IMF: Economy in Albania grows by 3.7%, tourism impact and real estate

After a strong recovery in 2021, the Albanian economy has maintained a positive momentum despite the shock of the global economy from Russia's war against Ukraine. Real GDP growth is expected to reach 3.7 percent in 2022, as a result of strong activity in tourism, real estate and services. The increase is expected to slow to around 2 per cent in 2023, reflecting the tightest financial conditions, slowdown in Europe and attracting policy support”, was disclosed in the statement.

On the other hand, the board stressed that inflation has increased during 2022 and that it will return to the BSH target of 3 %s in the middle of 2024 alone.

“driven by food and energy prices, inflation has increased and has become increasingly wide. Total inflation is expected to reach a peak in the coming months and must begin to decline in 2023 before returning to the central bank's target of 3 per cent by mid-2024, as international goods prices stabilise, fiscal and monetary policies tighten and growth slows”, was disclosed in the statement.

The IMF board predicts debt will drop to about 64 % in 2027.

The general government's “Borgi is expected to drop further to just below 70 % of GDP at the end of 2022, assisted by continued economic growth and an expected smaller deficit compared to last year. In the absence of new shocks, it is expected to remain on a decline route, reaching about 64 per cent of GDP in 2027, but the need for gross financing will remain significant”, the board said.

Meanwhile, the financial system, the statement follows, has coped relatively well with successive shocks and credit flows have continued for the economy.

Further growth of food and energy prices is a major risk, especially if they cause greater effects of the second round and social unrest. Higher and more sustained inflation can further weigh on real income and weaken growth prospects. A more significant tightening of global financial conditions could hinder Albania's access to external market financing. The risks are eased to some extent by the high level of Albania's currency reserves. The economy is also sensitive to unfavourable weather conditions and a change in the rise in real estate prices. That said, risks are eased by the proper level of Albania's” international reserves, the IMF said.

Executive directors praised authorities for their decisive policy response to multiple shocks since 2019, and welcomed continued economic recovery. Noting that the risks have been placed on the lower edge, the directors stressed the need for a cautious and alert policy to ensure macroeconomic stability and address weaknesses, implementing reforms to promote sustainable, comprehensive and green growth and address the weaknesses of governance.

Directors welcomed the authorities' plan to achieve a primary balance in 1923 and stressed the need for a medium-term fiscal consolidation, supported by a sound medium-term income strategy that must be finalised and implemented without further delay. Such efforts, according to the Fund, would help reduce inflation and facilitate external regulation. Fiscal support for vulnerable layers should be temporary and target, fully exploiting the existing social protection framework.

Directors called for increased efforts to increase transparency and fiscal credibility, improve public finance management and strengthen monitoring and managing fiscal risk. “Partnerity public-privates and frameworks of public investment management must be drawn and fully integrated into the budget cycle. Directors also warned against the proposed tax amnesty given the risks of governance and money laundering” was posted in the statement.

Directors encouraged the Bank of Albania (BSH) to continue normalising the data-based monetary policy in conditions of continued inflationary pressures, maintaining the flexibility of the exchange rate. They also showed the importance of increased vigilance to maintain financial stability in view of rapid credit growth and activities related to real estate. Directors backed the BSH's continued efforts to improve financial regulation and supervision and to increase capital reserves. The presence of banks with considerable shares by individuals and non-financial groups also requires increased vigilance in monitoring.

Directors stressed that advancing structural reforms would be critical in unlocking Albania's growth potential and welcomed the opening of EU accession discussions, which should contribute to reform progress. In this direction, directors called for steady progress in justice and anti-corruption reforms and stressed the importance of an accelerated exit from the FATF grey list.

“Fighting informality would help curb immigration pressures. Noting the macrocriticality of climate change, they stressed the need for co-ordinated adjustment efforts within the budget framework”, it became known further, Atsh writes.

Directors agreed that Albania's capacity to settle the fund is sufficient and did not need an extension of the Pas-Finance Rating beyond February 2023.