The Executive Board of the International Monetary Fund (IMF) today completed the fifth review of Albania’s economic performance under the Poverty Reduction and Growth Facility (PRGF) arrangement. In doing so, the Board also approved a request for an extension of the PRGF arrangement period from June 20, 2005 to November 20, 2005. The Board’s decision enables Albania to draw an amount equivalent to SDR 4 million (about US$6.1 million), which will bring total disbursements under the arrangement to the equivalent of SDR 24 million (about US$36.6 million). The Executive Board also completed a financing assurances review.
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$42.7 million).
Following the Executive Board’s discussion of Albania, Ms. Anne O. Krueger, First Deputy Managing Director and Acting Chair, stated:
“Albania’s macroeconomic performance so far during the third year of the government’s PRGF-supported economic program has been commendable. Growth has remained robust, inflation generally has been low, the current account deficit has declined, and the lek has strengthened reflecting increased confidence. A firm monetary policy stance, continued fiscal consolidation, privatization, and progress in structural reforms have underpinned this performance.
“Economic growth is expected to remain robust in 2005 and over the medium term, supported increasingly by productivity and external trade gains. However, maintaining this growth performance will require significant improvements in infrastructure and in the investment climate, including reforms to strengthen governance, property rights protection, and the rule of law.
“The financial sector has become increasingly dynamic since the privatization of the Savings Bank. The Bank of Albania is appropriately supporting the development of the financial sector and stepping up prudential vigilance. In this connection, the program includes steps to expand the financial infrastructure and to curtail the use of cash, including by paying public wages through the banking system. A financial sector assessment is to be undertaken shortly to help chart the course of further reforms and build prudential supervisory capacity.
“The fiscal component of the program is consistent with the 2005 budget and envisages further fiscal consolidation and improvements in the composition of budgetary spending. The program is based on realistic assumptions about revenue, and envisages a surplus in the current balance in order to free resources for public investment. In addition, the reduction in the underlying domestic borrowing requirement aims at allowing the expansion of credit to the private sector, without triggering inflation, and maintaining the public debt on a downward trend.
“The program also envisages progress in structural reforms to strengthen fiscal institutions, improve governance, advance the privatization process further, and improve the business climate," 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.