On January 23, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the 2018 Article IV Consultation with Albania.1
Albania’s economic growth has trended upward in recent years as the country has benefitted from the implementation of reforms and from the economic expansion of its European trade partners. Growth is estimated at 4.2 percent in 2018 and is projected to stay close to this level over the medium term, supported by stronger exports, including tourism, and investments in infrastructure. The exchange rate has appreciated sharply since March 2018, putting downward pressure on inflation, which is expected to rise gradually to reach its 3 percent target by 2021. The fiscal stance was broadly neutral in 2018, and in the absence of additional measures the fiscal deficit is expected to hover around 2 percent of GDP in the medium term. In October, the authorities successfully issued a €500 million Eurobond with a seven-year maturity, at a favorable rate of 3.50 percent. As large energy projects with import-intensive components are tapering off, the current account deficit is expected to narrow to around 6 percent of GDP over the medium term. Although the banking system is well-capitalized and liquid, the provision of credit to support business investments has remained weak. The non-performing loan (NPL) ratio has been lowered to about 13 percent, but pockets of vulnerability remain.
Over the medium-term, risks are tilted towards the downside. Albania is strongly exposed to the increasing risks to growth in Europe, notably in its main trading partners. A downturn in these countries could spill over through lower exports, remittances, and foreign direct investment. Moreover, the expected tightening in global financial conditions would raise Albania’s cost of financing. On the domestic side, public debt is high, while low domestic savings and the absence of large institutional investors amplify dependence on foreign sources of financing. The increasing reliance on PPPs for infrastructure projects has resulted in rising contingent liabilities. Domestic risks also include the impact of drought on electricity generation, creating risks to the budget.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.