IMF Executive Board Concludes 2012 Article IV Consultation with Albania

Public Information Notice (PIN) No. 13/02
January 11, 2013

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case. The staff report (use the free Adobe Acrobat Reader to view this pdf file) for the 2012 Article IV Consultation with Albania is also available.

On December 3, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Albania.1


Albania has successfully avoided a serious economic slowdown since 2009, but with euro zone problems persisting, the economy slowed considerably in the first half of 2012. Credit growth fell sharply between January and August, as consumer and investor confidence weakened. Inflation has been low and relatively stable, largely within the central bank’s 2-4 percent target range. The current account deficit has begun to adjust on account of weakening imports but still remains high. Heavy exposure of exports and remittances to Greece and Italy carries near-term risks.

Fiscal imbalances are rising. At nearly 60 percent, the debt-GDP ratio has reached the statutory ceiling and is among the highest in the region. Tax revenues have been trending downward, partly due to cyclical conditions, while most expenditure cuts have been focused on capital. Rollover needs are high as more than half of public debt is short term.

The banking system has been resilient so far, with banks having high liquidity and capital ratios. Strong macroprudential actions have mitigated risks. However, nonperforming loans have risen sharply over the last two years and now exceed one fifth of all outstanding loans—the highest ratio in the region. Greek bank subsidiaries, which account for one-fifth of bank assets, have made considerable progress in re-aligning lending with their domestic deposit base and increasing capital.

Progress in reforming the business climate—critical for attracting investment and achieving sustained growth over the medium term—has been limited. Albania has dropped 8 places on the World Bank’s Doing Business Index to a rank of 85.

Executive Board Assessment

Executive Directors commended the authorities for prudent policies that have supported growth in the midst of the global financial crisis. However, Directors noted that the economy is slowing, policy buffers have been depleted, and macroeconomic imbalances persist. Against this backdrop, they recommended actions on a variety of fronts to preserve fiscal sustainability, safeguard financial soundness, and improve the investment climate.

Directors underscored the importance of a sustained fiscal adjustment that would reduce the debt-to-GDP ratio over the medium term without unduly dampening growth. Budgetary consolidation should center on both tax and expenditure reforms. Taking note of proposed legislation to remove the statutory debt limit, Directors agreed on the need for a renewed commitment to a credible ceiling for public indebtedness to anchor the authorities’ fiscal plans. Improvements in debt management are also a priority, given rollover risks. In this regard, Directors encouraged the authorities to utilize prospective privatization receipts mainly for debt reduction and clearance of unpaid bills.

Directors observed that inflation targeting in the context of a flexible exchange rate regime has been effective in keeping inflation low and stable. However, they noted that the scope for easing monetary policy further is limited by weakness in the economy as well as the risk of an adverse impact on unhedged positions in banks’ balance sheets. Directors took note of the staff’s assessment that the real effective exchange rate is modestly overvalued, and urged the authorities to accelerate fiscal and structural reforms to foster competitiveness and external adjustment.

Directors commended the authorities for policies that have safeguarded the soundness of the financial system. At the same time, they recognized that financial risks remained elevated, and called for continued supervisory vigilance. In particular, Directors encouraged the authorities to take action against rising nonperforming loans at banks, including by clearing unpaid government bills and improving collateral execution. Directors welcomed the authorities’ request for an update in 2013 under the Financial Sector Assessment Program.

Directors stressed the need to accelerate structural reforms in many areas to boost potential growth. Priorities include strengthening property rights and contract enforcement which would enhance the investment climate. Impediments in the energy sector also need to be addressed to make the sector self-sustaining and lower fiscal

risks. Directors highlighted the importance of further improving Albania’s economic statistics, particularly as regards the national and external accounts, to help policy design and evaluation.

Albania: Basic Indicators and Macroeconomic Framework, 2009–12

  2009 2010 2011 2012
      Est. Proj.


(Growth rate in percent)

Real GDP 1/

3.3 3.5 3.0 0.5

Consumer Price Index (avg.)

2.2 3.6 3.4 2.2

Consumer Price Index (eop)

3.7 3.4 1.7 3.4

GDP deflator

2.3 3.8 3.5 2.4
  (Percent of GDP)

Saving-investment balance


Foreign savings

14.0 11.4 11.9 10.1

National savings

16.2 15.4 13.7 13.9


1.0 1.2 1.6 1.1


15.2 14.2 12.1 12.8


30.3 26.8 25.6 24.0


10.1 6.7 6.0 4.9


20.2 20.1 19.6 19.1

Fiscal sector


Revenues and grants

26.0 25.8 25.1 24.8

Tax revenue

23.5 23.3 23.0 22.7


33.4 29.6 28.5 27.9


30.2 26.2 25.4 24.7


3.2 3.4 3.1 3.2

Overall balance (including grants)

-7.4 -3.7 -3.5 -3.1

Primary balance (including grants)

-4.3 -0.4 -0.3 0.2

Net domestic borrowing

0.9 0.9 2.0 1.8

Privatization receipts

2.4 0.4 0.0 0.1

Foreign financing

3.7 2.1 1.6 1.4

Public Debt

59.3 57.8 58.6 60.9


36.1 32.9 33.3 34.1

External (including publicly guaranteed)

23.2 24.9 25.3 26.8

Monetary indicators


Broad money growth

6.8 12.5 9.1 6.1

Private credit growth

10.3 10.1 10.4 2.1


1.3 1.3 1.2 1.2

Interest rate (3-month T-bills, end-period)

6.3 5.3 5.3
  (Percent of GDP, unless otherwise) noted

External sector


Trade balance (goods and services)

-24.6 -20.7 -22.4 -18.8

Current account balance (including official transfers)

-14.0 -11.4 -11.9 -10.1

Current account balance (excluding official transfers)

-14.7 -11.9 -12.2 -10.8

Official transfers

0.7 0.5 0.2 0.7

Gross international reserves (in millions of euros)

1,621 1,926 1,879 1,976

(In months of imports of goods and services)

4.1 4.4 4.4 4.5

(Relative to external debt service)

10.9 5.0 8.8 8.2

(In percent of broad money)

26.0 27.0 24.9 24.4

Change in real exchange rate (eop, in percent)

-7.8 -2.6 0.7

Memorandum items


Nominal GDP (in billions of lek) 1/

1,151 1,237 1,319 1,357

Sources: Albanian authorities; and IMF staff estimates and projections.

1/ GDP data for 2008–09 are from the official national accounts.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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