{
  "title": "Albania: IMF Executive Board Concludes First Post-Program Monitoring",
  "publication": "IMF News, May 22, 2018",
  "sourceUrl": "https://www.imf.org/en/news/articles/2018/05/21/pr18188-albania-imf-executive-board-concludes-first-post-program-monitoring",
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  "summary": "The Executive Board concluded the First Post-Program Monitoring review for Albania on May 18, 2018, and considered and endorsed the Staff Appraisal on a lapse-of-time basis.",
  "publishDate": "2018-05-22",
  "sections": [
    {
      "heading": "Executive Board conclusion",
      "content": "- The Executive Board concluded the First Post-Program Monitoring review for Albania on May 18, 2018, and considered and endorsed the Staff Appraisal on a lapse-of-time basis.\n- Albania’s capacity to repay the Fund is assessed as adequate based on a strong record of repaying the Fund, relative macroeconomic stability, and progress in reforms."
    },
    {
      "heading": "Economic overview and recent performance",
      "content": "- Real GDP growth: 3.8 percent (yoy) during 2017.\n- Drivers of growth: strong domestic demand driven by a revival in construction, recovery in the labor market and household credit, and large energy-related FDI projects.\n- Public debt to GDP: declined in 2017, but fiscal consolidation pace has slowed post-program with arrears accumulating.\n- Current account deficit: narrowed to 6.9 percent of GDP in 2017, supported by tourism and other services exports.\n- FX reserves: level remains comfortable.\n- Inflation: low.\n- Credit: credit growth is weak.\n- Banking sector: banks are liquid and stable."
    },
    {
      "heading": "Risks and vulnerabilities",
      "content": "- Principal risks identified:\n  - High public debt.\n  - Non-performing loans (NPLs) in the financial sector.\n  - Weaknesses in public institutions and the judicial system.\n  - Potential slowdown in reforms or spillovers from external shocks that could undermine growth, confidence, and debt dynamics, creating financing pressures on the government.\n- Upside opportunity:\n  - Opening of EU accession negotiations could lift reform implementation, leading to higher investment and GDP growth."
    },
    {
      "heading": "Key policy messages and recommendations",
      "content": "- General:\n  - Use the favorable economic environment to push structural reforms to lift potential growth and allow Albania to benefit from potential EU accession.\n- Fiscal policy and debt management:\n  - Address fiscal risks from high public debt and related financing needs as a high priority.\n  - Require more fiscal adjustment, preferably in the near term.\n  - Public debt management should focus on lengthening the maturity of public debt and diversifying the investor base.\n  - Avoid risks from excessive non-concessional FX borrowing.\n  - Strengthen debt management capacity.\n- Revenue and tax administration:\n  - Improve tax compliance and administration.\n  - Progress toward value-based property taxation is welcome, but implementation needs careful preparation.\n  - Consider additional revenue measures, including broadening the tax base.\n  - Refrain from lowering tax rates or granting any new tax exemptions or preferential tax treatments.\n- Fiscal institutions and PPPs:\n  - Strengthen fiscal institutions and assessment of fiscal risks.\n  - Enhance the credibility of the medium-term budgetary framework.\n  - Prioritize public investment, and improve project appraisal and monitoring.\n  - MoF should enhance fiscal recording, and legal, financial and economic analysis of PPP projects and ensure proper implementation of the PPP framework.\n  - Carefully assess the impact of PPPs on the fiscal medium-term budget framework and debt sustainability.\n- Arrears and commitment control:\n  - Tackle arrears, including in VAT refunds and unbudgeted investment projects.\n  - Improve the VAT refund process and strengthen commitment controls.\n  - Expand the Treasury’s IT system to local governments.\n  - Register all unbudgeted commitments and record unpaid bills.\n  - Use measures such as reverse VAT to limit refunds with caution.\n- State-owned electricity sector:\n  - Continue governance reforms and financial restructuring of the state-owned electricity sector.\n  - Address arrears accumulation and intracompany debt.\n  - Back measures with acceleration of institutional and market design reforms.\n- Monetary and exchange rate policy:\n  - Current monetary policy stance is appropriate; the policy rate is currently at historical low rate, consistent with low inflation and external conditions.\n  - Measures to reduce euroization and deepen domestic financial markets are welcome.\n  - The flexible exchange rate has been an important stabilizer.\n  - Bank of Albania has been building a comfortable buffer of foreign reserves to address external shocks.\n- Financial sector and NPL resolution:\n  - Continue legislative and institutional measures to resolve high NPL ratios.\n  - Accelerate measures to address cumbersome and inefficient collateral execution and out-of-court restructuring frameworks.\n  - Further align financial sector regulation with EU standards and gradually converge with the Basel III framework.\n  - Impose capital requirements on a risk-based, bank-specific approach to tackle risks within certain banks.\n  - Continue targeted regulations addressing risks from related party transactions and cross-border flows.\n  - Finalize the crisis management framework for non-bank financial institutions to enhance systemic resilience and mitigate financial stability risk."
