Washington, DC: An International Monetary Fund (IMF) team, led by Ms. Yan Sun, conducted a
staff visit remotely with Albania during June 7-11. At the conclusion of
the mission, Ms. Sun issued the following statement:
“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. In 2021 growth is projected to rebound to 5.3 percent on
the back of the recovery of pandemic-affected sectors and continued
earthquake reconstruction. However, uncertainty over the growth outlook
remains considerable. 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.
“
In the near term, fiscal policy needs to continue to support the
recovery through temporary and well-targeted measures subject to
transparency and accountability. It would be advisable to scale 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. In this context, the 2021 primary deficit target of Lek 65
billion (about 3.8 percent of GDP) provides ample support to the
economy. Additional stimulus should only be considered in case the
expected recovery suffers major setbacks. Any windfall revenues should
be saved. To help rebuild room for fiscal policy maneuver once the
recovery is on a firm path, planned policy initiatives by the Albanian
authorities should be consistent with moving toward a positive fiscal
primary balance by 2023 and be supported by a credible medium-term
budget framework.
“A sound Medium-Term Revenue Strategy should be adopted and implemented as
soon as possible. Moving ahead with this long-standing reform should also
help to generate necessary resources to achieve Albania’s developmental
goals. Other priority reforms that should be pursued with greater vigor
include improving public investment management and enhancing monitoring and
management of rising fiscal risks, notably from private-public
partnerships, state-owned enterprises, and government guarantees. Finally,
while warranted in the immediate aftermath of the earthquake, the use of
restrictive tender procedures for reconstruction should cease and
reconstruction funds be subject to adequate public financial management
controls.
“We support the BoA’s accommodative monetary policy stance, as inflationary
pressures remain subdued and inflation expectations well anchored. The
banking system has remained liquid and stable. Continued vigilance, with a
particular attention to restructured loans, will be key to the 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.
“We would like to thank the Albanian authorities and our other counterparts
for the excellent discussions and collaboration.”
