{ "title": "Albania: Staff Concluding Statement of the 2022 Article IV Mission", "publication": "IMF News, October 10, 2022", "sourceUrl": "https://www.imf.org/en/news/articles/2022/10/10/ms101022-albania", "canonical": "https://www.imf.org/en/news/articles/2022/10/10/ms101022-albania", "overlayPath": "/en/news/articles/2022/10/10/ms101022-albania/index.md", "summary": "Albania: Staff Concluding Statement of the 2022 Article IV Mission", "publishDate": "2022-10-10", "sections": [ { "heading": "Outlook and key macroeconomic projections", "content": "- Growth of 3.7 percent in 2022 driven by tourism, real estate, and services.\n- Growth projected to slow to around 2 percent in 2023 due to tighter financial conditions, slowdown in Europe, and withdrawal of policy support.\n- Inflation expected to peak in the coming months, begin to recede in 2023, and return to the Bank of Albania’s (BoA) target of 3 percent by mid-2024 as international commodity prices stabilize, fiscal and monetary policies tighten, and growth slows.\n- Monetary policy rate assumptions: rise to 3-3.5 percent in 2022 and 4-4.5 percent in 2023.\n- Public debt projected to decline further to about 68 percent of GDP in 2022.\n- Outlook subject to considerable uncertainty with downside risks: further increases in international food and energy prices, higher and more persistent inflation, drastic tightening in global financial conditions, unfavorable weather, and reversal in real estate price rises." }, { "heading": "Fiscal policy: priorities and specific targets", "content": "- Fiscal consolidation is vital to rebuild policy buffers and reduce demand pressure while providing targeted and temporary support to the vulnerable.\n- Support for the July budget revision that provided targeted assistance and reduced the deficit target.\n- Recommendation to aim for at least a zero primary balance in 2023, meeting the Organic Budget Law requirement one year ahead of time.\n- Recommendation to reach a primary surplus of 1.5 percent GDP by 2024.\n- Guidance if downside risks materialize: allow automatic stabilizers to operate and deploy further temporary, targeted support to the vulnerable.\n- Urgent need to finalize and implement a sound Medium-Term Revenue Strategy (MTRS) to raise tax revenue (noted as among the lowest in percent of GDP in the region).\n- Concerns reiterated about the proposed tax amnesty law due to money laundering and governance risks and adverse impact on tax compliance.\n- Any higher-than-expected revenue should be saved for faster debt reduction." }, { "heading": "Public finance management, public investment, and SOE reforms", "content": "- Strengthen efficiency and credibility of public finances to preserve market confidence and mitigate higher borrowing costs.\n- Reforms needed to align Public Investment Management (PIM) and Public Private Partnership (PPP) processes, with full integration into the normal budget cycle.\n- Strengthen Ministry of Finance and Economy’s (MOFE) capacity to be an effective gatekeeper in project selection, evaluation, and monitoring.\n- Anticipation of the authorities’ third Public Finance Management (PFM) strategy to address incomplete reforms and setbacks in commitment controls and arrears prevention, and to incorporate green PFM practices.\n- Welcome progress in enhancing coordination of cash and debt management; emphasize effective implementation of the latest debt management strategy.\n- Call to step up monitoring, assessment, and management of fiscal risks and enhance capacity.\n- All public projects should be subject to public investment and procurement frameworks; urge publication of procurement contracts related to pandemic and earthquake recovery spending, names of awarded companies, and their beneficial owners.\n- Reiterate need to minimize use of normative acts to alter the budget." }, { "heading": "Energy sector and fiscal risks", "content": "- Volatility in the global energy market underlines urgency of reforms to bring the electricity sector to financial viability and reduce fiscal risks.\n- Broad-based subsidies should be removed as they disproportionately benefit better-off households and hinder price signals.\n- Gradual tariff adjustments to cost recovery levels are critical and must be complemented with measures to support the vulnerable.\n- Enhance electricity sector transparency and state-owned enterprises (SOEs) corporate governance." }, { "heading": "Monetary policy guidance", "content": "- Support for BoA’s monetary policy normalization; monetary conditions remain accommodative as real policy rates are deeply negative.\n- With upside risks to inflation, monetary tightening should be frontloaded and further interest rate increases are warranted.\n- The BoA should be prepared to raise the policy rate above its estimated neutral rate if inflationary pressure does not abate; the pace and size of tightening should be well communicated.\n- The exchange rate should remain flexible and act as a shock absorber; sizable exchange rate depreciations (appreciations) would require larger (smaller) monetary policy tightening.\n- Pace and timing of tightening should consider evolving economic conditions: sustained higher global commodity prices may require stronger tightening; slower growth, faster fiscal consolidation, or stronger core inflation response could support more gradual tightening or an earlier pause." }, { "heading": "Financial stability and banking sector recommendations", "content": "- Banking system has weathered consecutive shocks relatively well, but full impacts may emerge over time; banks are susceptible to credit, interest rate, and exchange rate risks.