Albania Must Maintain Reform Momentum to Spur Growth, IMF Mission Says

TIRANA, October 3

Albania’s economy continues to strengthen, but despite this, fiscal consolidation is expected to slow down in 2017.This is one of the key findings of the concluding report of the International Monetary Fund (IMF) mission in Albania. The official report was released by IMF unveiled on Tuesday. It focuses on the recent economic developments and includes recommendations for each of them.
According to IMF, economic growth benefited from the rising domestic demand, large energy-related Foreign Direct Investment (FDI), growing tourism, and a recovery in the EU trading partners. Moreover, it says that further efforts are needed to cement the gains related to the lowered financial and fiscal vulnerabilities.
“GDP growth is projected to increase to 3.9 percent in 2017, driven by rapid expansion of tourism and construction sectors, offsetting the negative impact of drought on electricity production,” the report says.
Other important factors that had an impact on economic growth are:

Job recovery due to the fact that the unemployment rate fell to 13.9 percent during the second quarter of 2017.
Increased exports and credit to households.

Other findings of the report suggest that despite the strengthening recovery, fiscal consolidation is expected to slow down during this year.
“The general government primary balance to slightly deteriorating from a surplus of 0.2 percent of GDP in 2016 to 0.1 percent of GDP in 2017, owing to large pending value-added tax (VAT) refunds, electricity import guarantees, and local government expenditures,” the report points out.
On the other hand, public debt is expected to decline from 73.3 percent of GDP at the end of the previous year to 71½ percent of GDP at the end of this year.
Further on the medium-term outlook seem favorable and the reforms towards the European Union accession. However, the report highlights that the continued drought conditions can affect electricity generation and pose fiscal risks.
Therefore, IMF’s mission based on the above-mentioned finding, suggests that the main policy priorities are to maintain macroeconomic stability and to deepen structural reforms to improve the investment climate and catch up to the EU income levels.
The report also says that the public debt level and the gross financing needs remain high. In order to reduce the debt level, the mission suggests a more front-loaded consolidation.
Further on, other recommendations highlight:

Additional measures are needed to mobilize revenues for increased priority spending in health, education, and infrastructure.
Strengthening fiscal institutions is crucial to mitigate financial  risks and enhance efficiency

Reforms in the state-owned electricity sector need to be reinvigorated.

Structural changes in banking and non-banking sectors call for enhanced supervisory vigilance.

“The sweeping judicial reform adopted in mid-2016 should be pursued with speed and determination. A new strategy on property rights is needed to advance property registration and digitization and coordinate the restitution and legalization processes. To address demographic pressures arising from continued emigration, skills mismatches in Albania’s otherwise flexible labor market, and the high youth unemployment rate, the authorities should strengthen the capacity of public employment agencies and invest further in higher education and vocational training,” the IMS’s mission report concludes.

News Source: IMF

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