The Executive Board of the International Monetary Fund (IMF) on Friday approved a 36-month SDR 295.42 million (about €330.9 million, or about US$457.1 million; 492.4 percent of country’s quota in the Fund) arrangement under the Extended-Fund Facility (EFF) for Albania in support of the authorities’ reform program. The approval allows for immediate disbursement of SDR 23.55 million (about €26.4 million, or about US$36.4 million). The World Bank and the EU are also likely to provide assistance to the authorities’ reform program.
Following the Executive Board’s discussion on Albania, Mr. David Lipton, First Deputy Managing Director and Acting Chair, stated:
“Albania’s economic outlook is expected to improve in 2014, spurred by the planned reduction of underlying risks in the fiscal area, clearance of arrears, tackling of high nonperforming loans (NPLs), and the launch of structural reforms. However, risks are significant and refinancing needs are large. The EFF will help Albania meet its external financing needs while providing the necessary support to strengthen fiscal and debt sustainability, lower public financing risks, and put the economy on a sustained medium-term growth path.
“Albania’s high public indebtedness calls for fiscal consolidation that aims to lower the public debt ratio to below 60 percent of GDP in the medium term. This will require significant tax and expenditure policy measures, supported by extensive public financial management and tax administration reforms. Lowering the outstanding stock of arrears and putting in place mechanisms to prevent their recurrence will also be critical.
“Further moderate easing of monetary policy could help to support economic recovery, provided inflation expectations and financial stability remain well anchored. However, this would need to be carefully balanced against risks posed by high unhedged foreign currency exposure.
“Preserving financial stability while promoting access to credit is necessary to facilitate a durable recovery. Reducing NPLs will safeguard financial stability and may help release credit supply constraints by lowering bank risk aversion. Steadfast implementation of the recent Financial Sector Assessment Program recommendations, including those related to lowering risks in the non-bank financial sector, will be important.
“The authorities’ plans to reform pensions, energy, local government finances, public administration, and the business environment are welcome. If implemented properly, these reforms should strengthen Albania’s ability to attract investment, improve prospects for sustained medium-term growth, and reduce fiscal risks, Mr. Lipton stated.”