Front Matter Page
IMF Country Report No. 16/61
ALBANIA: FIFTH AND SIXTH REVIEWS UNDER THE EXTENDED ARRANGEMENT AND REQUEST FOR MODIFICATION AND WAIVER OF APPLICABILITY OF PERFORMANCE CRITERIA—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR ALBANIA
February 2016
In the context of the Fifth and Sixth Reviews under the Extended Arrangement and Request for Modification and Waiver of Applicability of Performance Criteria, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on February 17, 2016, following discussions that ended on November 10, 2015, with the officials of Albania on economic developments and policies underpinning the IMF arrangement under the Extended Fund Facility. Based on information available at the time of these discussions, the staff report was completed on January 27, 2016.
A Statement by the Executive Director for Albania.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Albania*
Memorandum of Economic and Financial Policies by the authorities of Albania*
Technical Memorandum of Understanding*
*Also included in Staff Report
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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International Monetary Fund
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© 2016 International Monetary Fund
Front Matter Page
ALBANIA
FIFTH AND SIXTH REVIEWS UNDER THE EXTENDED ARRANGEMENT AND REQUEST FOR MODIFICATION AND WAIVER OF APPLICABILITY OF PERFORMANCE CRITERIA
January 27, 2016
Key Issues
Background: In February 2014, the Executive Board approved a three-year Extended Arrangement with access equivalent to SDR 295.42 million (492.4 percent of quota). So far, four purchases totaling the equivalent of SDR 123.1 million have been made, and another one equivalent to SDR 57.76 million will be made available upon completion of the fifth and sixth reviews.
Recent Economic Developments: Economic recovery is underway, but growth remains below potential and inflationary pressures are limited. Nonperforming loans (NPLs) have started declining but are still high, and credit growth remains sluggish despite substantial monetary easing.
Program Performance and Risks: The program is on track. Staff discussions for the Fifth Review under the Extended Arrangement, held in June, did not conclude due to disagreements over fiscal measures needed in 2015 to offset the revenue shortfall. Nevertheless, the authorities have maintained strict spending discipline. All performance criteria (PCs) were met, as were most indicative targets. Most structural benchmarks were also met, albeit some with delays (including one set as a prior action). Program risks emanate from the challenges of revenue mobilization efforts and the need for sustained political commitment to fiscal adjustment and structural reforms. The authorities request, and staff supports, a waiver of applicability for two end-December 2015 PCs and a modification of PCs for April 2016.
Policy Recommendations: Macroeconomic and structural policies will need to support domestic demand while ensuring sustainable public finances. Reducing public debt from high levels over the medium term will require political commitment to sustain fiscal consolidation. A strategy based on broadening the tax base, improving tax compliance and administration, and implementing structural reforms to reduce subsidies to the electricity sector will help ensure sustainable debt levels while allowing space for more productive public spending. While the early results from the authorities’ ambitious power sector reform have been impressive, sustaining the effort is critical. Fiscal structural reforms to strengthen tax administration, the fiscal cadastre, and public financial management are also crucial for entrenching the consolidation gains. The central bank’s continued monetary easing is appropriate, given that underlying demand is weak and inflation is below target. Addressing the high stock of NPLs through enhanced supervision, debt restructuring, and insolvency reform is key for reviving credit.
Approved By
Masato Miyazaki and James Gordon
Discussions were held in Tirana during October 28–November 10, 2015. Staff team: Ms. Tuladhar (head), Messrs. Cabezon and Slavov (all EUR), Mr. End (FAD), and Mr. Ismail (SPR). Mr. Reinke (Resident Representative) and Ms. Spahia (local economist) assisted the mission. Messrs. Cottarelli and Di Lorenzo (OED) joined some of the meetings. The mission met with the Prime Minister; the Deputy Prime Minister; the Ministers of Finance, Economy, Energy, and Transport; the Bank of Albania Governor; other senior officials; and representatives of banks and the private sector. Support was provided by Mr. Song, Ms. Mendoza (both EUR), and Ms. Kadeli (Tirana office).
Contents
CONTEXT AND RECENT DEVELOPMENTS
PROGRAM PERFORMANCE
POLICY DISCUSSIONS
A. Outlook and Risks
B. Improving Debt Dynamics and Implementing Structural Fiscal Reforms
C. Safeguarding Financial Stability and Unlocking Credit
D. Advancing Structural Reforms
PROGRAM DESIGN AND RISKS
STAFF APPRAISAL
BOX
1. Albania’s Campaign Against Tax Evasion, Non-Compliance, and Informality
FIGURES
1. Output and Growth Developments
2. Price Developments
3. External Developments
4. Fiscal Developments
5. Financial Developments
TABLES
1. Basic Indicators and Macroeconomic Framework, 2012–19
2a. General Government Operations, 2012–19 (Percent of GDP)
2b. General Government Operations, 2012–19 (Billions of leks)
3a. Balance of Payments, 2012–19 (Percent of GDP)
3b. Balance of Payments, 2012–19 (Millions of euros)
4a. Monetary Survey, 2012–16
4b. Summary of Accounts of the Central Bank, 2012–16
5. IMF Core Indicators of Financial Soundness, 2007–15
6. Schedule of Reviews and Purchases
7. Indicators of Capacity to Repay to the Fund, 2012–19
APPENDIX
I. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies
Attachment II. Technical Memorandum of Understanding
Front Matter Page
Press Release No. 16/62
FOR IMMEDIATE RELEASE
February 17, 2016
International Monetary Fund
Washington, D.C. 20431 USA
Telephone 202-623-7100
Fax 202-623-6772
