IMF Executive Board Concludes 2023 Article IV Consultation with Albania
IMF News, January 12, 2024
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Bibliographic details
- Published: January 12, 2024
Economic performance and outlook
- Real GDP growth: close to 5 percent in 2022; projected at 3.6 percent in 2023 and 3.3 percent in 2024.
- Growth drivers: strong rebound in tourism, robust private consumption, services, and construction activity; tourist arrivals and electricity production in the first ten months of 2023 are more than one-third above the levels recorded during the same period last year.
- Recent growth: Real GDP grew by around 3¼ percent y/y in Q2 2023 following robust growth in Q1 2023.
- Inflation: peaked at around 8 percent; hovering around 4 percent in 2023; expected to revert gradually to the 3 percent target by early 2025.
- Risks: heightened geopolitical tensions, weather-related energy sector shocks, sudden reversal of exchange rate appreciation, and more persistent inflation.
Fiscal policy and public debt
- Assessment: a meaningful revenue-based fiscal consolidation starting in 2024 is critical to build fiscal space for future countercyclical policy.
- Recommended measures: additional frontloaded cumulative net fiscal measures of around 1½ percent of GDP would bring public debt on a clear downward path and lower gross financing needs.
- Consolidation composition: through a sound revenue mobilization strategy, coupled with efficiency gains and reallocation of resources to infrastructure, education, and climate adaptation.
- Debt management: continue to lengthen debt maturities and reduce reliance on floating rate debt.
- Governance and contingent liabilities: concrete advances on fiscal reforms that enhance governance and oversight of SOEs, including in the energy sector, and PPPs are key to safeguarding fiscal sustainability.
Monetary policy and exchange rate
- Monetary stance: Bank of Albania appropriately resumed monetary tightening in November 2023; returning inflation to target will likely require some further increases in the policy rate.
- Policy-rate guidance: a gradual increase of the policy rate to a broadly neutral stance—estimated at around 4½ percent—should help allow inflation return to target by early 2025.
- Rate-setting approach: uncertainty around the inflation path remains high and a flexible meeting-by-meeting approach to rate-setting is appropriate.
- Exchange rate regime: a flexible exchange rate should remain the first line of defense against external shocks; vigilance is needed given potential for a sudden reversal.
- Macroprudential and de-euroization measures: enhance preemptive macroprudential policies, including differential LTV and DTI requirements for domestic and FX loans; further de-euroization efforts, supported by government action to promote the use of local currency as the legal tender.
Financial sector resilience and supervision
- System resilience: banking system overall appears more resilient, but some pockets of vulnerabilities exist.
- Recommendations: strengthen the capital positions of some banks, prudent provisioning, focused asset quality reviews.
- Countercyclical buffer: over the medium-term, a positive neutral countercyclical capital buffer rate could be considered to support financial stability.
- Regulatory alignment: further progress on aligning supervision and regulation with EU standards, operationalizing insolvency and resolution frameworks, strengthening governance, and deepening capital markets to support durable credit growth.
Structural challenges and reform priorities
- Key impediments to productivity and living standards: widespread informality; weaknesses in governance and the rule of law; significant gender gaps in labor force participation; high youth inactivity; infrastructure gaps.
- Demographic and labor risks: high emigration rate of workers and population aging pose additional threats to growth.
- EU accession opportunity: seize momentum of EU enlargement to address long-standing structural challenges.
- Justice and AML/CFT: judicial reforms should be complemented by increased efficiency to address the backlog in cases; sustain robust commitment to AML/CFT reforms and best practices following exit from FATF’s list of countries under increased monitoring.
- Labor participation: addressing gaps in youth and female labor force participation will help lift potential growth.
- Implementation: adequate budget resources and monitoring mechanisms are needed to ensure reform efforts translate into better outcomes.
Executive Board decision
- The Executive Board concluded the 2023 Article IV consultation with Albania and considered and endorsed the staff appraisal without a meeting on a lapse-of-time basis.
- It is proposed that the next Article IV consultation be held on the standard 12-month cycle.
Albania: Selected Economic Indicators (as presented)
- Population: 2.8 million (2022)
- Per capita GDP ($): 6743 (2022)
- Life expectancy (years): 76.5 (2022)
- Literacy rate: 99% (2022)
- Nominal GDP ($bn): 18.9 (2022)
- Poverty rate: 25.2% (2022)
- Quota: SDR 139.3 million (0.03 percent of total)
- Output (Real GDP growth %): 2020: -3.3; 2021: 8.9; 2022: 4.8; 2023 Proj.: 3.6; 2024 Proj.: 3.3
- Output gap (%): 2020: -5.8; 2021: -0.4; 2022: 1.0; 2023 Proj.: 0.8; 2024 Proj.: 0.5
- Employment (Unemployment rate %): 2020: 11.7; 2021: 11.4; 2022: 11.1; 2023 Proj.: 11.0
- Prices (Inflation %, average): 2020: 1.6; 2021: 2.0; 2022: 6.7; 2023 Proj.: 4.0
- Prices (Inflation %, end-period): 2020: 1.1; 2021: 3.7; 2022: 7.4; 2023 Proj.: 3.8
- General government finances (Revenues % GDP): 2020: 25.9; 2021: 27.5; 2022: 26.8; 2023 Proj.: 28.0; 2024 Proj.: 27.4
- General government finances (Expenditures % GDP): 2020: 32.6; 2021: 32.1; 2022: 30.4; 2023 Proj.: 30.2; 2024 Proj.: 29.9
- Fiscal balance (% GDP): 2020: -6.7; 2021: -4.6; 2022: -3.7; 2023 Proj.: -2.2; 2024 Proj.: -2.5
- Public debt (% GDP) 1/ 2/: 2020: 75.8; 2021: 75.2; 2022: 65.5; 2023 Proj.: 61.1; 2024 Proj.: 60.4
- Primary balance (% GDP): 2020: -2.7; 2021: -1.8; 2022: 0.0; 2023 Proj.: 0.2
- Money and credit (Broad money % change): 2020: 10.5; 2021: 8.6; 2022: 5.2; 2023 Proj.: 6.4
- Money and credit (Credit to the private sector % change): 2020: 7.0; 2021: 4.3
- Policy rate (%, end-period): 2020: 2.8
- Balance of payments (Current account % GDP): 2020: -8.7; 2021: -7.7; 2022: -6.0; 2023 Proj.: -3.5; 2024 Proj.: -4.4
- Balance of payments (FDI % GDP): 2020: -6.5; 2021: -6.6; 2022: -7.1; 2023 Proj.: -7.2
- Reserves (months of imports): 2020: 9.6; 2021: 8.8; 2022: 6.9; 2023 Proj.: 6.5; 2024 Proj.: 6.1
- External debt (% GDP): 2020: 64.2; 2021: 64.3; 2022: 54.3; 2023 Proj.: 51.5; 2024 Proj.: 48.7
- Exchange rate (REER % change): 2020: 0.6; 2021: -0.5
Executive Board of the International Monetary Fund press release, January 12, 2024.