\n- BoA should continue strengthening risk-based on-site and off-site inspections and complete focused asset quality reviews.\n- Ongoing efforts to enhance bank capital buffers are welcome.\n- Close monitoring and management needed for potential risks from robust credit growth, including rising FX lending.\n- Enhance surveillance of real estate and construction sector impacts on financial stability; address significant data gaps.\n- Implement insolvency and resolution frameworks swiftly, including out-of-court loan restructuring, to prepare for large increases in NPLs.\n- Resolve long-standing impasse in bailiff reform.\n- Improve supervision and regulation aligned with EU standards to better manage financial stability risks.\n- Ensure market entrants have strong banking experience and meet fit and proper criteria on an ongoing basis (including significant shareholders, controllers, beneficial owners, and senior managers).\n- BoA to implement enhanced bank licensing and supervisory framework; authorities to apply pertinent competition rules." }, { "heading": "Governance, EU accession, and anti-corruption/financial integrity", "content": "- Progress noted in vetting of judges, judicial officials, and prosecutors; objective to complete by the December 2024 constitutional deadline.\n- Measures underway to improve court efficiency and address shortages of qualified judges and prosecutors.\n- Review of the Anticorruption Strategy completed; revised strategy and action plan expected by end of this year after public consultations.\n- Progress on FATF action plan noted; need to expedite efforts to exit FATF’s enhanced monitoring (FATF's “grey listing”).\n- Authorities encouraged to align any new policies with guidance issued by FATF and MONEYVAL." }, { "heading": "Climate change, adaptation, and green fiscal practices", "content": "- Albania is vulnerable to climate change due to importance of agriculture, reliance on hydroelectricity, and transformation to a tourism-dependent economy.\n- Adaptation should be integral to government policy and planning.\n- Adoption of green PFM practices and the MTRS can help finance adaptation costs and meet Albania’s climate goal of becoming carbon neutral by 2050." }, { "heading": "Closing remarks", "content": "- Prudent policy and vigilance are required to stem rising risks and entrench positive momentum.\n- Authorities thanked for close collaboration and constructive exchange of views.\n\nSource: Albania: Staff Concluding Statement of the 2022 Article IV Mission (October 10, 2022).\n\n---\n\n Content in this bundle\n\n- Shqipëri: Deklaratë Përmbyllëse e Misionit të Nenit IV për vitin 2022\n - Shqipëri: Deklaratë Përmbyllëse e Misionit të Nenit IV për vitin 2022 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Shqipëri: Deklaratë Përmbyllëse e Misionit të Nenit IV për vitin 2022 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- Albania and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2022/10/10/ms101022-albania" } ], "bullets": [ "[Markdown version](/en/news/articles/2022/10/10/ms101022-albania/index.md)", "[Structured JSON version](/en/news/articles/2022/10/10/ms101022-albania/index.json)", "[Bundle manifest](/en/news/articles/2022/10/10/ms101022-albania/bundle-manifest.json)", "Published: October 10, 2022", "Growth of 3.7 percent in 2022 driven by tourism, real estate, and services.", "Growth projected to slow to around 2 percent in 2023 due to tighter financial conditions, slowdown in Europe, and withdrawal of policy support.", "Inflation expected to peak in the coming months, begin to recede in 2023, and return to the Bank of Albania’s (BoA) target of 3 percent by mid-2024 as international commodity prices stabilize, fiscal and monetary policies tighten, and growth slows.", "Monetary policy rate assumptions: rise to 3-3.5 percent in 2022 and 4-4.5 percent in 2023.", "Public debt projected to decline further to about 68 percent of GDP in 2022.", "Outlook subject to considerable uncertainty with downside risks: further increases in international food and energy prices, higher and more persistent inflation, drastic tightening in global financial conditions, unfavorable weather, and reversal in real estate price rises.", "Fiscal consolidation is vital to rebuild policy buffers and reduce demand pressure while providing targeted and temporary support to the vulnerable.", "Support for the July budget revision that provided targeted assistance and reduced the deficit target.", "Recommendation to aim for at least a zero primary balance in 2023, meeting the Organic Budget Law requirement one year ahead of time.", "Recommendation to reach a primary surplus of 1.5 percent GDP by 2024.", "Guidance if downside risks materialize: allow automatic stabilizers to operate and deploy further temporary, targeted support to the vulnerable.", "Urgent need to finalize and implement a sound Medium-Term Revenue Strategy (MTRS) to raise tax revenue (noted as among the lowest in percent of GDP in the region).", "Concerns reiterated about the proposed tax amnesty law due to money laundering and governance risks and adverse impact on tax compliance.", "Any higher-than-expected revenue should be saved for faster debt reduction.", "Strengthen efficiency and credibility of public finances to preserve market confidence and mitigate higher borrowing costs.", "Reforms needed to