TIRANA, March 22 – Faster implementation of structural reforms, with a focus on property rights, governance, and the judiciary, is critical to strengthen competitiveness, improve the investment climate, and catalyze stronger growth, said the International Monetary Fund at the conclusion of a visit to Albania this week.
The IMF, which has been assisting the Albanian government with a three-year €331 million loan, expects the country’s economy to accelerate to 3.4 percent in 2016 driven by energy-related foreign direct investment.
“The Fund team expects economic recovery to continue, with GDP growth projected to reach 3.4 percent in 2016, driven mainly by large energy-related foreign direct investment and gradually rising consumer demand,” said Anita Tuladhar , the head of the IMF mission to Albania.
The FDI will apparently receive a boost by the ongoing construction of the major Trans Adriatic Pipeline and the huge Devoll hydropower plant by Norway’s Statkraft while record low international oil and base metal prices have already curbed investments in oil and mining industries with a negative impact on exports, employment and government revenue.
The IMF expects Albania’s inflation rate to stay low at around 1.9 percent, reflecting a decline in oil prices, global disinflationary pressures, and output still below potential.
Albania’s inflation rate hit a 13-year low in February 2015 when it dropped to a mere 0.2 percent, significantly below the central bank’s 3 percent target, sparking deflation concerns.
“Potential revenue shortfalls due to falling oil prices constitute a risk to the budget, and the Albanian authorities should monitor this issue closely and adopt appropriate measures as needed,” said Tuladhar.
“To sustain fiscal consolidation, it will be necessary to continue broadening the tax base and improving tax compliance. Management of public investment spending, including of PPPs [public-private partnerships], needs to improve to support growth, reduce fiscal risks, and contribute to medium-term debt sustainability,” she added.
The IMF says suggests the country’s central bank could further reduce its key rate, currently at a historic low of 1.75 percent and work with the government to resolve non-performing loans to stimulate credit growth.
Further reducing the level of non-performing loans, currently at 17 percent from a peak level of 25 percent in mid-2014 is also considered key for the recovery of credit.
Central bank governor Gent Sejko said unfavorable Eurozone developments, low international oil prices and hesitation to undertake long-term business projects remain risks for the Albanian economy.
Last February, the IMF 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.
The warning came 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.
The IMF expects to discuss the seventh loan tranche of about €36 million next May.
Speaking of the much-debated proposed concession on the value added tax, the IMF official said a risk and cost benefit analysis should be carried out and its financial impact reflected on the budget before deciding on it.
The proposed controversial concession on an electronic platform for the collection of the key value added tax could cost the Albanian government millions of euros. Calculations show that the concessionaire would have benefited 1.1 billion lek (€7.8 mln) in 2015 for the extra income above the 11 percent threshold.
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.
