Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes 2020 First Post-Program Monitoring with Albania







November 30, 2020















WASHINGTON, DC: The Executive Board of the
International Monetary Fund (IMF) concluded the First Post-Program
Monitoring review

[1]

with Albania on November 23. Albania has benefited from the IMF emergency
financial assistance (around US$190.5 million) disbursed under the Rapid
Financing Instrument in April 2020, which allowed Albania to meet urgent
balance of payments needs stemming from the aftermath of the November 2019
earthquake and the outbreak of the COVID-19 pandemic. Albania’s capacity to
repay the Fund is adequate, but risks have risen in light of the shocks.

Albania continues to be severely affected by the aftermath of the
earthquake and the pandemic. The authorities responded promptly to the
shocks, and macroeconomic and financial stability have so far been
maintained. The economy is expected to contract by 7½ percent in 2020 and
rebound gradually in 2021-22 as the shocks subside and reconstruction
spending picks up. Inflation is expected to remain subdued before
converging to the 3 percent target over the medium term. The current
account deficit is projected to widen to more than 10 percent of GDP in
2020, but international reserves are likely to increase slightly, remaining
at a comfortable level.

The outlook is subject to major uncertainty with risks to the downside.
Downside risks are increasing as new infections have been rising
considerably in Albania and many other European countries in the fall.
A more severe pandemic would further dampen Albania’s economic outlook,
through weaker
tourism, remittances, external demand, and FDI, as well as tighter
financial conditions. Large depreciation pressures could entail balance
sheet risks given unhedged foreign currency loans, although the sizeable
reserve coverage would be a mitigating factor. Albania’s elevated public
debt, large rollover needs, growing fiscal risks, and a relatively high
level of non-performing loans (NPLs) also present challenges.

Executive Board Assessment

[2]

Executive Directors commended the Albanian authorities for maintaining
macroeconomic and financial stability thus far, and welcomed their
responses to support lives and livelihoods in response to the November 2019
earthquake and the COVID-19 pandemic. Albania’s capacity to repay the Fund
is adequate, with a sizeable reserve cover and flexible exchange rate as
important shock absorbers. However, risks have risen stemming from the
pandemic, elevated fiscal deficits and public debt, weaknesses in
management of public finances, and a relatively high level of
non-performing loans (NPLs) and euroization. Moreover, considerable
uncertainty and downside risks surround the projected recovery for 2021-22.
In this context, Directors emphasized the importance of contingency
planning and recommended that the authorities stand ready to take further
measures to preserve macroeconomic and financial stability.

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Directors stressed that support for the economy needs to continue in 2021,
but should be temporary and targeted, subject to transparency and
accountability. They urged the authorities to regularize as soon as
possible extraordinary measures in public financial management (PFM) taken
during the emergency and to subject reconstruction funds to adequate PFM
controls. Directors recommended that the cyclical boost to revenues be used
to achieve a larger deficit reduction in 2021 than is consistent with the
budget and to build a buffer for contingencies. Directors welcomed recent
amendment to the fiscal rules.

Addressing structural weaknesses in public finances can better support
investment in human and physical capital. A sound medium-term revenue
strategy should be adopted and implemented without further delay. Frequent,
ad hoc changes to tax policy and tax amnesty schemes should be avoided.
Directors also stressed the need to strengthen PFM, and manage increasing
fiscal risks, including from public-private partnerships and recent
government guarantees. They underlined the need to prevent new arrears and
continued efforts to strengthen the AML/CFT framework.

Directors underscored the need to safeguard financial stability while
supporting borrowers hit by the shocks. They recommended that supervisors
closely monitor and carefully manage risks, including by guiding banks’
restructuring of credit portfolios. Directors supported retaining
restrictions on dividend distributions to safeguard banks’ capital
positions. They encouraged the authorities to further improve the NPL
resolution framework and align the regulatory framework with international
standards.



Albania: Selected Economic Indicators, 2016–21

2016

2017

2018

2019

2020

2020

2021

2021

RFI

RFI

Proj.

(Percent change)

Real sector

Real GDP

3.3

3.8

4.1

2.2

-7.5

-5.0

5.4

8.0

Domestic demand contribution

3.1

3.6

3.9

1.6

-5.8

-0.9

4.0

5.2

Consumption

2.0

2.3

2.4

2.8

-5.0

0.0

2.3

1.2

Investment (Incl. inventories and stat. disc)

1.1

1.3

1.4

-1.2

-0.9

-0.9

1.8

4.0

External demand contribution

0.2

0.2

0.2

0.7

-1.6

-4.1

1.3

2.8

Consumer Price Index (eop)

2.2

1.8

1.8

1.1

1.0

2.6

2.2

2.9

Consumer Price Index (avg.)

