November 3 (SeeNews) - The International Monetary Fund said on Wednesday it expects Albania's economy to expand further next year but warned that high public debt threatens macroeconomic stability.
"Thanks to a track record of generally prudent policies, Albania’s macroeconomic outlook is broadly favorable. The economy is gathering momentum, and growth is projected at a solid pace of some 3.0% in 2010 and 3.5% next year, underpinned by booming exports and a strong performance in the agricultural sector," the International Monetary Fund (IMF) said in a statement wrapping up a week-long staff visit to Albania.
The IMF mission led by Gerwin Bell discussed with the Albanian authorities recent macroeconomic developments and trends as well as the state budget for next year.
According to IMF, inflation expectations and outturns remain anchored within the target range, confidence in the banking system has been restored, and credit is expanding, albeit at a moderate pace.
Importantly, rising exports and a moderating import demand are initiating the required move to a more sustainable external current account position.
However, high public debt constitutes the major risk, the IMF said.
"Debt rose from some 54% of gross domestic product (GDP) to now about 60% over the last few years, a very high level compared to the region and to emerging economies in general.”
For the coming years, the Albanian government’s fiscal policy target of reducing debt to below 54% of GDP by end-2013 provides an important guide but it needs to be supported by credible budgets going forward.
A much needed initial step was taken in June 2010 with a sizeable fiscal adjustment, and the budget deficit is projected to halve from 7.4% of GDP in 2009 to 3.7% this year. The 2011 budget deficit should be cut to 2.5%, using cautious growth and revenue projections.
Budget revenue should rise by 6.0%-7.0% next year, according to the IMF.
“In Albania’s context, fiscal consolidation is likely to help propel growth, as it will help free scarce credit resources for private investment and lower borrowing costs.”