{ "title": "Albania: Staff Concluding Statement of the 2024 Article IV Mission", "publication": "IMF News, November 26, 2024", "sourceUrl": "https://www.imf.org/en/news/articles/2024/11/26/pr24441-albania-staff-concluding-statement-2024-article-iv-mission", "canonical": "https://www.imf.org/en/news/articles/2024/11/26/pr24441-albania-staff-concluding-statement-2024-article-iv-mission", "overlayPath": "/en/news/articles/2024/11/26/pr24441-albania-staff-concluding-statement-2024-article-iv-mission/index.md", "summary": "Washington, DC. An International Monetary Fund (IMF) mission, led by Anke Weber, and comprising David Bartolini, Fazurin Jamaludin, Jakree Koosakul and Hasan Toprak, conducted discussions for the 2024 Article IV Consultation with Albania during November 13-21.", "publishDate": "2024-11-26", "sections": [ { "heading": "Mission summary and macroeconomic backdrop", "content": "- IMF mission led by Anke Weber conducted discussions for the 2024 Article IV Consultation with Albania during November 13-21.\n- The Albanian economy has recently delivered a strong performance, now above its pre-pandemic trend, supported by booming tourism, prudent fiscal policies, proactive monetary policy, falling global commodity prices, and a steady appreciation of the lek.\n- Structural challenges remain: GDP per capita is around a quarter of U.S. and EU-15 levels, with rapid aging, emigration, governance shortfalls, and institutional weaknesses constraining the business environment.\n- Achieving sustainable and inclusive growth requires overcoming structural shortcomings while safeguarding macroeconomic gains." }, { "heading": "Performance and outlook", "content": "- Real GDP growth:\n - 2023: expansion of 3.9 percent.\n - 2024 (IMF staff projection): 3.6 percent, driven by domestic consumption, tourism, and construction.\n - 2025–2029 (IMF staff projection): around 3½ percent, sustained by domestic demand and tourism.\n- Inflation:\n - End-of-year inflation in 2024 expected at around 2 percent, below the Bank of Albania’s 3 percent target.\n - A sustained return to target is not expected before 2026 due to inertia in the inflation process; base effects will temporarily push up inflation in the first half of 2025.\n- Current account:\n - Projected to reach 3.4 percent in 2024 and forecast to modestly widen over the medium term due to higher imports from large public investment projects.\n- Risks:\n - Broadly balanced. Downside: geopolitical tensions, global slowdown, commodity price spikes, weather shocks, weaker tourism demand, exchange rate depreciation, real estate downturn affecting financial/public sectors given sizeable FX-denominated debt. Upside: tourism outperformance and broad-based structural reforms in the context of EU accession (not part of IMF staff baseline)." }, { "heading": "Fiscal policy, revenue strategy, and fiscal risks", "content": "- 2024 fiscal performance:\n - Primary surplus expected at around 0.5 percent of GDP in 2024, marginally higher than the 0.3 percent of GDP budget target.\n - Public debt ratio expected at around 56 percent at end-2024.\n- 2025 and medium-term fiscal stance:\n - 2025 budget aims for a zero primary balance.\n - IMF projects the primary balance to hover near zero in 2026-2029 as authorities continue to uphold fiscal rules.\n - Public debt projected to decline to around 50 percent in 2029 and assessed sustainable over the medium term.\n- IMF staff recommendation on fiscal effort:\n - Modest primary surplus of around ¼ percent of GDP in 2025-29 to reduce gross financing needs and enhance resilience—requiring additional net fiscal measures of around 1 percent of GDP.\n - Measures to include revenue administration and tax policy reforms, spending efficiency improvements (including digitalization), and strengthened public investment management.\n - Continued strengthening of public debt management to lengthen maturities.\n- Medium-Term Revenue Strategy (MTRS) and revenue measures:\n - Authorities close to adopting MTRS; envisaged revenue increases of 2½ percent of GDP contingent on forceful implementation.\n - Recommended actions: strengthened IT infrastructure, improved data utilization, enhanced staffing/capacity, rationalizing tax structure, reducing exemptions (especially for VAT), resuming streamlining for self-employed professionals, faster-than-planned removal of zero-tax rate on small businesses, and completing groundwork for a new property tax law (fiscal cadaster and property valuation).\n- Long-term spending pressures:\n - IMF staff estimates an increase in public spending of around 10 percentage points of GDP in the next 25 years, mainly from pension, healthcare, and climate adaptation.