Statement of the IMF Mission to Albania

An IMF staff visit to Albania took place during October 27- November 3rd, to discuss with the authorities recent macroeconomic developments and trends as well as the 2011 budget.

Thanks to a track record of generally prudent policies, Albaniaâ€™s macroeconomic outlook is broadly favorable. The economy is gathering momentum, and growth is projected at a solid pace of some 3 percent in 2010 and 3Â½ percent next year, underpinned by booming exports and a strong performance in the agricultural sector. Inflation expectations and outturns remain anchored within the target range; confidence in the banking system has been restored; and credit is expanding, albeit at a moderate pace.

Importantly, rising exports and a moderating import demand are initiating the required move to a more sustainable external current account position. Against this favorable outlook, high public debt constitutes the major risk. Debt rose from some 54 percent of GDP to now about 60 percent over the last few years, a very high level compared to the region and to emerging economies in general. Debt reduction is thus the key policy priority to mitigate the risk of macroeconomic instability.

A much needed initial step was taken in June 2010 with a sizeable fiscal adjustment, and the budget deficit is projected to halve from 7.4 percent of GDP in 2009 to 3.7 percent this year. This permitted the Bank of Albania to ease monetary condition in time in order to sustainably boost economic activity while preserving macrofinancial stability.

For the coming years, the Governmentâ€™s fiscal policy target of reducing debt to below 54 percent of GDP by end 2013, provides an important guide but it needs to be supported by credible budgets going forward. The successful debut Eurobond issue last week reflects these initial steps to improve public finances. The issue was sizeable and reasonably priced but maintenance of positive reception in international capital markets requires Albania to sustain the fiscal adjustment effort. In this regard, the 2011 budget deficit should be cut to 2.5%, using cautious growth and revenue projections. In Albaniaâ€™s context, fiscal consolidation is likely to help propel growth, as it will help free scarce credit resources for private investment and lower borrowing costs.

The mission would also like to take this opportunity to thank the authorities for the excellent cooperation and the fruitful discussions.

Gerwin Bell Mission Chief for Albania