OREANDA-NEWS. On May 27, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the 2016 Article IV Consultation with Albania.

Albania continues on a path of a gradual economic recovery despite difficult external conditions. GDP grew by 2.6 percent in 2015. Inflation remains low, reflecting the negative output gap and weak import prices. Large current account imbalances are financed mostly by foreign direct investment (FDI), while official foreign reserves have been rising.

Reforms are progressing well. In the past two years, Albania has made good progress with strengthening public finances and implementing structural reforms in the power sector. A sizable fiscal consolidation is underway and public debt is projected to start decreasing in 2016. However, other reforms critical for improving the business environment—including those related to property rights, resolution of nonperforming loans, the judiciary, and governance—are lagging.

The medium-term outlook remains favorable. GDP growth is projected to reach 3.4 percent in 2016, and around 4 percent over the medium term, reflecting a recovery in private sector credit, continued FDI, and structural reforms, as Albania advances through the European Union accession process. Headline inflation is likely to remain subdued. The current account deficit is expected to widen and remain elevated as import-intensive investment picks up.

Executive Board Assessment

Executive Directors welcomed the increased strength of Albania’s economic recovery and emphasized that the medium-term outlook remains favorable, provided the reform momentum is maintained. Directors commended the authorities for their strong program ownership and for the implementation of an ambitious structural and fiscal reform agenda. Going forward, Directors encouraged the authorities to address fiscal vulnerabilities, strengthen efforts to reduce non-performing loans (NPLs) which will boost private sector credit, and press ahead with reforms to improve the business environment to strengthen competitiveness and support growth.

Directors welcomed the authorities’ commitment to fiscal consolidation and gradual debt reduction. They underscored that continued fiscal adjustment will be crucial to lower fiscal vulnerabilities and ensure debt sustainability. Directors encouraged the authorities to consider adopting a fiscal rule to anchor long-term expectations and strengthen credibility.

Directors supported the authorities’ plans to focus fiscal adjustment efforts on the revenue side, given the relatively low level of public spending. They emphasized that the consolidation strategy should aim to broaden the tax base, limit exemptions, and strengthen compliance and revenue administration. Directors encouraged the authorities to expedite steps to introduce a valuation-based property tax. They welcomed the authorities’ efforts to address tax evasion and informality by targeting high-risk, high-value segments and harnessing modern compliance risk management tools.

Directors emphasized the need for persistence in implementing structural fiscal reforms to reduce fiscal risks. In this regard, they urged the authorities to strengthen efforts toward improving public investment management, preventing new arrears, and conducting risk analysis of public-private partnership proposals in line with international norms.