IMF sees growing risks in Albania’s economic program

IMF sees growing risks in Albania’s economic program

IBNA Special Report

Tirana, March 2, 2015/Independent Balkan News Agency

The International Monetary Fund says that it sees growing risks in Albania’s economic program. Therefore it warns that political and social tension in Albania, especially ahead of the local government elections, may pose a threat for the three year program being implemented in the country.

The IMF declares this a few days after allocating 53 million Euros for the Albanian government as part of a financial aid program. In the report attached to the decision, IMF has also analyzed the situation in Albania, which assesses the progress of the implementation of the program and the commitment of the Albanian side.

The report says that the economic situation is improving, but suggests to Albanian authorities to strengthen capacities in executing investments, in order to protect the economic growth potential.

A few warnings are also issued.

“There are growing risks for the program. Political and social tension can increase ahead of the local government elections of mid 2015 and can have an impact in the implementation of the ambitious agenda of the reform”, IMF notes.

According to IMF, the savings from the reform in the energy sector are subject to the implementation risk and will require a middle term sustainable political commitment.

“A weaker than expected economic recovery can put at test the will of the authorities to implement fiscal measures needed to reduce debt”, concludes the World Bank report.

Fiscal risks

Stopping on fiscal risks, IMF recommends concrete actions and identifies the risk that comes from the energy sector, the issue of properties and unfunded projects.

“Urgent action is needed to  fiscal risks. Insecurities mainly emanate from the impact of the reform in the energy sector, the number of requests for compensation of properties and the large stock of unfunded projects which can increase debt in the future. The staff supports the engagement of the authorities to address these risks”, reads the report.

Informality

Another concern of the IMF is informality, which according to it, continues to be high.

The head of IMF mission for Albania, Nadeem Ilahi, says that although there are fiscal reforms, there are no results in the fight against informality.

“Informality is a wide subject. The government has increased taxes since the start of 2014, but there have not been measures to improve collected revenues. There’s still a lot of work to do”.

Lending

On the other hand, lending in Albania remains low and banks hesitate in offering loans. But, the demand for loans has also fallen. How dangerous is this for the Albanian economy?

Mr. Nadeem Ilahi says that the level of lending is low, but not due to the falling demand for loans. “We’re seeing signs which indicate a growth in confidence. For us, this means growth in the demand for loans. Whether this credit exists or not, this is another issue, but we believe that the private sector will exert more pressure to borrow”.

IMF too believes that the current problem relates to the high level of nonperforming loans.

Although this is not a problem for the stability of the banking system in Albania, it’s still reflected on companies’ balance sheets and this is why banks hesitate to offer new loans for these companies. This has an effect on the Albanian economy.

Capital expenses

IMF also identifies a risk in the government’s incentives for capital investments in the country. In relation to this, IMF says that the projects that have been initiated, exceed the ability of the government to pay for the middle term.

“In order to minimize the risks, we have planned on prioritizing all projects in infrastructure (which consist of the majority of unfunded projects), by using transparent criteria in order to cancel or postpone projects of a low priority”, IMF suggests.

According to IMF, the first step should consist of conducting a preliminary study of all these projects and then the ranking of these projects must be approved by the Council of Ministers.

As far as public investments are concerned, Mr. Illahi says that the government was not effective in their implementation in the first half of 2014. “Expenses were expected to rise in the second half, but there was a surprising increase in expenses at the end of the year. We see a cause for concern for this and this is something on which we’re interested”, Mr. Illahi says. /ibna/