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.
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.
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Albania: Selected Economic Indicators, 2016–21 |
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|
2016 |
2017 |
2018 |
2019 |
2020 |
2020 |
2021 |
2021 |
|
|
RFI |
RFI |
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|
|
Proj. |
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|
(Percent change) |
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|
Real sector |
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|
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) |
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Saving-investment balance |
|
|
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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 |
|
|
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|
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) |
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|
Monetary indicators |
|
|
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|
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) |
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|
External sector |
|
|
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|
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 |
|
|
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|
Real GDP (growth per capita) |
3.5 |
3.9 |
4.3 |
2.1 |
-7.3 |
-4.9 |
5.6 |
8.2 |
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Sources: Albanian authorities; and IMF staff estimates and calculations. |
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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. |
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2/ The stock of general government debt includes arrears from central and local government. |
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[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://0-www-IMF-org.library.svsu.edu/external/np/sec/misc/qualifiers.htm .
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