IMF Executive Board Concludes 2024 Article IV Consultation with Albania

IMF News, January 27, 2025

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The Executive Board concluded the Article IV consultation on January 17, 2025.
The Albanian economy has turned in a strong performance in recent years, underpinned by prudent macroeconomic policies.
Output is now well above its pre-pandemic trend thanks to a booming tourism sector.
Prudent fiscal policies contributed to a remarkable reduction in public debt.
Proactive monetary policy, falling global commodity prices, and lek appreciation have facilitated disinflation.
External imbalances have shrunk considerably.

Real GDP growth: 3.9 percent in 2023; projected to average around 3½ percent in 2024–2029, driven by domestic consumption, tourism, and construction activity.
End-of-year inflation in 2024 is expected at around 2 percent, below the Bank of Albania’s (BoA) 3 percent target.
Base effects from a significant month-on-month drop in early 2024 will temporarily push up inflation in the first half of 2025.
A sustained return to target is not expected before 2026, given the high degree of inertia in the inflation process in Albania.

The authorities are expected to outperform their 2024 budget target.
Primary surplus (projected): around 0.5 percent of GDP in 2024, marginally higher than the 0.3 percent of GDP budget target.
The 2025 budget aims for a zero primary balance.
Public debt ratio: expected at around 56 percent at end-2024; expected to decline to around 50 percent in 2029 and assessed to be sustainable over the medium-term.
Directors recommended maintaining a modest annual primary surplus alongside continued efforts to strengthen debt management.
Emphasis on sustained revenue administration and tax policy reforms to address rising spending needs.
Public investment and fiscal risk management reforms—especially related to state‑owned enterprises and public‑private partnerships—are critical to fiscal transparency.

Systemic vulnerabilities appear broadly contained.
The banking sector remains well-capitalized and liquid with average prudential ratios well above regulatory requirements.
Sources of risk: banks’ large-borrower and sovereign exposures; rapid expansion of banks’ lending to the real estate sector.
Real estate sector: continued price increases and accounts for two-thirds of unhedged FX loans.
Directors urged continued supervisory vigilance, strict regulatory compliance, greater alignment with EU standards, and enhancement of the macroprudential toolkit.
Recommended actions include deepening financial markets and improving oversight of non‑bank financial institutions.

Considerable structural challenges remain despite the upbeat macro picture.
GDP per capita stands at just around a quarter of the U.S. and EU-15 levels, amid rapid aging and emigration.
Priority reforms urged by Directors:
- Enhance governance and public financial management frameworks.
- Boost human capital and productivity.
- Foster global value chain integration and remove barriers to firm growth.
- Promote access to bank lending.
- Update education and training programs and advance the digital agenda.
- Boost female labor force participation.
- Diversify renewable energy sources.
- Continue infrastructure investments and implement governance reforms, including the 2024–30 Anticorruption Strategy and further implementation of AML/CFT international standards.

Directors welcomed Albania’s recent strong economic performance and booming tourism.
Outlook seen as favorable with broadly balanced risks, but structural challenges highlighted: rapid population aging, emigration, low productivity, and governance shortcomings.
Monetary policy: continued data‑dependent approach recommended.
- Sustained lek appreciation assessed as largely driven by fundamentals; exchange rate should be allowed to adjust more flexibly.
- Intervention should be complementary to address non‑fundamental fluctuations.
- Carefully weigh costs and benefits of further reserve accumulation.
Financial sector: maintain supervisory vigilance and enhance resilience through regulatory alignment and macroprudential measures.
Reforms to maximize EU accession gains and accelerate convergence were emphasized.

Notes:
- 1/ Public debt refers to the general government and includes all public domestic and external guarantees as well as arrears from central and local government and VAT refund arrears.
- 2/ The 2021 SDR allocation equivalent at present to $170 million is recorded with the Bank of Albania and is used as a credit line.

IMF Executive Board Concludes 2024 Article IV Consultation with Albania (Press Release No. 25/016), January 27, 2025.