TIRANA (Albania), May 7 (SeeNews) – Albania should use the favourable economic environment to boost its fiscal position by strengthening the revenue base, improve debt management as well as curtail the persistent public sector arrears, the International Monetary Fund (IMF) said.
“Building on recent reforms to strengthen risk management and tax administration we recommend containing fiscal risks and creating fiscal buffers that require further fiscal consolidation via sustainable revenue efforts and stronger budgetary institutions,” the IMF said in a statement late on Monday, after the conclusion of a two-week visit within the framework of the second Post-Program Monitoring (PPM) mission.
IMF also urged the government to make use of the recent amendments to the public–private partnership (PPP) law to limit the risks from PPP-related contingent liabilities and to ensure more consistent public investment management.
“This is important to protect the public finances and to help ensure value for money,” the IMF stressed.
“We strongly advise the authorities to revisit recent proposals for establishing the Albania investment corporation (AIC), to help avoid risks to the budget and to the integrity of the public investment management framework,” the IMF noted, adding that the draft law would allow the government to direct individual investment decisions, which could make the AIC an off-budget spending tool that risks eroding fiscal discipline and circumventing public investment management processes.
According to the IMF team, containing fiscal risks requires improving the performance of the energy sector, which is financially weak and struggling with endemic arrears.
The Fund also urged the authorities to continue reforms to address weaknesses in the anti-money laundering and countering financing of terrorism framework, by implementing the action plans to address the deficiencies identified in the Moneyval evaluation report without delay.
“The banking sector is finishing a consolidation process and is well-capitalized and liquid,” the IMF said, adding that however structural weaknesses in credit environment undercut the business climate, especially for small and medium-sized enterprises (SME) and hinder the transmission of monetary policy.
Economic growth is projected to slow to 3.5% in 2019 from 4% in 2018, owing to the base effect of record electricity production last year and the slowdown in partner countries, the Fund said. It also said that Albania is significantly exposed to the increasing risks to growth in the EU, notably in its main trading partners.
“Despite a decline in recent years, public debt continues to be high at 69.9% of GDP (including arrears) at end-2018, and it is projected to decline to 66.3% of GDP by the end of this year,” the Fund said.
Albania’s medium-term economic outlook is broadly favourable, even though growth is expected to moderate in 2019, the IMF said, adding that mnaintaining the growth momentum over the medium term requires reforms to improve the business climate and reduce vulnerabilities.