TIRANA, Feb. 18 – The International Monetary Fund has approved two new loan tranches worth €72.4 million, bringing total disbursement to about €227 million, but warned the Albanian government to avoid granting any further tax exemptions or preferential tax rates. The approval of the new loan tranches as part of a three-year €331 million loan deal signed in early 2014 comes after the IMF delayed their disbursement in mid-2015 following poor tax performance which forced the Albanian government to revise downward the 2015 budget.
“Albania’s economic recovery is on track but downside risks persist. The authorities’ performance under the Extended Arrangement has been strong, including implementation of ambitious and difficult structural reforms,” said Min Zhu, Deputy Managing Director and Acting Chair.
The IMF urges the Albanian government to continue its fiscal consolidation but be careful with tax reviews.
“The authorities’ goal of continued fiscal consolidation, with an adjustment strategy based on broadening the tax base and improving tax compliance and administration, is appropriate. To this end, they should reduce reliance on one-off measures and avoid granting any further tax exemptions or preferential tax rates,” says the IMF.
The warning comes after the Albanian government made a major concession in late 2015 in the midst of nationwide campaign against informality, offering tax cuts to small and medium-sized enterprises, many of which will no longer have to pay any profit tax.
Timely execution of public investments and public-private partnerships (PPP) are two other concerns for the IMF.
“Going forward, it will be important to strengthen the capacity to execute public investment projects and to ensure that the impact of any new PPP projects on the fiscal accounts is being assessed transparently and in line with international norms,” says the IMF.
The poor performance of public finances in 2015 when the budget was revised downward three times to handle lower income from oil and mining exports and sluggish domestic consumption affected the much-needed public investments which undershot the target.
After several controversial concessions in the health sector, the Albanian government is mulling over new public-private partnerships for the key value added tax, the property tax and electronic number plates which have sparked debates over their transparency and efficiency.
Some 55 public-private partnerships that Albania has signed in the past decade have created commitments with a present value of about 7 percent of the GDP, about €700 million, the IMF has earlier warned.
The high level of non-performing loans, which although slightly dropping by 5 percent to 20 percent, also remains a concern for the recovery of credit.
“Tackling the large stock of nonperforming loans is essential for reviving the flow of credit. Timely and forceful implementation of the planned comprehensive strategy will be key to addressing this issue,” says the IMF.
In line with the Albanian government, the IMF expects Albania’s growth to 3.4 percent in 2016, up from 2.7 percent in 2015.
In early 2014, Albania signed a new deal with the IMF supported by a three-year €331 million loan to clear accumulated government arrears and support reforms. The renewal of the deal came after relations with the Fund had been reduced to an advisory role in early 2009 and the country’s economy has slowed down to growth rates of 1 to 2 percent.
