Based on Article IV of the Article of Agreements of IMF, during March 2018, an IMF mission visited Tirana, with the aim of evaluating economic developments for the Post-Program Monitoring (PPM) discussions. Albania, which has been a member of the IMF since 1991, has received substantial IMF credit. The PPM process commences after the expiration of these programs, with a special focus on vulnerabilities and risks.
The statement issued by the mission emphasized the stability of the macroeconomic and political environment in Albania. It deemed financing conditions to be extremely favorable as inflation and interest rates remain very low. The GDP growth of 3.9% in 2017 and the estimated growth of 3.7% in 2018 make Albania the fastest growing economy in the region.
The mission states that investment and exports are increasing, supported by the strong economic recovery in EU trading partners. The foreign exchange reserves of the Bank of Albania are comfortable and supported by six months’ import cover.
The banking sector has been evaluated to be stable, liquid, and profitable, but the large number of NPLs and difficulties in collateral execution are weighing it down. Banks recorded a decrease of 13.2% of loans at the end of 2017 mostly due to write-offs and restructuring. It is expected that there will be an acceleration of the collateral execution due to the latest legal measures, mainly the success fees for bailiffs and the regulation of out-of-court agreements.
The IMF draws attention to the fact that the current economic growth momentum may not last long. The cyclical EU recovery and the possible global risks could lower the confidence and growth and may negatively impact Albania through trade, investment, and banking channels. Additional internal influencing factors include the increase of contingent liabilities; public debt and fiscal shortfalls as well as lack of infrastructure connectivity, informality, difficulty in accessing finance and weak human capital.
The IMF suggests certain measures to Albania in order to be able to mitigate these risks. They include:
• The acceleration of reforms for lowering risks and building of defense mechanisms against adverse shocks. These would include a faster fiscal consolidation and - given the high level of public debt estimated at 71.2% of GDP at end-2017 – the necessity to set a fiscal deficit target of around 1% of the GDP in 2 years.
• Stronger budgetary and public investment management is also required. The increase in public investments requires better management and prioritization of these projects as well as reduction of fragmented decision-making, strengthening the risk assessment processes and eliminating the practice of unsolicited proposals.
• Improving the MoF debt management capacity.
• IMF has identified weak property rights and an inefficient judiciary as some of the most important obstacles for attracting investments.
• Improved bank supervision and regulation, aligned with EU standards, would provide tools to better manage risks of systemic banks. Strict monitoring requires further strengthening to contain the risk of large borrowers.
The IMF has asked policymakers in Albania to use the growth momentum and implement a reform agenda to combat the possible internal and external economic risks and to further align Albania on the path towards EU integration.
For more info, feel free to contact:
Senior Accountant, Eurofast Global Albania
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