\n - Recommended: labor market and pension reforms to strengthen workers’ coverage and participation; cautious approach to ad hoc pension bonuses; better-targeted social assistance; more ambitious long-term revenue reforms (e.g., addressing tax disparities such as in agriculture).\n- Contingent liabilities and SOEs/PPPs:\n - Long-standing reciprocal arrears and liabilities among largest SOEs; PPP assets highly concentrated in energy.\n - Recommended: significantly strengthen central oversight and governance of SOEs and PPPs; integrate PPPs into regular budgetary processes; publish a robust standalone fiscal risk statement; gradually adjust electricity tariffs to reflect costs; boost Ministry of Finance capacity to assess SOE/municipal borrowing risks; develop capital market infrastructure for bond issuances." }, { "heading": "Monetary policy and exchange rate", "content": "- Policy approach:\n - Continue a data-dependent approach to monetary policy given uncertainty.\n - Bank of Albania cut policy rate by 25 basis points in November; IMF staff judged the cut appropriate.\n - Absent significant inflationary shocks, scope may exist for a further modest policy rate reduction in 2025 to reduce risk of de-anchoring inflation expectations and lessen exchange rate appreciation pressures.\n- Exchange rate regime:\n - Flexible exchange rate has served Albania well and should remain the main shock absorber.\n - Sustained lek appreciation largely driven by fundamentals (tourism, productivity); consider allowing more flexible adjustment and maintain policy rate as primary tool.\n - FX interventions: may be warranted when appreciation is driven by non-fundamental factors but should be limited in scale and consider costs/benefits of reserve accumulation, central bank balance sheet risks, and implications for monetary policy transmission and financial market development." }, { "heading": "Financial sector resilience and supervision", "content": "- Banking sector soundness:\n - Banking sector remains well-capitalized and liquid with average prudential ratios well above regulatory requirements, though scope exists to further strengthen some banks’ capital positions.\n - Risks include banks’ large-borrower and sovereign exposures, rapid expansion of credit to real estate, continued price increases in real estate, and two-thirds of unhedged FX loans tied to real estate.\n- Supervisory recommendations:\n - Ensure strict compliance with capital requirements; consider temporary dividend suspensions and prepare capital conservation plans and restrictions if needed.\n - Continue progress toward regulatory equivalence with the European Banking Authority to strengthen supervisory frameworks.\n - Recent BoA proposed changes to non-bank regulations (consumer protection, microfinance lending) are important for integrity.\n - Enhance data collection and risk monitoring of the non-bank sector (insurance, investment and pension funds); leverage the Financial Stability Advisory Group for interinstitutional cooperation.\n- Macroprudential toolkit and market development:\n - Consider introducing borrower-based measures, differentiating between domestic and FX activities, to mitigate real estate credit risks.\n - Welcome increase in the countercyclical capital buffer and see benefits in moving to a positive neutral framework.\n - Finalize a comprehensive methodology for the systemic risk buffer given sovereign concentration risks.\n - Continue efforts to develop and deepen bond and money markets to reduce banks’ liquidity risks, including legal framework changes for repurchase agreements." }, { "heading": "Structural reforms and EU accession-related priorities", "content": "- Productivity and growth drivers:\n - Medium-term growth increasingly dependent on productivity gains; labor and total factor productivity remain well below EU levels despite recent increases.\n - Maximizing gains from EU accession requires ambitious reforms to address productivity bottlenecks.\n- Policy actions to lift productivity:\n - Promote SME access to bank lending by reducing information asymmetries.\n - Facilitate capital investment, technology adoption, R&D, and integration into global value chains.\n - Create innovation networks across firms and research institutions.\n - Update education and training programs to match labor market needs, enhance vocational training, advance the digital agenda, and boost labor force participation (e.g., expand access to childcare).\n- Infrastructure and energy:\n - Overcome infrastructure bottlenecks to improve connectivity; transport network still lags EU economies despite projects like a new airport and touristic port.