Press Release No. 07/19

Press Release: IMF Executive Board Completes Second Review Under PRGF Arrangement and Second Review Under EFF Arrangement with Albania and Approves US$3.6 Million Disbursement

February 2, 2007

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Albania's performance and financing assurances under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement and the Extended Fund Facility (EFF) arrangement. The completion of the reviews enables the release of an amount equivalent to SDR 2.4 million (about US$3.6 million), which will bring the total disbursement under both arrangements to SDR 7.3 million (about US$10.9 million).

The concurrent three-year arrangements under the Poverty Reduction and Growth Facility (PRGF) and the Extended Fund Facility (EFF) amounting to the equivalent of SDR 17.045 million (about US$25.5 million) were approved effective from February 1, 2006 (see Press Release No. 06/17).

Following the Executive Board's discussion of Albania, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:

"Albania's macroeconomic performance has remained strong. Inflation is low, the external position has improved, and economic growth has picked up. These favorable developments owe much to sound macroeconomic policies and continued strong commitment to program implementation. Looking forward, maintaining these gains alongside further reduction in poverty will require additional growth-enhancing structural reforms.

"The authorities are committed to fiscal discipline, and are implementing a fiscal program that aims to reduce public debt while providing adequate funding for priority projects in infrastructure, health, and education. The planned safeguard measures to contain the fiscal risks related to large-project execution are appropriate. It will be crucial to implement these measures fully to protect other priority expenditures in case of cost overruns in large road projects.

"The existing monetary policy framework, including an independent central bank and a floating exchange rate, remain appropriate, and the authorities stand ready to adjust policies to maintain low inflation—as evidenced by the increase in the policy rate last November. The recent measures taken by the Bank of Albania to strengthen the regulatory and prudential frameworks will further reduce the risks posed by rapid credit growth. In the nonbank financial sector, the establishment of a unified and independent supervisory authority is an important step to improve the quality of supervision and prudential oversight. Continued efforts are needed to quickly increase capacity at the new authority, including through the allocation of sufficient resources.

"Structural reforms are progressing, particularly in tax administration. As a next step, the authorities will review the functions of the Tax Police. In the energy sector, the International Finance Corporation has been selected as an advisor for the privatization of the distribution arm of the national electricity company (KESH). Concerted efforts are needed to ensure stable energy supply and further improve the financial performance of KESH. Accelerating privatization in other sectors, such as telecommunication and insurance, would also be important. The authorities are encouraged to work toward eliminating the weaknesses in official statistics," Mr. Portugal said.