1.3

2.0

2.0

1.4

1.4

2.4

1.6

2.8

GDP deflator

-0.6

1.5

1.4

0.4

1.2

2.6

1.5

2.7

(Percent of GDP)

Saving-investment balance

Foreign savings

7.6

7.5

6.8

8.0

10.6

11.2

8.3

8.1

National savings

16.8

17.1

17.1

14.5

12.1

10.6

14.8

15.4

Public

1.5

2.4

3.0

2.0

-3.6

-3.1

-2.1

-0.1

Private

15.3

14.7

14.2

12.6

15.7

13.8

17.0

15.5

Investment (incl. Inventories and stat. disc.)

24.4

24.6

23.9

22.5

22.7

21.9

23.1

23.5

Public

5.1

5.5

5.6

5.3

6.3

5.6

7.6

5.9

Private

19.3

19.1

18.3

17.2

16.4

16.2

15.5

17.5

Fiscal sector

Total revenue and grants

27.6

27.8

27.5

27.4

25.3

26.3

26.9

26.9

Tax revenue

25.1

25.7

25.6

25.4

23.2

23.2

24.7

23.9

Total expenditure

29.6

29.7

28.8

29.4

32.1

31.7

33.0

29.9

Primary

27.2

27.7

26.6

27.3

30.0

29.6

30.8

28.3

Interest

2.5

2.1

2.2

2.1

2.1

2.1

2.1

1.6

Overall balance 1/

-2.0

-2.0

-1.3

-2.0

-6.8

-5.4

-6.1

-3.1

Primary balance

0.5

0.1

0.9

0.1

-4.7

-3.3

-4.0

-1.4

Financing

2.0

2.0

1.3

2.0

6.8

-0.4

6.1

3.1

Of which: Domestic

0.7

-0.5

-1.5

2.5

1.5

2.1

5.3

0.4

Of which: Foreign

1.3

1.9

2.9

-0.5

5.3

-2.5

0.8

2.7

General Government Debt 2/

73.3

71.9

69.5

67.8

81.9

75.6

81.5

70.7

Domestic

39.1

39.0

37.3

37.2

42.2

43.0

41.7

40.5

External

34.3

32.9

32.2

30.7

39.8

32.6

39.8

30.2

(Percent change)

Monetary indicators

Broad money growth

3.9

0.3

-0.2

4.3

6.2

-2.6

3.8

10.9

Private credit growth

0.4

-0.8

-0.9

6.1

4.9

-2.5

1.8

11.4

Velocity (nominal GDP/ broad money)

1.2

1.2

1.3

1.3

1.1

1.3

1.2

1.3

(Percent of GDP, unless indicated otherwise)

External sector

Trade balance (goods and services)

-16.8

-15.1

-13.7

-13.8

-15.5

-17.2

-14.1

-14.0

Current account balance

-7.6

-7.5

-6.8

-8.0

-10.6

-11.2

-8.3

-8.1

Gross international reserves (billions of Euros)

2.9

3.0

3.4

3.4

3.5

2.9

3.2

3.3

(In months of imports of goods and services)

6.5

6.2

6.6

8.8

7.8

5.3

6.4

5.5

(Relative to external debt service)

1.6

1.5

1.5

1.5

1.4

1.2

1.4

1.5

(In percent of broad money)

31.5

31.4

33.2

31.0

31.7

30.1

29.6

29.0

Memorandum items

Real GDP (growth per capita)

3.5

3.9

4.3

2.1

-7.3

-4.9

5.6

8.2

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

1/ The fiscal balance includes guarantees for new loans to
the energy sector through 2019, and potential calls of
COVID-19 related guarantees from 2021. The 2021 budget was
adopted by the parliament after finalization of the staff
report and is expected to result in a slightly lower fiscal
balance of -6.3 percent of GDP.

2/ The stock of general government debt includes arrears
from central and local government.




[1]

Post-Program Monitoring (PPM) is a regular surveillance tool for
countries with IMF credit outstanding above 200 percent of quota. A
staff team collects economic and financial information and
discusses with officials the country’s vulnerabilities and risks to
the repayment capacity to the IMF. Then, the staff prepares a
report, which forms the basis for discussion by the Executive
Board.


[2]

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:

http://www.IMF.org/external/np/sec/misc/qualifiers.htm

.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Gediminas Vilkas

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson








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