IMF Executive Board Concludes 2021 Article IV Consultation with Albania
IMF News, December 7, 2021
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- Published: December 7, 2021
Overview
- The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Albania on December 7, 2021.
- Albania was severely affected by the November 2019 earthquake and the COVID-19 pandemic.
- Real GDP is rebounding strongly by a projected 7.8 percent in 2021, supported by monetary and fiscal policy support, reconstruction, reduction in movement restrictions, strong electricity production due to favorable weather conditions in the first few months, and a relatively good tourism season.
- Headline inflation has risen on account of higher food and energy prices; core inflation has increased only modestly and broader inflationary pressures are subdued.
- The fiscal deficit widened sharply to 6.8 percent of GDP in 2020 and is expected to remain at that level in 2021.
- Public debt increased to 77.2 percent of GDP at end-2020 and is expected to increase further in 2021.
- The financial system has been stable and liquid and credit flows have continued to support the economy.
Economic Outlook and Projections
- 2021: Real GDP growth projected at 7.8 percent.
- From 2022 onwards:
- Economic activity expected to remain strong as the impact of the pandemic wanes and international tourism continues to recover.
- Growth will be tempered by the phasing out of fiscal support and reconstruction and the maturing of the recovery cycle.
- Medium-term growth projected to converge to potential of 3.4 percent, constrained by adverse demographic factors.
- Inflation: Temporary increases expected to recede by mid-2022; inflation expected to settle at the Bank of Albania’s 3 percent target in the medium run.
- General government debt projected to decline gradually from a peak of about 81 percent of GDP in 2021 to 74 percent of GDP in 2026, absent new shocks.
- Risks to the outlook:
- Downside: emergence of vaccine-resistant variants, localized outbreaks in Albania, potentially tighter global financial conditions, higher global energy prices.
- Upside: a faster normalization from the pandemic.
Executive Board Assessment and Policy Recommendations
- Directors commended the resilience of the Albanian economy after the 2019 earthquake and COVID-19 pandemic, attributing this to strong domestic policies and external support.
- Directors welcomed the strong rebound, but noted uncertainty around the outlook with risks tilted to the downside, including from the pandemic trajectory, low vaccination rates, and energy prices.
- Fiscal policy:
- Emphasized need to rebuild policy buffers through a credible revenue-based fiscal consolidation.
- Recommended a sound Medium-Term Revenue Strategy in line with staff recommendations.
- Urged reduction of low-efficiency spending and better targeting of fiscal support to those most in need.
- Stressed importance of strengthening the quality and transparency of public spending.
- Called to address shortcomings in managing public investment, including public-private partnerships, and to bolster credibility of the budget and fiscal framework.
- Recommended more concerted efforts to monitor and manage rising fiscal risks.
- Urged prompt implementation of transparency and accountability measures for emergency spending and subjecting reconstruction funds to adequate public financial management controls.
- Monetary policy:
- Supported maintaining monetary accommodation.
- Any shift towards tightening should be based on clear indications of broadening and persistent inflationary pressures.
- Welcomed authorities’ commitment to let the exchange rate act as a shock absorber.
- Financial sector:
- Noted the financial sector remains stable and liquid, but full impact on banks’ balance sheets is yet to be fully observed.
- Recommended continued vigilance in monitoring and supervision, close monitoring of banks’ loan portfolio quality, preserving capital buffers, and strengthening NPL resolution frameworks.
- Advised close attention to potential buildup of vulnerabilities from the real estate sector and virtual assets.
- Structural reforms:
- Urged steadfast efforts to address structural impediments to growth.
- Called for completion of judicial reforms and continued efforts to strengthen Albania’s AML/CFT framework and exit from FATF’s grey list.
- Welcomed work underway to update the anticorruption strategy and action plan.
- Fund repayment capacity:
- Directors agreed that Albania’s capacity to repay the Fund is adequate and risks remain contained and manageable.
Key Fiscal and Debt Statistics
- Fiscal deficit:
- 2020: Overall balance (fiscal deficit) widened sharply to 6.8 percent of GDP.
- 2021: Fiscal deficit expected to remain at 6.8 percent of GDP.
