Press Release No. 21/172

IMF Staff Concludes a Remote Staff Visit to Albania

June 11, 2021

• An economic recovery is underway, albeit subject to considerable uncertainty over the evolution of the pandemic.
• Fiscal policy in 2021 provides adequate support to the economy. New spending initiatives by the authorities should be underpinned by revenue-enhancing measures that are consistent with a credible medium-term fiscal consolidation, so as to rebuild room for fiscal policy maneuver.
• Monetary policy should remain accommodative given that inflationary pressures remain subdued and inflation expectations are well anchored. Banks’ capital buffers need to be preserved until the pandemic’s full impact on their asset quality is known.

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.”