The loans target improving fiscal sustainability by strengthening public financial management to address arrears and through tax, pensions and energy sector reforms to support macro-fiscal stability.
TIRANA, June 2 – In two recently-approved development policy loans totaling $220 million, the World Bank will support Albania’s public finance management and financial sector stability. The latest $120 million loan is the first in a series of two programmatic development policy loans which aims to improve fiscal sustainability by strengthening public financial management to address arrears and through tax, pensions and energy sector reforms to support macro-fiscal stability.
The soft-loan has a maturity of 23 years including a 7-year grace period.
“Macro-fiscal imbalances and weak structural reforms are roadblocks to faster growth and job creation. They must be addressed”,” said Laura Tuck, World Bank Vice President for Europe and Central Asia, during her recent visit to Albania. “I am pleased to see that the government has made a good start in tackling difficult reforms in the financial sector, public finance, energy, and pensions to address these macroeconomic and fiscal imbalances in order to restore growth and create jobs.”
“Recognizing these efforts, and at the request of the government, the World Bank has ramped up its engagement in Albania to a scale commensurate with this reform effort – with record lending commitments of more than $300 million in the current year, and an equal amount expected in the coming year. Maintaining steady implementation of reforms will enable Albania to achieve higher growth and increase shared prosperity for its citizens,” Tuck added.
In her discussions with the government, Vice President Tuck focused on the need for sustained attention to reforms in the medium-term, including fiscal and financial management, energy sector restructuring, investment climate and social protection reforms. In the energy sector, she stressed that a useful first step would be a mediated settlement over the disputed privatization of the electricity distribution company, CEZ.
“We are encouraged that government is pursuing a rapid, mediated settlement,” said Tuck. “Such a settlement would be less costly than other alternatives, allow badly-needed investments in the distribution system, and send a positive signal to private investors keen on developing Albania’s energy sector potential.”
The previously approved $100 million World Bank loan was aimed at strengthening the financial sector regulatory and supervisory regime and mitigate vulnerabilities of the bank and non-bank sectors.
Reforms in the energy sector and pension system remain key to Albania’s economic recovery and fiscal consolidation, World Bank officials said at the launch at a South East Europe economic report in Tirana. The hydro-dependent Albanian energy sector faces a chain of debts involving KESH power corporation and CEZ Shperndarje distribution operator which has been under state management since the Czechs had their licence revoked in early 2013. Energy Minister Arben Ahmetaj has earlier said debts the energy system operators owe to each other and banks are estimated at 1 billion dollars.
The pension system, which is currently undergoing a reform targeting the increase in retirement age in a bid to reduce the widening pension deficit, is also a huge burden to the state budget.
The deficit in the pension scheme for 2013 rose to around 44.5 billion lek billion lek (Euro 311 million), up from around 40 billion lek in 2012, unveiling the need for an emergency reform in the pension system which suffers poor collection rates due to widespread informality, according to Finance Ministry data. The current ratio is 1.4 contributions to 1 pensioner at a time when a stable pension scheme requires at least 3 contributions for one pension. Albania has more than 500,000 pensioners.
The new World Bank loan come after the Albanian government has signed a new three-year deal with the IMF supported by a Euro 331 million loan to help pay off accumulated unpaid bills after the country’s economy has sharply slowed down in the past couple of years, with GDP growing by 0.4 percent in 2013, the lowest in the past 15 years and the forecast for 2014 at 2 percent.
