Albania has reached an agreement with the International Monetary Fund (IMF) on a 36-month Extended Fund Facility (EFF) for a total amount of EUR 300mn, the IMF said in a statement. The financial support has been requested by the Albanian government in order to enable clearance of arrears and unpaid bills towards the private sector. The agreement is expected to be approved by IMF Management and the Executive Board in January 2014.

The financing will enable the authorities to settle the debts with the private sector in a single tranche, which is expected to have a favourable economic effect, through the resumption of credit growth by helping lower NPLs and supporting domestic demand.

In its assessment the IMF praised the government’s efforts to support economic recovery and sustained economic growth over the medium term through the implementation of ambitious structural reforms while enhancing macroeconomic stability. Key priority remains the reduction of the public debt, which due to its relatively high level and structure, is seen as a major source of vulnerability for the country’s economic development. In this regards, the IMF and the government have already agreed on fiscal consolidation measures that would have to continue over the medium term and remaining years of the program to bring public debt to a sustainable trajectory. Adjustments include both the revenue and the expenditure side.

We note that the Albanian government has also held parallel negotiations for financial assistance from the World Bank.