align Public Investment Management (PIM) and Public Private Partnership (PPP) processes, with full integration into the normal budget cycle.", "Strengthen Ministry of Finance and Economy’s (MOFE) capacity to be an effective gatekeeper in project selection, evaluation, and monitoring.", "Anticipation of the authorities’ third Public Finance Management (PFM) strategy to address incomplete reforms and setbacks in commitment controls and arrears prevention, and to incorporate green PFM practices.", "Welcome progress in enhancing coordination of cash and debt management; emphasize effective implementation of the latest debt management strategy.", "Call to step up monitoring, assessment, and management of fiscal risks and enhance capacity.", "All public projects should be subject to public investment and procurement frameworks; urge publication of procurement contracts related to pandemic and earthquake recovery spending, names of awarded companies, and their beneficial owners.", "Reiterate need to minimize use of normative acts to alter the budget.", "Volatility in the global energy market underlines urgency of reforms to bring the electricity sector to financial viability and reduce fiscal risks.", "Broad-based subsidies should be removed as they disproportionately benefit better-off households and hinder price signals.", "Gradual tariff adjustments to cost recovery levels are critical and must be complemented with measures to support the vulnerable.", "Enhance electricity sector transparency and state-owned enterprises (SOEs) corporate governance.", "Support for BoA’s monetary policy normalization; monetary conditions remain accommodative as real policy rates are deeply negative.", "With upside risks to inflation, monetary tightening should be frontloaded and further interest rate increases are warranted.", "The BoA should be prepared to raise the policy rate above its estimated neutral rate if inflationary pressure does not abate; the pace and size of tightening should be well communicated.", "The exchange rate should remain flexible and act as a shock absorber; sizable exchange rate depreciations (appreciations) would require larger (smaller) monetary policy tightening.", "Pace and timing of tightening should consider evolving economic conditions: sustained higher global commodity prices may require stronger tightening; slower growth, faster fiscal consolidation, or stronger core inflation response could support more gradual tightening or an earlier pause.", "Banking system has weathered consecutive shocks relatively well, but full impacts may emerge over time; banks are susceptible to credit, interest rate, and exchange rate risks.", "BoA should continue strengthening risk-based on-site and off-site inspections and complete focused asset quality reviews.", "Ongoing efforts to enhance bank capital buffers are welcome.", "Close monitoring and management needed for potential risks from robust credit growth, including rising FX lending.", "Enhance surveillance of real estate and construction sector impacts on financial stability; address significant data gaps.", "Implement insolvency and resolution frameworks swiftly, including out-of-court loan restructuring, to prepare for large increases in NPLs.", "Resolve long-standing impasse in bailiff reform.", "Improve supervision and regulation aligned with EU standards to better manage financial stability risks.", "Ensure market entrants have strong banking experience and meet fit and proper criteria on an ongoing basis (including significant shareholders, controllers, beneficial owners, and senior managers).", "BoA to implement enhanced bank licensing and supervisory framework; authorities to apply pertinent competition rules.", "Progress noted in vetting of judges, judicial officials, and prosecutors; objective to complete by the December 2024 constitutional deadline.", "Measures underway to improve court efficiency and address shortages of qualified judges and prosecutors.", "Review of the Anticorruption Strategy completed; revised strategy and action plan expected by end of this year after public consultations.", "Progress on FATF action plan noted; need to expedite efforts to exit FATF’s enhanced monitoring (FATF's “grey listing”).", "Authorities encouraged to align any new policies with guidance issued by FATF and MONEYVAL.", "Albania is vulnerable to climate change due to importance of agriculture, reliance on hydroelectricity, and transformation to a tourism-dependent economy.", "Adaptation should be integral to government policy and planning.", "Adoption of green PFM practices and the MTRS can help finance adaptation costs and meet Albania’s climate goal of becoming carbon neutral by 2050.", "Prudent policy and vigilance are required to stem rising risks and entrench positive momentum.", "Authorities thanked for close collaboration and constructive exchange of views.", "**Shqipëri: Deklaratë Përmbyllëse e Misionit të Nenit IV për vitin 2022**", "[Albania and the IMF](http://www.imf.org/external/country/alb/index.htm)", "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)", "[Mission Concluding Statements](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)" ], "related": [ { "title": "Shqipëri: Deklaratë Përmbyllëse e Misionit të Nenit IV për vitin 2022", "role": "document", "sourceUrl": "https://www.imf.org/-/media/files/news/mission-concluding-statement/albania-alb-2022-article-iv-concluding-statement.pdf", "summary": { "path": 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