Press Release No. 24/274

Albania: 2024 Staff Visit Press Release

July 15, 2024

Washington, DC: An International Monetary Fund (IMF) team led by Ms. Anke Weber conducted a staff visit to Albania during July 9-12, 2024, to discuss recent macroeconomic developments, the economic outlook, and policy priorities.

At the end of the visit, Ms. Weber issued the following statement:

“The Albanian economy grew by 3.5 percent in 2023 led by resilient private consumption, with notable strength in tourism and construction activity. Fiscal and external sector performance surpassed expectations with a primary surplus and current account deficit of 0.7 percent and 1 percent of GDP, respectively. Inflationary pressures have receded with headline inflation declining to 2.1 percent in June, on the back of declining commodity prices. The economy is expected to maintain its positive momentum this year, with growth projected at around 3¼ percent. Inflation is expected to gradually converge back to the 3 percent target.”

“Risks are broadly balanced. Stronger-than-expected tourism activity is an important upside risk. Heightened geopolitical tensions represent a major potential headwind, while the economy remains vulnerable to the risks of weather-related energy sector shocks, and a sudden exchange rate reversal. In the medium term, progress on reforms under the new EU growth plan for the Western Balkans could boost potential growth, while demographic trends represent a key downside risk.”

“The economic shocks in the last few years have underlined the importance of rebuilding adequate fiscal buffers to ensure continued resilience to future shocks. We welcome the authorities’ commitment to a prudent fiscal policy, as reflected by the early and continued compliance with the fiscal rules under the Organic Budget Law. We underline the importance of an ambitious medium-term fiscal consolidation and prudent debt management to reduce gross financing needs and safeguard fiscal sustainability. Such a consolidation should be supported by measures to boost revenue mobilization, generate efficiency gains, and raise productive spending.”

“Continued progress in fiscal reforms remains critical for the credibility of the fiscal framework. We look forward to the adoption of the Medium-Term Revenue Strategy by the end of this year. Albania would benefit from a tax system underpinned by comprehensive coverage, fair rules, and the right incentives to ensure an equitable burden among taxpayers. In this context, the new income tax law helped make the taxation system fairer and more evenhanded by ensuring that free professionals would be taxed in a manner comparable to other employed taxpayers. Revenue mobilization measures to increase the tax base, including property tax reforms, remain important.

We welcome the adoption of the Public Finance Management Strategy, and call for the full operationalization of a strengthened public investment management framework, as well as further progress in public-private partnership (PPP) reforms. In this regard, the completion and issuance of the 2022 and 2023 annual reports on PPPs and concessions are welcome, and we encourage timely publication of future reports. The pilot standalone Fiscal Risk Statement is a key step in bolstering fiscal risk management. Furthermore, concrete progress on enhancing governance and oversight of state-owned enterprises continues to be crucial for safeguarding fiscal sustainability.”

“The current monetary stance is appropriate with price pressures from wage increases likely to be tempered by lower imported inflation due to an appreciated lek. The authorities should continue to monitor price developments closely and maintain a data-dependent approach to monetary policy. Moreover, a floating exchange rate should be the main shock absorber. Continued nimble supervision and enhanced prudential tools will help tide the economy through financial and economic uncertainties. Progress on financial reforms should continue, including in further bolstering supervisory and regulatory frameworks and deepening financial markets. Against the backdrop of strong credit growth, the Bank of Albania’s recent decision to increase the countercyclical capital buffer is appropriate, and introducing a systemic risk buffer could further enhance resilience. Efforts underway to strengthen consumer protection regulation, including for non-bank financial institutions, are key to preserving the integrity of, and trust in, the financial system. In addition, with more than a decade having lapsed since the last Financial System Stability Assessment, we encourage the authorities to consider a new Financial Sector Assessment Program. Overall, preserving the independence of the Bank of Albania is crucial to safeguarding price and financial stability.”

“The team would like to take this opportunity to express its appreciation for the constructive discussions and fruitful exchange of views with the authorities and other counterparts in Albania. The IMF mission for the 2024 Article IV consultation is expected to take place in November.”