- Public debt:
- End-2020: Public debt increased to 77.2 percent of GDP.
- 2021: Public debt projected to peak at about 81 percent of GDP.
- 2026: General government debt projected to decline to 74 percent of GDP, absent new shocks.
- Fiscal sector (selected lines, percent of GDP):
- Total revenue and grants: 2020 = 26.3; 2021 = 27.4; 2022 = 27.6.
- Total expenditure: 2020 = 33.2; 2021 = 34.2; 2022 = 33.0.
- Primary balance (selected years): 2019 = 31.0; 2020 = 31.9; 2021 = 30.8.
- Financing:
- Financing (aggregate): 5.4.
- Of which: Domestic = -1.6; 2.5; 0.4. Of which: Foreign = 1.9; 2.9; 6.3.
- Note: The fiscal balance includes guarantees for new loans to the energy sector through 2019 and from 2021, and potential calls of COVID-19 related guarantees from 2021.
- Note: The stock of general government debt includes public guarantees (domestic and external) and arrears from central and local government and VAT refund arrears.
- Note: The 2021 SDR allocation of $190 million is recorded with the government, increasing both the TSA balance and government external debt.
Key Real and External Sector Indicators (selected)
- Real sector:
- Real GDP growth: 2017 = 3.8; 2018 = 4.0; 2019 = 2.1; 2020 = -4.0; 2021 (Proj.) = 7.8.
- Domestic demand contribution: 2017 = 3.6; 2018 = 3.9; 2019 = 2.2; 2020 = -4.6; 2021 = 7.7; 2022 = 3.5.
- Consumption: 2017 = 2.3; 2018 = 2.4; 2019 = 2.7; 2020 = -1.5; 2021 = 6.5; 2022 = 3.3.
- Investment (Incl. inventories and stat. disc): 2017 = 1.3; 2018 = 1.5; 2019 = -0.5; 2020 = -3.1; 2021 = 1.2; 2022 = 0.2.
- Prices:
- Consumer Price Index (eop): 2017 = 1.8; 2018 = 1.1; 2019 = 2.8; 2020 = 2.0; 2021 = (figure not listed for eop in source table).
- External sector (percent of GDP unless indicated):
- Trade balance (goods and services): 2017 = -15.1; 2018 = -13.7; 2019 = -13.6; 2020 = -14.8; 2021 = -14.3.
- Current account balance: 2017 = -7.5; 2018 = -7.6; 2019 = -8.8; 2020 = -8.4; 2021 = -8.0.
- Gross international reserves (billions of Euros): 2017 = 3.4; 2018 = 4.1.
- Gross international reserves (in months of imports of goods and services): 2017 = 6.2; 2018 = 6.6; 2019 = 8.1; 2020 = 8.2.
- Reserves (in percent of ARA metric): 2017 = 156; 2018 = 182; 2019 = 174; 2020 = 188; 2021 = 176; 2022 = 164.
- Monetary indicators:
- Broad money growth: 2017 = 4.3; 2018 = 10.5; 2019 = 9.1; 2020 = 4.2.
- Private credit growth: 2017 = -0.8; 2018 = -0.9; 2019 = 6.1; 2020 = 8.9.
Selected Balance and Structural Notes
- Saving-investment balance / Foreign savings (percent of GDP): 2017 = 7.5; 2018 = 6.8; 2019 = 7.6; 2020 = 8.8; 2021 = 8.4; 2022 = 8.0.
- National savings (percent of GDP): 2017 = 17.1; 2018 = 14.7; 2019 = 14.2; 2020 = 14.5.
- Investment (incl. Inventories and stat. disc.) (percent of GDP): 2017 = 24.6; 2018 = 23.9; 2019 = 22.3; 2020 = 23.0; 2021 = 22.9.
- Exchange rate Lek/Euro (avg.): 2017 = 134.2; 2018 = 127.6; 2019 = 123.0; 2020 = 123.8.
- Output gap and Real GDP growth per capita entries are present in the source table but numeric values are not provided in the excerpt.
Source: IMF Press Release No. 21/363 — IMF Executive Board Concludes 2021 Article IV Consultation with Albania (December 7, 2021).