IMF: Debt Crisis Spillover Threatens Albanian Economy

Highway construction in Albania | Photo by : Besar Likmeta

“Albania has large trade, labour-market, and banking-system links with Greece and Italy, which could result in substantial spillovers with banking-system contagion potentially the most severe near-term risk, while sharply lower remittances could result in a significant GDP shock,” the report stated.

 “Uncertainty emanating from the euro-area periphery is the key near-term vulnerability,” it further added.

According to the IMF, Albania’s high public debt, rollover risks, and interest costs also leave the country exposed to a downturn in investors’ risk appetite, with knock-on effects on confidence in the financial system.

“The post-crisis environment has posed significant policy challenges. GDP growth is projected to be around 2.5 percent in 2011, decelerating from above 3 percent in 2009 and 2010” the Fund warned.

“The budget has repeatedly underperformed, prompting large cuts in mid-year budget reviews in both 2010 and 2011, and public debt is approaching its statutory limit of 60 percent of GDP,” it added.

IMF directors, who visited Albania in late July, have encouraged the authorities to implement further expenditure and revenue measures to achieve the required fiscal consolidation.

“A better macroeconomic framework built on more realistic revenue projections would help avoid the repeated budget slippages of the past,” the directors recmomended in a statement.