TIRANA, Nov. 19 – The International Monetary Fund said Albania’s economic growth remains positive but serious economic challenges will have to be urgently and forcefully tackled if the progress of recent years is to be maintained.
The IMF reiterated its support of Albania’s sustainable growth, but said a key challenge for authorities will be to steer a clear course among the many competing priorities for the economy.
Economic growth has remained strong at six percent despite the energy crisis and regional drought, but cost pressures have added to inflation and fiscal risks are on the horizon, the IMF said.
Stronger-than-projected exports and manufacturing activity have offset the negative impact of the energy crisis and drought on growth, it added.
Particularly, the severe deterioration in the state-owned electricity company KESH’s financial position needs to be reversed and public capital expenditures will need to be contained to avoid inflationary pressures, the IMF said.
With these prerequisites in place, the IMF believes the recent increase in inflation is likely to be temporary, mainly reflecting the effects of higher food prices and energy disruptions, and the Bank of Albania’s timely policy action and well-established credibility should help bring inflation back to the target range.
The authorities are aiming at faster mobilization of foreign financing for large infrastructure projects in 2008, which could add to overheating pressures and fiscal risks and it will be important to ensure that the budget deficit does not give rise to inflationary pressures, the IMF said.
The IMF said it is convinced inflation will return to the two to four percent target range in 2008, supported by an appropriate fiscal and monetary stance, measures in the electricity sector, and further steps to strengthen banking supervision.
