IMF Staff Concludes a Remote Staff Visit to Albania

IMF News, June 11, 2021

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Mission conducted remotely during June 7-11 and led by Ms. Yan Sun.
Statement notes: "An economic recovery is underway, albeit subject to considerable uncertainty over the evolution of the pandemic."
Albania’s economic activity in 2020 "contracted by much less than originally expected," reflecting stronger domestic and regional tourism, policy support and earthquake reconstruction, as well as the absence of a second lockdown.
Growth for 2021 is projected to rebound to 5.3 percent "on the back of the recovery of pandemic-affected sectors and continued earthquake reconstruction."
Headline inflation has increased on higher international commodity prices but is "still well below the Bank of Albania’s (BoA) target and inflationary pressures have remained subdued."

Near-term fiscal policy should "continue to support the recovery through temporary and well-targeted measures subject to transparency and accountability."
Recommend scaling back "the overly ambitious domestically-financed public investment" to protect priority spending on social protection, healthcare (notably vaccination), and earthquake reconstruction, and to increase contingency buffers.
The 2021 primary deficit target is Lek 65 billion (about 3.8 percent of GDP) and is judged to "provide ample support to the economy."
Guidance on additional stimulus: "Additional stimulus should only be considered in case the expected recovery suffers major setbacks."
Treatment of windfalls: "Any windfall revenues should be saved."
Medium-term fiscal stance: planned policy initiatives should be "consistent with moving toward a positive fiscal primary balance by 2023 and be supported by a credible medium-term budget framework."
Specific reform recommendation: "A sound Medium-Term Revenue Strategy should be adopted and implemented as soon as possible."

Priority reforms to pursue with greater vigor:
- improving public investment management;
- enhancing monitoring and management of rising fiscal risks, notably from private-public partnerships, state-owned enterprises, and government guarantees.
Post-earthquake procurement and reconstruction controls:
- While restrictive tender procedures were "warranted in the immediate aftermath of the earthquake," these should cease.
- Reconstruction funds should be "subject to adequate public financial management controls."

Support for the BoA’s accommodative monetary policy stance: "inflationary pressures remain subdued and inflation expectations well anchored."
Banking system assessment: "The banking system has remained liquid and stable."
Supervision and asset quality:
- Continued vigilance is required, with particular attention to restructured loans, to enable early detection of any buildup of vulnerabilities.
- The BoA's decision to end the temporary relaxation of loan classification and provisioning rules is "welcome in this regard."
- To preserve banks’ capital buffers "until the full impact of the pandemic on their asset quality is known," the BoA should "continue to restrict the distribution of bank dividends."

The statement notes: "This mission will not result in a Board discussion."
The IMF team "would like to thank the Albanian authorities and our other counterparts for the excellent discussions and collaboration."

IMF Staff Concludes a Remote Staff Visit to Albania — June 11, 2021