Statement by the IMF Staff Representative January 26, 2001

Executive Directors commended the authorities for their policies to maintain macroeconomic stability, which had resulted in favorable growth performance and zero inflation, and welcomed improvements in tax collection and encouraged the authorities to continue with their efforts to strengthen tax administration. The authorities are urged to proceed rapidly with structural reforms, in particular by improving governance further to ensure sustained growth and poverty reduction. Macroeconomic data, although adequate for program monitoring, continue to suffer from serious deficiencies, especially in the real sector.

Abstract

Executive Directors commended the authorities for their policies to maintain macroeconomic stability, which had resulted in favorable growth performance and zero inflation, and welcomed improvements in tax collection and encouraged the authorities to continue with their efforts to strengthen tax administration. The authorities are urged to proceed rapidly with structural reforms, in particular by improving governance further to ensure sustained growth and poverty reduction. Macroeconomic data, although adequate for program monitoring, continue to suffer from serious deficiencies, especially in the real sector.

This statement reports on recent developments since the issuance of the staff report (EBS/01/4). The staff appraisal remains appropriate and the staff reaffirms its recommendation that the Executive Board complete the first review under the third annual arrangement.

Year-on-year inflation rose from 1.9 percent in November to 4.2 percent in December, reflecting almost entirely a supply-induced surge in the price of fruits and vegetables, which have an exceptionally high share in the CPI. Excluding these items, inflation was 2.4 percent, in line with the program target range of 2-4 percent. Moreover, preliminary estimates for prices in Tirana during January indicate that the price of fruits and vegetables has declined since end-December. The staff, however, has advised the Bank of Albania to monitor the situation closely.

Regarding fiscal policy, preliminary data indicate that cumulative tax collection for 2000 reached Lek 81.7 billion, compared with the indicative target of Lek 82 billion. Final data are usually revised upward. Moreover, the end-December domestically financed deficit is estimated to have been within the program target.

In the monetary area, 12-month T-bill rates have declined further, to 11¾ percent (compared with around 12½ percent during the mission), while 3-month rates have remained broadly unchanged at around 7¾ percent. The end-December targets for the Bank of Albania NIR and NDA have both been met. External reserves, at US$607 million in end-December, were well above the projected US$550 million, in large part because of the disbursement of the World Bank SAC on December 26. The exchange rate has remained stable relative to the euro, with some seasonal weakening in early January.

Favorable weather conditions together with efforts to increase imports, reduce electricity theft, and promote the use of liquefied gas have removed the immediate threat of an electricity crisis. To achieve the target for improving collections agreed with the World Bank as a condition for reactivating the Bank's sector lending program, the authorities have established an interministerial committee on energy headed by the Prime Minister, which has been meeting regularly and following the situation closely. In cooperation with the Bank, the authorities are also identifying critical projects and additional measures in the electricity sector for which they could seek additional assistance from the donor community.

In the area of structural reforms, the privatization advisor for the Savings Bank started work on January 8. The authorities have received three offers for the second GSM license, two of which are for the amount of US$25 million. The government has also completed negotiations to grant a concession to a Turkish company to take over a number of copper mines and invest up to $US20 million.

Albania: First Review Under the Third Annual Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria
Author: International Monetary Fund