## Press Release: IMF Executive Board Concludes 2013 Article IV Consultation with Albania

_IMF News, March 19, 2014_

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## Bibliographic details
- Published: March 19, 2014

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### Economic performance and outlook
- Albania avoided recession after the global crisis but has experienced protracted weakness and widening macroeconomic imbalances.
- Real GDP growth:
  - 2013: 0.7 percent (the lowest in more than a decade).
  - 2009–2012: 3.3, 3.8, 3.1, 1.3 percent respectively.
- Inflation:
  - Remained low and largely within the central bank’s 2–4 percent target range.
  - Consumer Price Index (avg.): 2.3 (2009), 3.5 (2010), 3.4 (2011), 2.0 (2012), 1.9 (2013 (Est.)).
  - Consumer Price Index (eop): 3.7 (2009), 1.7 (2010), 2.4 (2011).
- External sector:
  - Current account balance (including official transfers): -14.1 (2009), -10.0 (2010), -9.6 (2011), -9.3 (2012), -9.0 (2013 (Est.)) percent of GDP.
  - Trade balance (goods and services): -24.7 (2009), -20.9 (2010), -23.1 (2011), -19.0 (2012), -17.1 (2013 (Est.)) percent of GDP.
  - External adjustment has started due to oil exports and import compression, but weak external drivers limit sustained reduction.

### Drivers of slowdown and constraints
- Contributing factors:
  - Weak investor confidence.
  - Bank risk aversion.
  - Incomplete investment climate reforms.
- Financial and credit conditions:
  - Private credit growth: 10.3 (2009), 10.4 (2010), -3.0 (2011).
  - Broad money growth: 12.5 (2009), 9.1 (2010), 5.0 (2011), 2.9 (2012).
  - Banks rely almost exclusively on domestic deposits, supporting resilience to eurozone stress.
  - Non-performing loans (NPLs) have increased considerably, constraining credit growth and pressuring bank profitability.

### Fiscal position and public debt
- Fiscal deterioration in 2013 driven by:
  - Fiscal loosening prior to the 2013 elections.
  - Accumulation of significant unpaid bills and arrears.
  - Weak economy and structural factors (notably pensions).
- Fiscal balances and ratios:
  - Revenues and grants: 26.0 (2009), 26.1 (2010), 24.9 (2011), 24.0 (2012), 20.1 (2013 (Est.)) percent of GDP.
  - Tax revenue: 23.6 (2009), 23.7 (2010), 22.7 (2011), 21.6 (2012).
  - Expenditures: 33.5 (2009), 29.9 (2010), 29.3 (2011), 28.4 (2012), 30.1 (2013 (Est.)) percent of GDP.
  - Overall balance: -7.4 (2009), -3.8 (2010), -3.6 (2011), -3.5 (2012), -6.2 (2013 (Est.)) percent of GDP.
  - Primary balance: -4.3 (2009), -0.4 (2010), -0.3 (2011), -2.9 (2012).
  - Net domestic financing: 1.4 (2009), 5.4 (2010).
  - Public debt: 59.5 (2009), 58.5 (2010), 60.3 (2011), 62.4 (2012), 70.5 (2013 (Est.)) percent of GDP.
  - Domestic public debt: 36.1 (2009), 33.3 (2010), 34.2 (2011), 35.5 (2012), 43.7 (2013 (Est.)) percent of GDP.
  - Unpaid bills and arrears (part of domestic debt): 5.3 percent of GDP (latest available).
- Memorandum:
  - Nominal GDP (in billions of lek): 1148.1 (2009), 1222.5 (2010), 1282.3 (2011), 1326.5 (2012), 1357.9 (2013 (Est.)).

### Authorities’ program and IMF support
- The authorities requested IMF financial assistance to:
  - Reverse the upward trend in public debt and lay the ground for its sustained reduction.
  - Restore banks’ confidence in lending by bringing down NPLs.
  - Ease constraints on growth through ambitious structural reforms (pensions, energy, public administration, business environment).
- The program will be supported by an IMF arrangement under the Extended Fund Facility.

### Executive Board assessment and policy recommendations
- Overall appraisal:
  - Directors commended measures to restore fiscal sustainability, safeguard financial stability, and improve the investment climate.
  - Noted significant risks from underlying imbalances and called for strong and lasting commitment.
- Fiscal policy recommendations:
  - Aim to lower the public debt ratio to below 60 percent of GDP in the medium term.
  - Implement significant further tax and expenditure policy measures, supplementing steps taken in late 2013 and in the 2014 budget.
  - Support consolidation with extensive public financial management and tax administration reforms.
  - Adopt a medium-term budget framework or fiscal rule to anchor commitment to the debt target.
  - Place the burden of fiscal adjustment primarily on revenues, given development needs and the low share of revenues in GDP.
  - Include pension and energy reforms as key parts of medium–term adjustment.
  - Reduce the outstanding stock of arrears and establish mechanisms to prevent recurrence; proceed cautiously with payments and employ an external auditor promptly to conduct ex post risk-based audits.
- Monetary and exchange rate policy:
  - Commended maintenance of low inflation under inflation-targeting framework.
  - Saw scope for moderate monetary policy easing to support recovery, provided inflation expectations and financial stability remain well anchored.
  - Cautioned that further easing could increase risks from high unhedged foreign currency exposure and may be limited by sluggish credit demand and bank risk aversion.
  - Encouraged removal of exchange restrictions as soon as possible.
- Financial sector measures:
  - Urged prompt and comprehensive action to address rising NPLs to boost bank profitability and credit growth.
  - Recommended removing impediments to collateral execution and loan restructuring, and clearing arrears.
  - Advised strengthening regulation and supervision of the nonbank financial system, in line with recommendations from the Financial Sector Assessment Program.

### Key macroeconomic indicators (selected)
- Real GDP growth (percent): 3.3 (2009); 3.8 (2010); 3.1 (2011); 1.3 (2012); 0.7 (2013 (Est.))
- Consumer Price Index (avg.): 2.3 (2009); 3.5 (2010); 3.4 (2011); 2.0 (2012); 1.9 (2013 (Est.))
- Current account balance (including official transfers, percent of GDP): -14.1 (2009); -10.0 (2010); -9.6 (2011); -9.3 (2012); -9.0 (2013 (Est.))
- Public Debt (percent of GDP): 59.5 (2009); 58.5 (2010); 60.3 (2011); 62.4 (2012); 70.5 (2013 (Est.))
- Overall balance (percent of GDP): -7.4 (2009); -3.8 (2010); -3.6 (2011); -3.5 (2012); -6.2 (2013 (Est.))
- Gross international reserves (in months of imports of goods and services): 4.1 (2009); 4.4 (2010); 4.5 (2011)

*Press Release No. 14/109 — IMF COMMUNICATIONS DEPARTMENT, March 19, 2014. Executive Board discussion concluded February 28, 2014.*

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## References

- [Albania and the IMF](http://www.imf.org/external/country/alb/index.htm)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [see Press Release No. 14/81](https://www.imf.org/external/np/sec/pr/2014/pr1481.htm)
- [http://www.imf.org/external/np/sec/misc/qualifiers.htm](https://www.imf.org/external/np/sec/misc/qualifiers.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr14109_