The International Monetary Fund (IMF) said on November 20 that Albania needs to reduce the fiscal deficit so as to create fiscal buffers, as in case of adverse risks to economic growth there would be very limited space for fiscal stimulus.

The staff concluding statement followed the IMF mission led by Jan Kees Martijn's visit to Tirana during November 6–20 for the annual Article IV consultation discussions.

The IMF projects that in the absence of additional measures, the government deficit will remain close to 2% of GDP in 2018 and beyond.

For 2019, the Fund advises an additional reduction in the deficit by more than 0.5% of GDP, which can be achieved through a mix of excise-rate indexation, environmental taxation, and further broadening of the tax base, the statement said.

The IMF recommends bringing down the debt to 62.3% of GDP by 2021.

To achieve the authorities’ objective of reducing public debt to 60% of GDP by 2021 in a sustainable manner, the IMF said that further fiscal adjustment will be needed, and warned that failure to meet this target could undermine the confidence of financial markets.

The IMF projects Albania’s economy to grow by 4% in 2018, boosted by a temporary push from electricity generation.

For next year, the growth is expected to soften to 3.7%, but over the medium term, the economic growth is projected at 4% supported by exports, including tourism, and investments in infrastructure.

Due to the absence of fiscal space, the IMF strongly urged the Albanian authorities to refrain from introducing ad-hoc tax cuts, exemptions, or preferential treatments and consider rolling back those already implemented. 

The IMF said that the rapid increase in Public-Private Partnerships (PPPs) has raised fiscal risks, calling for additional improvements in the public investment framework. 

The IMF also advised promoting a competitive bidding process by halting the acceptance of unsolicited PPP proposals.

“While the projected PPP-related spending remains below the legal limit of 5% of tax revenues, this leaves little room for any additional government-funded PPP projects,” the IMF noted.