News Brief No. 99/27

News Brief: IMF Executive Board Approves Albania's Second Annual Program under ESAF and Augmentation; Releases US$30 million Credit Tranche

June 14, 1999

IMF Executive Board Approves Albania's Second Annual Program under ESAF and Augmentation; Releases US$30 million Credit Tranche

Stanley Fischer, First Deputy Managing Director of the International Monetary Fund (IMF), said: "The Executive Board of the IMF met today to assess Albania's request for a second annual arrangement and augmentation of access under the Enhanced Structural Adjustment Facility (ESAF). The request was approved and as a result, SDR21.5 million (about US$30 million) is available to Albania during the second annual ESAF arrangement.

"Directors commended the authorities for their success in restoring macroeconomic stability following the 1997 financial disturbances, which were occasioned by the collapse of pyramid schemes. They noted that in 1998, output rebounded from its earlier losses, inflation was significantly reduced, and international reserves were kept at a reasonably comfortable level. Directors considered that this success stemmed from the implementation of prudent macroeconomic policies and continued progress in key structural reforms, despite the formidable challenges resulting from the Kosovo crisis. Directors recognized that the flood of refugees into Albania since the crisis erupted in late March had placed tremendous strains on the social and economic infrastructure as well as on the budget and balance of payments.

"Directors considered that, with sufficient external support, the crisis need not derail Albania's recovery or prove inflationary. Donor financing of Kosovo-related expenses should enable the government to keep within its 1999 fiscal and monetary program targets while maintaining a robust rate of growth. Directors emphasized the critical role that financial support from the international community will need to continue to play in meeting the costs of the Kosovo crisis. Directors noted that the achievement of the targeted budgetary outcome would provide room for the expansion of private credit under the monetary program, although this expansion would only be desirable if bank restructuring efforts were accelerated and bank supervision practices strengthened. Noting the authorities' prudent implementation of monetary policy and success in restoring price stability, Directors saw scope for some interest rate cuts in the period ahead.

"Directors stressed that it would be essential to maintain the momentum of structural reforms and efforts to improve governance if rapid growth was to be sustainable. In this connection, recent actions and statements by the authorities were particularly encouraging. Directors urged the government to intensify its efforts to mobilize tax revenues in order to provide sufficient budgetary resources for development and priority social spending. Directors considered that tax revenues could be increased by broadening the tax base, especially through the inclusion of the agricultural sector in the tax net, and addressing the recognized problems of fraud and corruption in customs administration. Other priorities were to accelerate privatization in the banking and other strategic sectors of the economy and to build on the progress in agricultural land registration in order to foster the land market and consolidate land holdings.

"Directors also stressed that utmost vigilance was needed to ensure that the strains created by the Kosovo crisis did not weaken governance. The government should continue to implement its anti-corruption program and necessary reforms in the judiciary, customs, and public administration. The pyramid scheme episode should also be brought to a speedy and transparent conclusion. Finally, Directors stressed that it is critical for the authorities to observe the highest standards of transparency in accounting for expenditures and funding connected with the Kosovo crisis. They accordingly welcomed the authorities' intention to place the financial assistance provided by the donor community in a separate account and to make information on related transactions available to the public.

"Directors reiterated their strong support for the Albania authorities' adjustment and reform efforts and wished them every success."