    },
    {
      "heading": "Selected economic indicators, 2013–2019 (selected entries and projections)",
      "content": "- Real GDP (percent):\n  - 2013: 1.0\n  - 2014: 1.8\n  - 2015: 2.2\n  - 2016: 3.4\n  - 2017: 3.8\n  - 2018 (proj.): 3.6\n  - 2019 (proj.): 3.7\n- Consumer Price Index (avg.):\n  - 2013: 1.9\n  - 2014: 1.6\n  - 2015: 1.3\n  - 2016: 2.0\n  - 2017: 2.1\n  - 2018 (proj.): 2.6\n- Current account balance (percent of GDP):\n  - 2013: -9.3\n  - 2014: -10.8\n  - 2015: -8.6\n  - 2016: -7.6\n  - 2017: -6.9\n  - 2018 (proj.): -6.8\n  - 2019 (proj.): -6.6\n- Public debt (percent of GDP):\n  - 2013: 70.4\n  - 2014: 72.0\n  - 2015: 73.7\n  - 2016: 73.2\n  - 2017: 71.8\n  - 2018 (proj.): 72.4\n  - 2019 (proj.): 69.8\n- National savings (percent of GDP):\n  - 2013: 17.7\n  - 2014: 15.9\n  - 2015: 16.9\n  - 2016: 16.7\n  - 2017: 15.6\n  - 2018 (proj.): 15.7\n- Investment (Incl. inventories + stat. disc., percent of GDP):\n  - 2013: 27.9\n  - 2014: 26.7\n  - 2015: 25.5\n  - 2016: 24.3\n  - 2017: 22.8\n  - 2018 (proj.): 22.4\n  - 2019 (proj.): 22.3\n- Revenues and grants (percent of GDP):\n  - 2013: 24.0\n  - 2014: 26.3\n  - 2015: 27.3\n  - 2016: 27.7\n  - 2017: 27.6\n  - 2018 (proj.): 27.6\n- Expenditures (percent of GDP):\n  - 2013: 29.2\n  - 2014: 32.2\n  - 2015: 30.9\n  - 2016: 29.6\n  - 2017: 29.7\n  - 2018 (proj.): 29.9\n- Overall balance (excluding arrears payment, percent of GDP):\n  - 2013: -5.2\n  - 2014: -5.9\n  - 2015: -4.6\n  - 2016: -2.3\n  - 2017: -2.0\n  - 2018 (proj.): -2.2\n- Gross international reserves (in billions of Euros):\n  - 2013: 3.3\n- Nominal GDP (in billions of lek):\n  - 2013: 1350\n  - 2014: 1395\n  - 2015: 1434\n  - 2016: 1475\n  - 2017: 1553\n  - 2018 (proj.): 1637\n  - 2019 (proj.): 1737\n- Output gap (percent, - = gap):\n  - 2013: -0.9\n  - 2014: -1.5\n  - 2015: -1.8\n  - 2016: -0.7\n  - 2017: -0.3\n\nIMF Press Release No. 18/188, May 22, 2018.\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- Albania and the IMF\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2018/05/21/pr18188-albania-imf-executive-board-concludes-first-post-program-monitoring"
    }
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    "Published: May 22, 2018",
    "The Executive Board concluded the First Post-Program Monitoring review for Albania on May 18, 2018, and considered and endorsed the Staff Appraisal on a lapse-of-time basis.",
    "Albania’s capacity to repay the Fund is assessed as adequate based on a strong record of repaying the Fund, relative macroeconomic stability, and progress in reforms.",
    "Real GDP growth: 3.8 percent (yoy) during 2017.",
    "Drivers of growth: strong domestic demand driven by a revival in construction, recovery in the labor market and household credit, and large energy-related FDI projects.",
    "Public debt to GDP: declined in 2017, but fiscal consolidation pace has slowed post-program with arrears accumulating.",
    "Current account deficit: narrowed to 6.9 percent of GDP in 2017, supported by tourism and other services exports.",
    "FX reserves: level remains comfortable.",
    "Inflation: low.",
    "Credit: credit growth is weak.",
    "Banking sector: banks are liquid and stable.",
    "Principal risks identified:",
    "Upside opportunity:",
    "General:",
    "Fiscal policy and debt management:",
    "Revenue and tax administration:",
    "Fiscal institutions and PPPs:",
    "Arrears and commitment control:",
    "State-owned electricity sector:",
    "Monetary and exchange rate policy:",
    "Financial sector and NPL resolution:",
    "Real GDP (percent):",
    "Consumer Price Index (avg.):",
    "Current account balance (percent of GDP):",
    "Public debt (percent of GDP):",
    "National savings (percent of GDP):",
    "Investment (Incl. inventories + stat. disc., percent of GDP):",
    "Revenues and grants (percent of GDP):",
    "Expenditures (percent of GDP):",
    "Overall balance (excluding arrears payment, percent of GDP):",
    "Gross international reserves (in billions of Euros):",
    "Nominal GDP (in billions of lek):",
    "Output gap (percent, - = gap):",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[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/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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