By Pier Carlo Padoan*
The commitment of the Albanian authorities to strengthen macroeconomic and financial stability, improve business climate and proceed with structural reforms has generated the necessary drivers for a robust and sustainable growth. The IMF-supported program remains on track, providing a credible anchor to the overall policy framework and contributing to alleviate the short- to medium-term financing needs of the economy.
After a slowdown in 2013, economic growth picked up last year, as a result of strong private sector demand. The increase in private consumption and investment reflects improved financing conditions, higher confidence and continued arrears clearance by the public sector.
In spite of faster growth, the Albanian economy continues to operate below its potential.
Coupled with falling foreign prices, the spare capacity is reflected in an undershooting of the consumer inflation target. The current account deficit, while still high, continues to be largely financed through foreign direct investments.
The authorities remain committed to prudent policies. The 2015 budget targets the program deficit of 4.8 percent of GDP, which will allow the public debt ratio to decrease for the first time since 2010. This is consistent with the goal of bringing the debt ratio down to 64 per cent of GDP by the end of the program in 2017. Additionally, further efforts will be taken to clear out remaining public sector arrears, improve the process of budget execution and strengthen debt management capacities.
The Bank of Albania will continue to pursue an accommodative monetary policy, until both inflation and inflation expectations are firmly anchored to its 3 per cent target. The financial system remains well capitalized. Building up on recent efforts, the financial reform agenda will be pushed forward, in line with the recommendations of the Financial Sector Assessment Program report and the Safeguard Assessment.
Comprehensive structural reforms will continue to be enacted in order to strengthen the long-term growth potential. The reform of the electricity sector will be fast-tracked. Additional attention will be devoted to health, education and judicial system reforms. Regional economic integration and joint infrastructure projects offer further untapped potential for growth.
Lastly, proper care will be exercised to decrease the economic and financial system vulnerabilities to potentially adverse external shocks.
Together with the IMF program, the EU accession process will remain a strong external anchor for Albania’s domestic policies.
(Italian Minister of Economy and Finance speaking on behalf of Albania, Greece, Italy, Malta, Portugal, San Marino at the International Monetary and Financial Committee, Washington, April 17, 2015)
