On February 24, Albania drew the last installment of a SDR 295.42 million ($400.4 million) credit line, successfully concluding its three-year program aimed at restoring economic growth and controlling the rapidly rising public debt that had threatened the stability of the economy.

“The program has successfully put Albania on a recovery path with sound public finances,” said Anita Tuladhar, the head of the IMF team for Albania. “Thanks to the commitment of the Albanian authorities, we could support reforms that are critical to growth. The program strengthened the institutional framework, reduced vulnerabilities of the economy, and helped maintain economic stability despite difficult external conditions.”

Here is what the program achieved:

economic growth accelerated to over 3 percent;the budget gap narrowed by 3 percent of GDP, helped mainly by growing tax revenues;public debt declined from its peak of 73.7 percent;government arrears have been mostly cleared;the budget now records a surplus before payments of interest on the country’s debt;the reform of the pension system and the electricity sector has advanced considerably, lowering the two sectors’ reliance on budget support;the ratio of overdue bank loans fell and parliament agreed on a bankruptcy law to resolve the bad loans; andoverall fiscal and financial frameworks have been strengthened.

However, Albania must continue efforts to reinforce its growth and the resilience of its economy. Here is what the IMF suggests doing:

continue efforts to lower the public debt and borrowing needs;reform property tax and reduce tax exemptions;make public financial management more efficient and modernize the tax administration;resolve the overhang of overdue bank debt that impedes lending; and; press ahead with the recently launched, EU-supported justice reform initiative and related structural reforms to address governance concerns and an inefficient justice system.

Background

In 2014, Albania’s economic growth almost slowed to a halt as the economic crisis cut demand from Greece and Italy, its main trading partners. At the same time, public debt surged and arrears accumulated due to election time splurges, an unsustainable pension system, and an unviable electricity sector. The banking system, on which the government relied heavily for borrowing, had weakened due to a high ratio of overdue loans, increasing financing pressures. The IMF loan aimed to help address these fiscal and financial challenges and restore economic growth in Albania.

Main Indicators of Albania

2013

2016

GDP growth (percent)

1.0

3.4

Primary balance (percent of GDP)

-2.0

0.2

Overall balance (percent of GDP)

-5.2

-2.2

Tax revenues (percent of GDP)

22.0

24.3

Non-performing loans (percent)

23.5

20.4