Power crisis remains Albania’s top priority, says IMF

TIRANA, April 1 – The International Monetary Fund said that fighting its power crisis must remain Albania’s main priority as it seeks continued economic growth.
“A sustainable reform of the electricity sector is a priority as it would also help mitigate attendant risks to the macroeconomic framework and limit quasi-fiscal losses. Collections must be boosted, transmission losses cut, and tariffs raised. The tariff increase this month was an important initial element, but further efforts are needed to stem the sector’s quasi- fiscal losses, to improve chances for a successful privatization of the distribution company targeted later in 2008, and to assure a reliable electricity supply over the medium term,” said Murilo Portugal, Deputy Managing Director and Acting Chair.
The Executive Board of the International Monetary Fund (IMF) completed, on March 28, 2008, the fourth 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 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 12.2 million (about US $19.9 million).
The concurrent three-year arrangements under the PRGF and EFF, amounting to the equivalent of SDR 17 million (about US$27.9 million), were approved effective from February 1, 2006.
“Albania’s adherence to prudent macroeconomic and structural policies has contributed significantly to its strong macroeconomic performance, despite challenges from a difficult external environment. In 2007, growth improved and inflation remained within the target band, notwithstanding a drought and rising food and energy prices. The structural agenda has advanced, particularly in the fiscal area, while the privatization program is nearing completion. However, deep seated problems in the electricity sector came to the fore again,” said Portugal.
“The authorities’ medium-term fiscal framework appropriately balances the need for additional infrastructure and development spending with macroeconomic stability concerns, while aiming to contain the role of government and provide an enabling environment for private sector activity. The authorities intend to adopt a deficit ceiling of no more than four percent of GDP for 2009 and subsequent years. This should provide a credible anchor for fiscal policy over the medium term, give additional assurance that the downward trajectory for public debt will be maintained, and deliver welcomed support to monetary policy in keeping inflation expectations well anchored.
“The existing monetary policy framework, based on an independent central bank and a floating exchange rate, has served the economy well and remains appropriate. The authorities’ timely policy actions over the past year have demonstrated their commitment to price stability and helped contain inflationary expectations despite strong headwinds from a drought and higher world food and energy prices. Limitations in the effectiveness of monetary policy have required supplementary regulatory and prudent measures; and it is important that supervisory and regulatory capacityءlready at a relatively high levelأontinue to improve in line with the rapidly maturing financial system.
“A sustainable reform of the electricity sector is a priority as it would also help mitigate attendant risks to the macroeconomic framework and limit quasi-fiscal losses. Collections must be boosted, transmission losses cut, and tariffs raised. The tariff increase this month was an important initial element, but further efforts are needed to stem the sector’s quasi- fiscal losses, to improve chances for a successful privatization of the distribution company targeted later in 2008, and to assure a reliable electricity supply over the medium term,” Portugal said.