IMF Warns Of Power Negative Consequences

TIRANA, Aug 21 – The International Monetary Fund repeated in its last report that the power crisis and the transport sector development may have long-term negative effects on the Albanian economy.
Albania’s National Strategy for Development and Integration (Poverty Reduction Strategy Paper) was prepared by the IMF and the International Development Association (IDA).
“Albania made significant progress in achieving key objectives of its previous PRSP,” acknowledged the report.
But it also said that “maintaining an appropriate macroeconomic framework Štakes into account the country’s macroeconomic and fiscal risks arising from the transport and energy sectors.”
Since the end of 2006 Albania has faced an electricity crisis characterized by country-wide shortages that negatively affect the business environment and people’s livelihoods, and have fiscal costs, it says.
The country has high losses in the distribution system and limited interconnection access to the region.
The IMF highlights the need for a program to ensure the safety of its dams, establish an effective institutional and regulatory framework and create a well-regulated,
private-sector-dominated and diversified power sector that is fully integrated in a
liberalized Southeastern European market.
The IMF urged Tirana to be cautious with its spending in road infrastructure. Though not openly said it meant the high spending the government undertook with the Rreshen-Kalimash road segment. It advices that the strategy of developing the key road corridors is a good one to pursue, (but) should add to growth in the long-term.
“The plans are costly, ambitious in timetable and design, and could therefore add to macroeconomic risks.”
The report also added that there were other risks for the country mainly coming from the possible political stalemate, macroeconomic vulnerabilities, and weak capacities.
“Political stalemates, especially at times of upcoming local or national elections, can threaten progress.”
Corruption was another reminding from the IMF that words should be turned into actions.
“The anti-corruption elements Šappear to be a general declaration of principles rather than a strategic framework for future action” and urged a clear statement of immediate priorities and a road map for how the results might be achieved.
Words are not enough to convince financial experts.
The IMF said that the government should not only make big projects or budget but should also carry them out as “many of the NSDI’s proposed monitoring indicators are
sector output rather than outcome indicators, and several are missing baselines, as well as
annual and medium-term targets.”
It openly criticized Tirana that “the growth projections for the outer years are slightly
optimistic and the expected fiscal deficit in 2008 Šis significantly in excess of the deficit in the current EFF-PRGF program.”
The IMF was “also concerned about the potential fiscal fallout, including possible crowding out of key expenditures, from the financial situation of KESH, the public electricity company, and possible cost overruns from large public infrastructure projects.”
The organization also urged Tirana to identify “required reforms in its system of local governments.” It also supported Albania’s efforts in tourism saying that “the development of tourism, based on the country’s intrinsic, natural and cultural values, represents a key opportunity for Albania.” Albania should highly consider that “land fragmentation, low productivity and competitiveness of agricultural production, shortage of off-farm income-earning opportunities and weakness in rural social service delivery are key structural problems hampering sector modernization and reduction in rural poverty.”
Albania should also work hard for better collection of the contributions of the social insurance through improving the administration of the current system to generate cost savings, and changing the benefit system.
Water and sanitation also asked for “a significant reform program.”
Other recommendations from the IMF were paying more attention to “the critical role (that) education should play in stimulating economic growth, democracy and regional integration.”
It urged the government to seriously consider “key challenges in the health sector, as well as a coherent vision of the direction the sector should take in the future.
Resolving the property rights and a well- functioning land market is key to the development of the economy and for attracting private investment.
On the development of business the IMF urged “the authorities to keep the momentum of reform, focus on limiting unfair practices and ensuring market competition, and further improve land tenure and the security of property rights to further spur domestic and foreign investments.