Press Release No. 04/146

Press Release: IMF Completes Fourth Review Under PRGF Arrangement with Albania and Approves US$6 Million Disbursement

July 14, 2004

The Executive Board of the International Monetary Fund (IMF) today completed the fourth review of Albania's economic performance under the Poverty Reduction and Growth Facility Arrangement. The decision will enable the release of an amount equivalent to SDR 4 million (about US$6 million), bringing total disbursements under its current PRGF arrangement to SDR 20 million (about US$30 million).

The Executive Board also completed the financing assurances review and granted the authorities' request to waive the nonobservance of an end-March structural performance criterion, regarding the implementation of the ASYCUDA customs data management system and the initiation of an integrity audit. The system implementation was subsequently carried out.

The three-year PRGF arrangement was approved on June 21, 2002 (see News Brief No. 02/52) for a total of SDR 28 million (about US$42 million).

Following the Executive Board discussion, Anne Krueger, First Deputy Managing Director and Acting Chair, said:

"Albania's performance during the second year of the PRGF-supported program has been satisfactory overall, with growth remaining strong, the external current account improving, and reserves accumulating in excess of program targets. Skillful management of liquidity by the Bank of Albania, and ongoing fiscal consolidation and debt reduction, contributed to a recovery in confidence, a strengthening of the currency, and the maintenance of low inflation. However, fiscal revenue shortfalls relative to the budget persisted, requiring significant expenditure reductions in 2003 to meet program targets. Implementation of structural reforms improved since the last review, and include the finalization of the sale of Savings Bank, administrative reforms of fiscal institutions, and actions to remove investment barriers.

"The proposed program includes fiscal adjustment measures in response to a reassessment of the revenue forecast for 2004; and the authorities' decision on the use of the Savings Bank privatization revenues—half of which will be spent on investment projects in priority areas, while the remainder will be used for debt reduction. The program also includes revenue-enhancing tax policy measures; and further structural reforms to improve the management of fiscal institutions, governance, and transparency, and to support central bank independence and foster greater financial intermediation.

"Over the medium term, maintaining growth and external sustainability will require continuing on the path of fiscal consolidation, as well as further structural reforms to improve the business climate and attract export-generating foreign investment. Therefore, the structural reform agenda appropriately focuses on improving budget revenue mobilization and the efficiency of the public sector—including in the delivery of poverty-alleviating programs—as well as on strengthening governance and the rule of law, and removing administrative barriers to investment," Ms. Krueger said.

The PRGF is the IMF's most concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5½-year grace period on principal payments.