\n - Hydropower is a clean energy source but vulnerable to droughts; diversify into other renewable energy types with storage capacities for energy security.\n - Ensure adequate budget resources and monitoring mechanisms for translating projects into better outcomes.\n- Governance, rule of law, and AML/CFT:\n - Imminent completion of vetting of judges and significant progress on AML/CFT reforms in line with FATF recommendations are important milestones.\n - Recommended further reforms: reduce case backlogs, implement an electronic integrated case management system, fill critical court vacancies transparently and on merit, adopt the Intersectoral Anticorruption Strategy as planned, resource SPAK adequately.\n - Swiftly implement the National Strategy for Money Laundering/Financing of Terrorism Prevention and mitigate risks identified in the 2023 National Risk Assessment.\n - Leverage AML measures to address tax non-compliance and related crimes." }, { "heading": "Concluding remarks", "content": "- The mission thanks Albanian authorities and counterparts for collaboration and constructive exchanges.\n- Based on preliminary findings, IMF staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.\n\nSource: IMF staff concluding statement for the 2024 Article IV Consultation with Albania, November 26, 2024.\n\n---\n\n Content in this bundle\n\n- Press Release-English\n - Press Release-English (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Press Release-English (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- Albania and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2024/11/26/pr24441-albania-staff-concluding-statement-2024-article-iv-mission" } ], "bullets": [ "[Markdown version](/en/news/articles/2024/11/26/pr24441-albania-staff-concluding-statement-2024-article-iv-mission/index.md)", "[Structured JSON version](/en/news/articles/2024/11/26/pr24441-albania-staff-concluding-statement-2024-article-iv-mission/index.json)", "[Bundle manifest](/en/news/articles/2024/11/26/pr24441-albania-staff-concluding-statement-2024-article-iv-mission/bundle-manifest.json)", "Published: November 26, 2024", "IMF mission led by Anke Weber conducted discussions for the 2024 Article IV Consultation with Albania during November 13-21.", "The Albanian economy has recently delivered a strong performance, now above its pre-pandemic trend, supported by booming tourism, prudent fiscal policies, proactive monetary policy, falling global commodity prices, and a steady appreciation of the lek.", "Structural challenges remain: GDP per capita is around a quarter of U.S. and EU-15 levels, with rapid aging, emigration, governance shortfalls, and institutional weaknesses constraining the business environment.", "Achieving sustainable and inclusive growth requires overcoming structural shortcomings while safeguarding macroeconomic gains.", "Real GDP growth:", "Inflation:", "Current account:", "Risks:", "2024 fiscal performance:", "2025 and medium-term fiscal stance:", "IMF staff recommendation on fiscal effort:", "Medium-Term Revenue Strategy (MTRS) and revenue measures:", "Long-term spending pressures:", "Contingent liabilities and SOEs/PPPs:", "Policy approach:", "Exchange rate regime:", "Banking sector soundness:", "Supervisory recommendations:", "Macroprudential toolkit and market development:", "Productivity and growth drivers:", "Policy actions to lift productivity:", "Infrastructure and energy:", "Governance, rule of law, and AML/CFT:", "The mission thanks Albanian authorities and counterparts for collaboration and constructive exchanges.", "Based on preliminary findings, IMF staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.", "**Press Release-English**", "[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)", "[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)" ], "related": [ { "title": "Press Release-English", "role": "document", "sourceUrl": "https://www.imf.org/-/media/files/news/press-release/2024/pr24441-alb-albania-staff-concluding-statement-of-the-2024-article-iv-mission.pdf", "summary": { "path": "/-/media/files/news/press-release/2024/pr24441-alb-albania-staff-concluding-statement-of-the-2024-article-iv-mission.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/news/press-release/2024/pr24441-alb-albania-staff-concluding-statement-of-the-2024-article-iv-mission.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/news/articles/2024/11/26/pr24441-albania-staff-concluding-statement-2024-article-iv-mission/index.md", "json": "/en/news/articles/2024/11/26/pr24441-albania-staff-concluding-statement-2024-article-iv-mission/index.json", "bundleManifest": "/en/news/articles/2024/11/26/pr24441-albania-staff-concluding-statement-2024-article-iv-mission/bundle-manifest.json" }, "generatedAtUtc": "2026-09-26T03:28:06.414Z" }