Press Release: IMF Approves Emergency Post Conflict Assistance for Albania

IMF News, November 7, 1997

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Press Release: IMF Approves Emergency Post Conflict Assistance for Albania

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Bibliographic details

• Published: November 7, 1997

Summary of Action

• The International Monetary Fund (IMF) approved a credit for Albania equivalent to SDR 8.825 million (about US$12 million) under the IMF’s emergency post conflict assistance to support the government’s economic program for 1997-98.
• Press Release No. 97/51, November 7, 1997.

Background: 1993–1997 economic trajectory and crisis

• Exceptional progress in 1993-95:
  • Annual GDP growth averaged 9 percent.
  • Inflation fell from triple digits to 6 percent.
  • External imbalances were reduced sharply.
  • Early privatization in agriculture, retail trade, and small and medium-sized enterprises contributed to strong supply response.
  • Financial discipline at the budgetary and state enterprise level supported stabilization.
• Deterioration in 1996 and early 1997:
  • Transition stalled in 1996.
  • Election-driven policies raised the budget deficit to 10 ½ percent of GDP.
  • Annual inflation tripled.
  • Financial pyramid schemes grew to liabilities, including accrued interest at unrealistically high rates, equivalent to nearly half of GDP.
  • In March 1997, Albania descended into anarchy and near civil war.
  • Economic fallout: massive supply disruptions reduced output in construction and industry; loss of wealth in failed financial schemes depressed domestic demand.

The 1997-98 Program: macroeconomic objectives and policy measures

• Primary macroeconomic goal: rapid disinflation and resumption of growth for 1997-98.
• Key macroeconomic objectives:
  • Limit the decline of real GDP to 8 percent in 1997 and achieve real growth of about 12 percent in 1998.
  • Contain the annual inflation rate to the range of 51-54 percent in 1997, and bring it down to 15- 20 percent in 1998.
  • Keep gross international reserves above the equivalent of 3.5 months of imports through 1998.
• Fiscal policy targets and instruments:
  • Limit the domestically financed budget deficit to about 13 percent of GDP in 1997, and to below 10 percent of GDP in 1998.
  • Measures to achieve fiscal targets:
  • Restore and then improve tax collection.
  • Raise tax rates, including a significant increase in the VAT rate.
  • Exercise expenditure restraint, including a rationalization of the civil service.
• Monetary policy:
  • The Bank of Albania will support inflation reduction by maintaining an appropriately tight monetary stance.

Structural Reforms (planned under the program)

• Progress toward privatization or liquidation of two of the three state-owned commercial banks.
• Winding up the companies that operated pyramid schemes.
• Civil service reform.
• Resumption of enterprise privatization.
• Creation of a functioning agricultural land market.

Addressing Social Needs

• Acknowledgement of severe impoverishment resulting from the crisis.
• Medium-term poverty alleviation based on achieving high sustainable growth driven by private sector development.
• Short-term measures:
  • Temporary support targeted toward the poorest families.
  • Accelerate disbursements of social assistance.
  • Introduce public works/community service schemes for social assistance beneficiaries who can work.
  • Priority attention in the next few months to severe shortages in pharmaceuticals, surgical goods and materials, and equipment for public health services.

The Challenge Ahead: risks and external support needs

• Main risks to the program:
  • Limited, albeit improving, capacity of the authorities to formulate and implement macroeconomic and structural measures.
  • Difficulty of projecting key economic variables in uncertain circumstances.
• Required responses:
  • Strong commitment of the authorities to policy implementation.
  • Substantial technical assistance in a broad range of areas.
• External position and arrears:
  • Albania’s balance of payments position will remain difficult during the remainder of 1997 and 1998.
  • Over the longer term, Albania will continue to require substantial external support.
  • Arrears to Russia and non-Paris Club official bilateral creditors will need to be reconciled and rescheduled.

Albania: Selected Economic Indicators (as presented)

• Real GDP (Percent change):
  • 1994: 9.4
  • 1995: 8.9
  • 1996: 9.1
  • 1997*: -8.0
  • 1998*: 12.0
• Retail Prices (End of period):
  • 1994: 15.8
  • 1995: 6.0
  • 1996: 17.4
  • 1997*: 51-54.0
  • 1998*: 15-20.0
• Domestically financed fiscal deficit (Percent of GDP):
  • 1994: -7.0
  • 1995: -6.3
  • 1996: -10.5
  • 1997*: -13.2
  • 1998*: -9.7
• External current account balance, excluding official transfers (deficit-) (Percent of GDP):
  • 1994: -14.3
  • 1995: -7.5
  • 1996: -9.2
  • 1997*: -8.9
  • 1998*: -14.0
• Gross official reserves (Months of imports):
  • 1994: 3.2
  • 1995: 3.5
  • 1996: 3.1
  • 1997*: 5.0
• Sources: Albanian authorities; and IMF staff estimates and projections.
• Note: * Projections.

IMF Membership and Quota Information

• Albania joined the IMF on October 15, 1991.
• Albania’s quota is SDR 35.3 million (about US$49 million).
• Its outstanding use of IMF financing currently totals SDR 32 million (about US$45 million).

Press Release No. 97/51, November 7, 1997 — International Monetary Fund.

References

• Albania and the IMF
• Russian Federation and the IMF
• Press Releases
• PRESS CENTER
• https://www.imf.org/en/home