 30, 2020.
