Statement by Pier Carlo Padoan, Executive Director for Albania

This paper examines Albania’s 2002 Article IV Consultation, First Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF), and Requests for Modification and Waiver of Performance Criterion. Economic growth appears to have fallen below a 7 percent estimated historical average, to 4.7 percent in 2002. High foreign investments and private remittances in 2001 have maintained robust import demand, reflected in a widening trade deficit in 2001 and the first half of 2002. The IMF staff supports the authorities’ request for completing the first program review and the request for a waiver.

Abstract

This paper examines Albania’s 2002 Article IV Consultation, First Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF), and Requests for Modification and Waiver of Performance Criterion. Economic growth appears to have fallen below a 7 percent estimated historical average, to 4.7 percent in 2002. High foreign investments and private remittances in 2001 have maintained robust import demand, reflected in a widening trade deficit in 2001 and the first half of 2002. The IMF staff supports the authorities’ request for completing the first program review and the request for a waiver.

February 26, 2003

My Albanian authorities would like to thank Staff for very fruitful discussions and consultations in completing this first review of the new PRGF program.

After a period of strong growth and macroeconomic stability Albania, with the support of a new Fund program, is tackling the deep roots of its structural problems so as to consolidate growth and stability and move forward in the fight against poverty. The prospects of a Stabilization and Association Agreement with the EU provide a strong framework as well as a unique opportunity for pushing ahead the reform process.

My Albanian authorities are aware that the reform process has slowed down over the recent past and reiterate their commitment to maintaining macroeconomic stability, reinvigorating the pace of economic reform, and make substantial progress in improving governance and fighting corruption. The slowdown in policy action has been due to the electoral phase. Political stability now provides the basis for an acceleration of policy reform.

Macroeconomic developments

Growth over the past two years has fallen below the 7% historical average. The causes of the slowdown are due in part to natural events (draught and flooding) that have severely damaged agricultural production, and to energy shortages that have especially hit industrial production. Tackling such shortages remains one of Albania’s major challenges.

Demand has remained strong, however, while price stability has been preserved through timely action by monetary authorities. The fiscal deficit has remained within budgetary limits as lower revenue and shortfalls in privatization receipts were more than offset by spending cuts.

Structural measures

Recent macroeconomic developments signal the need to speed up structural reforms to maintain the pace of growth and provide the resources for fighting poverty. While performance under the program had been affected by political instability, related to the election period, authorities have recently stepped up their initiative including the parliamentary approval for the closure of the duty free shops, a structural performance criteria.

Progress is under way both in the privatization of Albtelekom and in the restructuring of the energy sector.

On the privatization of Albtelekom: the International Financial Corporation (IFC), and the European Bank for Reconstruction and Development (EBRD) will privatize part of the Albanian fixed phone line, following the revision of the company’s privatization formula. To this purpose Albania will draft a bill to guarantee the partial purchase of the company by IFC and EBRD. The privatization procedure is to be finalized in 2003. Albtelekom plans to increase up to 500,000 fixed lines, mainly in the rural and remote areas countrywide, in 2003.

On the energy sector: following the agreement on a soft loan by the Italian government (30 million Euro) a program is under way to restructure KESH (the Albanian Energy Corporation), including its separation into production, transmission, and distribution. Under the program, which can count on the support of a large number of donors, both IFI’s and bilateral, KESH seeks to significantly improve revenue collection, reduce losses, and improve financial management.

Governance issues and the fight against corruption.

Concerns have been raised recently in the press on strengthening governance and fighting corruption. Both are key priorities for Albania. As the staff report makes clear success in the improvement of governance and fight against corruption requires credible policy implementation and broad public support. Authorities are strongly committed to achieving both.

Two high-level bodies have been established with the objective of directing the Albanian National Anti-Corruption Plan, the Governmental Commission for Fight against Corruption at the government level and the And Corruption Monitoring Group (ACMG) at the highest civil servant level, supported by the Anti Corruption Unit (ACU) with the assistance of international organizations. The task of ACU is to coordinate the implementation of the National Anti-Corruption Plan.

The Second National Anti Corruption Conference in June 2002 adopted a new Action Plan on the Prevention and Fight against Corruption. ACU has completed a report on initial results in December 2002. The report identifies early results as well as specific problems to be tackled in the areas of: public administration reform, improvement of legislation and consolidation of the rule of law, public finance management and auditing, transparency and integrity in business transactions, disclosure of public information

Cooperation with international organizations is proving to be extremely helpful in strengthening institutions and governance. The Activity of ACU is supported by the PACO program, sponsored by the Council of Europe. A first project was completed in May 2002 and a second project will run through December 2003. A report, presented to the Council of Europe at the December plenary session, contains an evaluation of Albania’s efforts, which can be summarized as follows:

  • - Albania has taken extensive action against corruption with impressive results over the past few years

  • - A good legal framework is in place and effective anti corruption measures have been taken

  • - The Anti Corruption Strategy is well designed, although implementation has to be improved

  • - The Government has identified priorities for future action: reform of the civil service, including training, transparency of the privatization process, reform of the public procurement system, reform of the State Police, elimination of corruption within the judiciary, information to the public and co-operation with civil society.

Data Issues

Authorities are aware of the need to improve the quality and availability of statistical data and are preparing an action plan for improving the national account statistics. In this perspective they have requested additional long-term assistance from Eurostat to strengthen the coverage and timeliness of national accounts, under the supervision of the Fund. In January they have released GDP data from 1996 to 2000 for the first time. With Eurostat supervision they are also developing an annual business structure survey and quarterly industrial production statistics.

Conclusions

With the start of the negotiations on a Stabilization and Association Agreement with the EU Albania is enjoying a unique window of opportunity to accelerate the reform process in utilities, tax collection, and governance. The Fund supported program under the PRGF represents a key instrument in the strategy towards sustained growth, sound institutions, and successful fight against poverty.

My Albanian authorities reiterate their commitment to the reform process and would like to thank Management and Staff for their constructive support in their effort.