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Albania's economy facing headwinds from Ukraine war - IMF

Albania's economy facing headwinds from Ukraine war - IMF IMF Author (bnm) License: all rights reserved.

TIRANA (Albania), May 20 (SeeNews) - The war in Ukraine is negatively affecting Albania's economy through rising food and energy prices and increasing external funding costs, which affects the public sector, the International Monetary Fund (IMF) said.

Albania's gross domestic product (GDP) is projected to increase by some 3% in 2022, supported by tourism and construction but moderated by the impact of rising prices, the IMF said in an end-of-mission press release on Thursday.

Inflation is expected to remain high in the following months before it slows down to the 3% target in early 2024.

“The authorities have responded swiftly to the latest shock, with some of the support measures targeted and timebound. They have taken the right decision to steer clear of ad hoc tax cuts, which tend to benefit disproportionately those who are better off, can distort price signals, and are costly and hard to reverse," the IMF said.

Targeted support to the poor and vulnerable should continue to strengthen the country’s social protection system. However, any additional revenue beyond what is currently projected in the budget should be saved to rebuild room for policy maneuver, the fund noted.

The IMF added that the policy stance of the central bank remains accommodative despite the March policy rate increase.

"Further policy rate hikes are warranted to contain domestic inflationary pressures and steer inflation expectations back toward the targe," the fund said.

The IMF also cautioned that an excessive delay in tightening may later warrant much higher increases in the policy rate to bring the inflation back to the target.

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