“The electricity sector poses a large fiscal risk. Reforms are urgently needed to improve collections, curb high distribution losses and reduce theft in order to end the current reliance on fiscal support to finance the sector,” says the IMF.
TIRANA, May 13 – Albania’s economic program is back on track but the electricity sector and property compensation and restitution pose large fiscal risks, an IMF mission noted after the first review of the Euro 331 soft loan to the Albanian government earlier this year.
“Albania’s economic program is on track. The IMF team reached staff- level agreement with the authorities on the policies needed to complete the first review of the Extended Fund Facility (EFF), after all the end-March performance criteria and structural benchmarks were met,” said Nadeem Ilahi, the IMF mission chief to Albania in a late Tuesday press conference with Albanian authorities.
“The electricity sector poses a large fiscal risk. Reforms are urgently needed to improve collections, curb high distribution losses and reduce theft in order to end the current reliance on fiscal support to finance the sector. In addition, there is a need to tackle other emerging fiscal risks, including those related to property compensation and restitution,” he added.
After slowing in 2013, economic growth is projected to increase to 2 percent this year, boosted by continued growth in exports and a modest recovery in domestic demand. Output remains below potential, however, and inflation is expected to remain low, says the IMF.
The Fund estimates that fiscal performance was in line with program targets in the first quarter of 2014, and arrears clearance has begun to move forward. The authorities remain committed to further fiscal consolidation in 2015 in order to begin to reduce public debt as envisaged under their economic program.
“The authorities have made good progress in preparing the pension reform strategy. The reform proposal recently developed in cooperation with the World Bank should help ensure that the system becomes sustainable over the long-term.”
The IMF staff mission says it supports the authorities’ policy and structural reform efforts, including those to enhance the business environment, and views them as providing a credible basis for restoring economic growth and maintaining macroeconomic and financial stability.
The Executive Board of the IMF is expected to discuss the first review of Albania’s EFF in late June. Approval of the review would entail the disbursement of SDR 23.55 million (about EUR 26.5 million).
In early 2014, the International Monetary Fund approved a three-year Euro 331 million soft loan which will pave the way to the payments of accumulated unpaid government bills and give a boost to the ailing economy by promoting new investments and reducing non-performing loans.
The IMF concluded its permanent mission to Albania in January 2009 when relations with the Fund were reduced to an advisory role. The renewed deal also comes after the country’s economy has sharply slowed down in the past couple of years, with GDP growth slowing down to 0.44 percent, the lowest in the past 15 years.
The International Monetary Fund expects the Albanian economy to strongly recover and public debt to sharply reduce in the next five years. In its latest country report on Albania, the IMF which will assist the Albanian government in boosting growth and supporting macroeconomic stability, expects the Albanian economy to recover from an estimated 0.7 percent growth in 2013 to 2.1 percent in 2014, 3.3 percent in 2015 and 4.2 to 4.7 percent from 2016 to 2019.
Public debt, which is estimated to have climbed to 70.5 percent of the GDP in 2013, posing a serious threat to the country’s macroeconomic stability, is expected to further climb to 71.7 percent of the GDP in 2014 before embarking on a downward trend that will take it to 57 percent of the GDP in 2019.
