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IMF urges Albania to step up reforms

IMF urges Albania to step up reforms IMF Author (bnm) License: all rights reserved.

TIRANA (Albania), November 27 (SeeNews) – Albania needs to reinvigorate its reform agenda and strengthen economic governance and fiscal institutions in order to achieve higher living standards, the International Monetary Fund (IMF) said.

“While Albania has maintained economic stability, growth this year has fallen mainly due to lower electricity production and, looking ahead, the slowdown in key partner countries and heightened political uncertainty present important downside risks,” the IMF said in a statement on Tuesday, after the conclusion of a visit of a Fund’s mission for the annual Article IV consultation.

IMF also said Albania needs to create more room for pro-growth government spending.

“This can be done by removing complexities and distortions from the tax system and improving revenue administration, while keeping tax rates at moderate levels. To set a positive example for tax compliance, the practice of running value-added tax (VAT) refund arrears must stop,” the global lender said.

According to the IMF, it will be critical to implement current plans for improving the management of public investments, which includes public private partnerships, to enhance their quality and mitigate the rising fiscal risks. A continued reduction in the fiscal deficit is needed, to keep debt on its downward path and protect the country against future shocks.

Financial sector reform should continue, to foster credit growth, accelerate financial inclusion, and maintain financial stability, the Fund noted.

“Stronger institutions are needed to contain increasing fiscal risks, especially from the rapid increase in public-private partnerships (PPPs),” the IMF said, adding that the recently amended PPP law strengthens the gate-keeping role of the finance ministry, which now needs to build the capacity to perform this task.

Economic growth is expected to recover from 3.0% expected in 2019 to 3.5% in 2020 and 3.7% over the medium term, which is too low for tangible convergence with living standards in the EU, the Fund said.

It also said that the structure of the budget and the quality of fiscal institutions need much improvement to help the country shift to a higher growth path.

“We remain concerned that the Albania Investment Corporation (AIC) will result in new fiscal risks,” the Fund said, adding that the ongoing financial weakness of the state-owned electricity sector calls for the careful implementation of bold reforms.