IMF says Albania's economy shows signs of protracted weakness, widening macroeconomic imbalances.

By bne IntelliNews March 20, 2014

Albania's economy has shown signs of protracted weakness and widening macroeconomic imbalances, the IMF said in a statement following Article IV consultations. Weak investor confidence, bank risk aversion, as well as incomplete investment climate reforms, have amplified the slowdown.

The Fund estimates Albnia's real GDP growth at 0.7% y/y in 2013, the lowest in more than a decade. The growth is expected to pick up to 2.1% y/y in 2014.

The IMF highlighted that Albania’s fiscal position deteriorated significantly in 2013. The country’s public debt and financing needs, which are among the highest in the CEE region, have risen because of fiscal loosening prior to the 2013 elections, the accumulation of significant unpaid bills and arrears and the weak economy. Fiscal deficits have been also driven up also by structural factors, with pensions exerting a heavy fiscal burden.

The IMF noted that fiscal consolidation should target lowering of the public debt ratio to below 60% of GDP in the medium term. This requires the introduction of significant further tax and expenditure policy measures, supported by extensive public financial management and tax administration reforms. The burden of fiscal adjustment should fall primarily on the revenue side of the budget, given the country’s development needs and the low share of revenues in GDP.

The IMF believes that the proper implementation of planned ambitious structural reforms, including the areas of pensions, energy, local government, public administration, and measures to improve the business environment should strengthen the country's ability to attract investment, reduce fiscal risks, and strengthen debt sustainability.

The Executive Board of the International Monetary Fund (IMF) approved on February 28 a 36-month SDR 295.42mn (EUR 330.9mn) arrangement under the Extended-Fund Facility (EFF) for Albania in support of the authorities’ reform program. The amount equals to 492.4% of country’s quota in the Fund. The decision allows for immediate disbursement of EUR 26.4mn. According to the Schedule of Review and Purchases, included in Albania's request for extended arrangement, following February’s disbursement (SDR 23.55mn), the country will receive 8 quarterly tranches based on progress in performance criteria.

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