An IMF Mission to Albania
A staff team from the International Monetary Fund (IMF) led by Nadeem Ilahi visited Tirana during December 3–17 to hold Article IV consultation discussions and to discuss the authorities’ request for an economic program. The mission reached staff-level agreement with the authorities, subject to approval by IMF Management and the Executive Board, on an economic program that could be supported by a 36-month Extended Fund Facility (EFF) with the IMF. Proposed access could total around EUR 300 million, about 450 percent of quota. The mission met with Prime Minister Rama, Finance Minister Cani, Minister of Economic Development Ahmetaj, Bank of Albania Governor Fullani, other public officials, and representatives of the business community, civil society and international partners.
“The economy is expected to show a modest recovery in 2014, but stagnating credit, troubled corporate balance sheets, weak external partners and declining remittances are expected to limit growth to near 2 percent.
“The authorities’ new economic program will seek to support economic recovery and sustained economic growth over the medium term through implementation of ambitious structural reforms while enhancing macroeconomic stability. In particular, the government seeks to reverse the upward trend in public debt and lay the ground for its sustained reduction and restore banks’ confidence in lending by reducing high nonperforming loans (NPLs).
“The 2014 budget is in line with an initial process of fiscal adjustment while being cognizant of the weak economy. A credible and ambitious adjustment effort will contribute toward reversing the upward trend in public debt. Relief measures for the vulnerable groups will be delivered through targeted budget spending. Fiscal consolidation would have to continue over the medium term, and measures will be needed in the remaining years of the program to bring public debt to a sustainable trajectory.
"The authorities’ fiscal effort is underpinned by adjustment measures, including tax and expenditure policies, revenue administration and public financial management reforms. Staff has advised on implementing measures that are non-distortive, broaden the tax base, and are compliant with international contractual obligations.
“The program envisages the clearance of the government’s arrears and unpaid bills. Doing so will strengthen private sector balance sheets, facilitate the resumption of credit growth by helping lower NPLs, and support domestic demand. The government is committed to implementing the arrears clearance process in an open and transparent manner. An external auditor will conduct risk-based audit of arrear payments.
“Monetary policy will continue to be supportive of economic recovery, consistent with the Bank of Albania’s (BoA) mandate of maintaining price stability. The BoA has been largely successful in anchoring inflation expectations. However, the transmission of monetary policy easing into faster credit growth remains hampered by increased risk aversion in the economy and high NPLs in the banking system.
“Albania’s financial system has weathered the crisis well. Bank capitalization and liquidity is in line with regulatory requirements. However, NPLs have risen sharply, largely as a result of the economic downturn and the accumulation of government arrears. The authorities are committed to implementing a number of additional reforms to reduce the size of NPLs. Moreover, they will implement reforms to further strengthen financial sector stability, based on the recommendations of the recent IMF Financial Sector Assessment Program mission.
“Lack of progress on structural reforms has constrained economic growth. An ambitious reform program is needed, focusing on the objective of attracting investment. The authorities are planning to take specific measures in the areas of improving property rights, reducing discretion in tax administration, and streamlining business registration procedures.
"The electricity sector and pension system pose risks to the fiscal outlook. The authorities plan to undertake comprehensive reforms over the medium term to make these sectors sustainable and bring them in line with best international practice. International partners, including the World Bank, are expected to provide assistance.”
Source: International Monetary Fund
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