IMF US$4 Million Disbursement To Albania

TIRANA, July 29 – The International Monetary Fund (IMF) said Tuesday that its Executive Board had completed its fifth review of Albania’s economic performance and financing assurances under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement and the Extended Fund Facility (EFF) arrangement.
The IMF said that the power crisis remained a primary problem for the country.
The completion of the reviews enables the release of an amount equivalent to SDR 2.4 million (about US$4 million), which will bring the total disbursements to Albania under both arrangements to SDR 14.6 million (about US$23.9 million).
The three-year arrangements, amounting to the equivalent of SDR 17 million (about US$27.9 million), were approved effective from February 1, 2006.
The Executive Board also approved a request for modification of three performance criteria related to the Bank of Albania’s net international reserves and domestic assets, and net domestic credit to the government.
Murilo Portugal, Deputy Managing Director and Acting Chair, stated that Albanian economic performance remained strong, despite less benign external conditions. A regional drought in 2007 affected Albania particularly hard, but recovery was rapid as the economy diversified and new export markets were developed.
Growth, therefore, remained buoyant and became broader based, reaching six percent last year. Inflation, while occasionally above the 3ѱ percent target range, remains among the lowest in the region in spite of global food and commodity price shocks.
In addition, risks to external and domestic stability have receded somewhat, as domestic credit growthشhough still elevatedبas decelerated. The share of exports of goods and services in GDP has increased, and Albania continues to attract investment in its traditional exports, textiles, and footwear.
Public finances have strengthened, largely due to improved tax administration, allowing public debt to remain on a declining path as a percent of GDP. Firm monetary policy has maintained positive real interest rates.
Growth is expected to remain at sic percent in 2008 with inflation just under four percent, but risks have increased. Rising global commodity prices, particularly food, may put pressure on domestic prices in the short term.
Over the medium term, investment-driven productivity increases will be needed to maintain the pace of growth and expand the export base. This necessitates improvement in the business climate, particularly in the areas of governance, judiciary, and land titling.
Regulatory and supervisory capacity need to continue to keep pace with developments in the banking sector. The banking system appears sound, with little exposure to current global financial turmoil. Moreover, its rapid development has contributed significantly to economic development. However, in the face of still rapid credit growth, vigilance and regulatory adaptation is required to ensure stability of the financial system. In this regard, the immediate priority lies in improving cross-border supervisory collaboration, contingency planning, and collateral execution.
The program’s medium-term fiscal framework is consistent with low inflation, debt sustainability, and the authorities’ model of a small, efficient government. This framework is expected to reduce debt to 50 percent of GDP by 2011.
Combined with the authorities’ existing strategy of limiting the size of government and outsourcing activities where possible, the resulting medium-term fiscal path is expected to satisfy Albania’s still-considerable development needs while supporting macroeconomic stability. The authorities appropriately intend to adopt a fiscal rule to anchor this policy direction.
“Despite progress made this year, electricity sector reforms remain unfinished at considerable economic cost. The core of the problem is unpaid electricity usageشhe average effective collection rate, at around 50 percent, remains low compared even with the regional average of about 75 percent. Without progress in this area, the electricity utility will continue to lose cash, risks to the budget will grow, electricity supply to the economy will remain unreliable, and the utility’s privatization will be made more difficult,” Portugal stated.