Statement at the Conclusion of an IMF Staff Visit to AlbaniaPress Release No. 13/366
September 27, 2013
A staff team from the International Monetary Fund (IMF) visited Tirana during September 19–27 to hold discussions on the 2014 budget and addressing Albania’s economic policy challenges. The mission met with Prime Minister Rama, Finance Minister Cani, Minister of Economic Development Ahmetaj, Bank of Albania Governor Fullani, other public officials, representatives of business community, and international partners. At the end of the visit Mr. Ilahi, the IMF mission chief for Albania, made the following statement:
“The economy is expected to remain sluggish in 2013, despite relatively strong exports. Stagnating credit, troubled corporate balance sheets, and declining remittances are expected to limit growth to about 1.7 percent. Growth could increase modestly in 2014, provided the authorities initiate much needed policy and structural reforms.
“Fiscal slippages in the first half of 2013, together with rising unpaid bills and arrears of the central government (accumulated over the past two years or so, and estimated by the mission to stand at about 4.1 percent of GDP) are expected to push public debt to 70 percent of GDP by end-2013, compared to 59 percent in 2010. Without the necessary policy and structural reforms, public debt would continue to increase and could adversely impact growth.
“To start lowering vulnerabilities and anchor expectations, the mission recommends that the authorities adopt a credible medium-term debt target for 2018, and aim for a reduction in the public debt-GDP ratio by 2015.
“The 2014 budget should initiate the process of sizable fiscal adjustment while being cognizant of the weak economy. A credible and ambitious structural adjustment based on specific and tangible measures—including comprehensive tax reform and improvements in tax administration—is essential. Relief measures for the poor should be delivered through targeted budget spending. Reforms of the social insurance and energy sectors and public financial management should be a priority over the medium term, along with substantial fiscal consolidation.
“Clearance of the government’s arrears and unpaid bills would strengthen private sector balance sheets, facilitate the resumption of credit growth by helping lower nonperforming loans (NPLs), and support domestic demand. The mission suggests systematically documenting the obligations (including thorough proper audits), retiring them promptly, and simultaneously implementing public financial management reforms to prevent a recurrence of the problem.
“The monetary policy and liquidity management of the Bank of Albania (BoA) remains broadly adequate, in line with the cyclical weakness of the economy. The BoA has been largely successful in anchoring inflation expectations. However, the transmission of easier monetary policy into faster credit growth remains hampered by increased risk aversion in the economy and higher NPLs in the banking system.
“The high NPLs are indicative of the state of disrepair of corporate balance sheets—resulting in part from the accumulation of arrears—and are a major factor behind banks’ high risk aversion in lending. The mission welcomes recent efforts to prevent delays in court cases and facilitate collateral execution, but encourages additional measures, including loan restructurings from the banking system, removal of tax distortions, and facilitating out-of-court settlement.”
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