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News 14 May 14

Albania Economic Reforms on Track, IMF Says

The International Monetary Fund, IMF, praised the economic reforms undertaken by the centre-left government, but warned that the electricity sector and property restitution pose fiscal threats.

Besar Likmeta
Tirana, Albania

IMF economist Nadeem Ilahi, who led a team from the IMF visiting Tirana from April 30 to May 13, on Tuesday said the country's fiscal performance was in line with programme targets in the first quarter of 2014.

“The authorities remain committed to further fiscal consolidation in 2015 in order to begin to reduce public debt as envisaged under their economic program,” Ilahi noted.

According to the IMF, Albania's economy is projected to grow by 2 per cent of GDP in 2014, boosted by continued growth in exports and a modest recovery in domestic demand.

However, output remains below potential and banks remain reluctant to lend.

“Inflation expectations appear well-anchored and monetary policy should continue to be supportive of economic recovery, consistent with the Bank of Albania’s mandate of maintaining price stability,” Ilahi said.

“However, the transmission to credit growth remains hampered by the banks’ risk aversion,” he added.

The IMF economist praised the recently proposed pension reform strategy developed by the government in cooperation with the World Bank, noting that it will ensure that the pension system becomes sustainable over the long term.

However, Ilahi warned that rampant electricity theft and the cost of compensating owners of property siezed in the Communist era posed a serious threat to Albania’s finances.

“Reforms are urgently needed to improve collections [of electricity], curb high distribution losses and reduce theft in order to end the current reliance on fiscal support to finance the sector,” he said.

“In addition, there is a need to tackle other emerging fiscal risks, including those related to property compensation and restitution,” Ilahi concluded.

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