Albania's economic recovery is "gaining strength", the International Monetary Fund (IMF) said on May 27, but warned that the country is falling behind on business reforms.

The IMF has completed its seventh review of Albania’s economic performance under a programme supported by the Extended Fund Facility (EFF), which will enable disbursement of additional SDR28.65mn (€36.1mn), bringing total purchases to around €263.7mn.

The IMF’s Executive Board approved a 36-month extended arrangement under the EFF for Albania on February 28, 2014 of about €330.9mn at the time of approval, or 212.1% of the country’s current quota.

“Albania’s economic recovery is gaining strength. The medium-term outlook remains favorable, provided the reform momentum is maintained. The authorities’ strong program ownership and implementation of ambitious and difficult structural and fiscal reforms are commendable. However, other reforms critical for improving the business environment are lagging,” David Lipton, first deputy managing director and acting chair, said in the IMF statement.

Lipton added that fiscal consolidation is crucial for the Albanian authorities in order to lower fiscal vulnerabilities and ensure debt sustainability. He also suggested that the government broaden the tax base by limiting tax exemptions and strengthening compliance and revenue administration.

The Albanian government posted a consolidated budget surplus of ALL16.5bn (€118mn) in the first four months of 2016, which was ALL14.2bn more than planned, according to the Albanian finance ministry.

“The authorities’ determination to implement structural fiscal reforms to reduce fiscal risks is encouraging. Strengthening the medium term budgetary framework and public investment management is critical. Fiscal risks from [public-private partnerships] PPPs should be limited by subjecting each to a cost-benefit analysis and by accounting for PPPs transparently in line with international norms,” Lipton said in the statement.

However, the IMF welcomed the “impressive progress” of Albanian government with arrears clearance at the central government level and confirmed that the monetary easing policy is appropriate.

It was suggested that greater exchange rate flexibility would support the monetary policy framework, but should be weighed against financial stability risks.

About reviving lending to the private sector, the IMF noted it is critical for Albania to speed up the implementation of the comprehensive non-performing loan (NPL) strategy, including the approval of the Bankruptcy Law and the Private Bailiffs Law.

The bad loan ratio is constantly declining but still it is considered to be high. The volume of loans is showing a downward trend y/y.

“Further structural reforms to improve the business environment would be critical for strengthening Albania’s competitiveness. The focus should be on early implementation of judicial reform, strengthening of property rights, and upgrading infrastructure and education. These steps will help pave the way towards EU accession and sustainable growth,” the statement concluded.

Albanian Prime Minister Edi Rama, said earlier he expects the country to start the EU accession talks this year. The European Commission suggested that judicial reforms are one of the key priorities for the country to make further progress towards the EU.