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IMF Report on Albania: Economy Expected to Shrink by 7.5 Percent, Fiscal Risks Rising

Politiko 2020-11-30 20:50:12

IMF Report on Albania: Economy Expected to Shrink by 7.5 Percent, Fiscal Risks

The International Monetary Fund (IMF) Executive Board completed its first post-program monitoring review [1] with Albania on 23 November.

According to this report, Albania has benefited from IMF emergency financial assistance (approximately US $ 190.5 million) disbursed under the Rapid Financing Instrument in April 2020, which allowed Albania to meet the urgent balance of payments needs arising from the consequences of the November 2019 earthquake and the outbreak of the COVID-19 pandemic.  

" Albania continues to be severely affected by the consequences of the earthquake and the pandemic. Authorities responded immediately to the shocks and macroeconomic and financial stability has so far been maintained. The economy is expected to shrink by 7½ percent in 2020 and gradually recover in 2021-22 as reconstruction spending increases.

Inflation is expected to remain low before converging to the 3 percent target for the medium term. "The current account deficit is projected to expand to more than 10 percent of GDP by 2020, but international reserves are likely to increase slightly, remaining at a comfortable level, " the report said.

Further, the report states that the negative risks are increasing after new infections in Albania and many other European countries in the fall.

" A heavier pandemic will further damage Albania's economic prospects, through weaker tourism, remittances, external demand and FDI, as well as tighter financial conditions. High depreciation pressures can bring balance sheet risks with unprotected foreign currency lending, although considerable reserve coverage would be a mitigating factor. "Albania's rising public debt, high needs for fulfillment, growing fiscal risks and a relatively high level of non-performing loans (NPLs) also present challenges."

The report also states that the executive directors congratulated the Albanian authorities for maintaining macroeconomic and financial stability so far. "The directors stressed that support for the economy should continue in 2021, but should be subject to transparency and accountability. They urged the authorities to regulate as soon as possible the emergency measures in the management of public finances taken during the emergency. A sound medium-term revenue strategy should be adopted and implemented without further delay. "Frequent, ad hoc changes in tax policy and tax amnesty schemes should be avoided ."

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