Press Release No. 12/373

Press Release No. 12/373
October 2, 2012

An International Monetary Fund (IMF) staff team visited Tirana during September 19–October 2 to hold discussions on the annual review of Albania’s economy. The mission met with Prime Minister Sali Berisha, Finance Minister Ridvan Bode, Bank of Albania Governor Ardian Fullani, and other officials, as well as with representatives of the business community, labor unions, and international partners. At the end of the visit, Mr. Nadeem Ilahi, IMF mission chief for Albania, made the following statement:

“Since the onset of the global crisis in 2008, the Albanian economy has experienced only a modest growth slowdown, and broadly maintained banking system stability, thanks to timely policies and macroprudential actions. But the aftershocks of the crisis are slowing economic growth, and exacerbating domestic and external vulnerabilities.

“Growth is expected to slow in 2012, to 0.5 percent, and could rise modestly to 1.3 percent in 2013, as domestic demand begins to recover slowly. Risks to the outlook are mostly on the downside, as the economy remains vulnerable to external risks, particularly from the euro area crisis. Inflation is expected to remain in the low single digits. Monetary policy has helped anchor macroeconomic stability, but there could be limits to the effectiveness of further easing in the face of sluggish credit demand and bank risk aversion.

“Albania’s high public debt carries macroeconomic and fiscal risks. Tackling it requires a credible commitment to a medium term fiscal consolidation path. The 2013 budget should target an unchanged debt to GDP ratio. Consolidation would require raising revenues and reducing current spending, while supporting capital and targeted social spending. Receipts from privatization of natural resource wealth should be utilized primarily to lower debt, but also to clear unpaid government bills; the latter will aid near term economic activity.

“Albania’s banking system has weathered the crisis well, thanks, in part, to effective supervision. Banks rely on domestic deposits and exhibit high liquidity and capitalization. However, the problem of rising nonperforming loans needs to be addressed through better collateral execution and clearing up unpaid government bills.

“Strengthening property rights and contract enforcement would help improve the business environment and spur investment. More flexibility in formal employment would help tackle informal employment.”