Thewesternbalkans
Albania – International Monetary Fund (IMF)
Albania has been a member of the IMF since October 15, 1991. The country has a quota for 184.89 million Special Drawing Rights (SDR). The outstanding Purchases and Loans (SDR) are 177.83 million (March 31, 2024)
Since membership in 1991, Albania has had 8 Number of Arrangements.
In March 2024 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Albania and considered and endorsed the staff appraisal without a meeting.
During the consultations it was founded out that the Albanian economy has shown remarkable resilience in the face of consecutive shocks. Thanks to a strong rebound in tourism, growth in 2022 was close to 5 percent.
Main conclusions of the IMF team are as follow:
“A combination of fiscal consolidation, higher income, and Albanian currency (leka) appreciation brought the public debt ratio back to pre-pandemic levels. Monetary policy is rightly focused on reducing inflation, which has been gradually declining after peaking at around 8 percent, lower than in regional peers. The financial system appears broadly resilient, despite some global banking stresses and rising interest rates.
The favorable growth momentum continued in 2023 and 2024. Real GDP grew by around 3¼ percent 2023, supported by robust private consumption, services, and construction activity. Tourist arrivals and electricity production in 2023 are more than one-third above the levels recorded during the last year. 2023 fiscal revenues have already surpassed budgeted levels. Amid tight labor markets and rising domestic price pressures, the Bank of Albania recently resumed policy rate increases.”
“Against the backdrop of the EU accession process, the authorities are grappling with several mutually reinforcing impediments to productivity and higher living standards. These include widespread informality, weaknesses in governance and the rule of law, significant gender gaps in labor force participation, high youth inactivity, and infrastructure gaps. A high emigration rate of workers and population aging pose additional threats to growth.”
Main conclusions for the challenges in next years in the IMF’s staff report are as follow:
- Heightened geopolitical tensions represent a major potential headwind, even as the economy remains vulnerable to the risks of weather-related energy sector shocks, a sudden reversal of the exchange rate appreciation, and more persistent inflation.
- A meaningful revenue-based fiscal consolidation starting in 2024 is critical to build fiscal space for future countercyclical policy.
- Returning inflation to target will likely require some further increases in the policy rate.
- A flexible exchange rate should remain the first line of defense against external shocks.
- The banking system overall appears more resilient, but some pockets of vulnerabilities exist. There is scope to strengthen the capital positions of some banks, in addition to prudent provisioning and focused asset quality reviews.
- Further progress on aligning supervision and regulation with EU standards, operationalizing insolvency and resolution frameworks, strengthening governance and deepening capital markets would support durable credit growth.
We can see also in the staff’s report that “Albania should seize the opportunities afforded by the growing momentum of EU enlargement to address long-standing structural challenges. Judicial reforms should be complemented by increased efficiency to address the backlog in cases. Addressing gaps in youth and female labor force participation will help lift potential growth.
Albania – The World Bank
The World Bank Group is committed to supporting the region in strengthening their institutional frameworks for fiscal policy, with the support from the European Union Trust Fund on Strengthening Fiscal Governance in the Western Balkan Countries including Albania.
Building strong fiscal institutions across the Western Balkan countries is important in ensuring the sustainability of public finances, and it is also aligned with the countries’ European Union accession aspirations.
Recent projects for Albania are as follow:
- Improving Equitable Access to High Standard Public Services through GovTech;
- Climate Resilience and Agriculture Development;
- Building Resilient Bridges;
- First Resilience and Green Development;
- Support to Albania Extractive Industries Transparency Initiative Mainstreaming Process;
- Albania National Water Supply and Sanitation Sector Modernization Program;
- Project for Integrated Urban and Tourism Development Additional Financing;
- Additional Financing to the Health System Improvement Project;
- Albania Strengthening Quality of Auditing and Reporting Project;
- Albania Fiscal Sustainability and Growth Development Policy Financing;
- Albania Emergency COVID-19 Response Project;
- Albania Environmental Services Project;
- Albania Gender Equality in Access to Economic Opportunities DPF;
- Enhancing Capital Markets Supervision Capacities of The Albanian Financial Supervisory Authority – Phase 2;
- Second Additional Financing for Energy Community of South East Europe APL Program APL 5 for Albania Dam Safety;
- Additional Financing Social Assistance Modernization project;
- Regional and Local Roads ConnectivityAlbania;
- Developing a National Strategy for the Development of Statistics in Albania;
- Albania Water Resources and Irrigation Project Additional Financing.
Albania – European Investment Bank (EIB)
The focus of the EIB has been to supporting key transport infrastructure, to improve interregional integration and interconnectivity to Europe. The last main project is the construction of the Motorway bypass of the city of Vlora.
During the presence of the EIB in Albania since 1995, 27 project have been financed with 740 million Euro including:
Transport – 44.72%;
Energy – 29.61%;
Water sewerage – 17.32 %;
Credit lines – 4.72%;
Education- 1.89 %;
Urban development – 1.10%;
Services – 0.63%.
One of the most useful projects is the Northern Albania Investment Program, starting with Euro 200 000 cooperation agreement for technical assistance.
Other important investment of the EIB is the Economic Resilience Initiative (ERI). ERI has measurable economic, social and environmental outcomes that contribute to sustainable development goals relating to clean water and sanitation, affordable and clean energy, decent work and economic growth, industry, innovation and infrastructure, and sustainable cities and communities.
ERI investment targets key infrastructure projects and private sector development as well as helping migration flows.
ERI Fund: donor resources used for investment grants and other forms of concessional and impact finance to facilitate investment in vital infrastructure and support higher risk or lower financial return investments which achieve enhanced social and economic impact.
Eight EU Member States and the United Kingdom participate in the ERI Fund as donors, committing
€112 million to date.
ERI Technical Assistance: €90 million funded from EIB’s own resources to build the volume and scope of well-prepared and more impactful projects for public and private sector projects that help society and the economy but may otherwise not be funded, due to fiscal constraints, poor financial returns or high risk.
Albania – European Bank for Reconstruction and Development (EBRD)
Albania joined the EBRD on 18 December 1991.
In Albania, EBRD focuses on the sustainable development of the private sector, building on the strong entrepreneurial spirit in the economy, supporting governance improvements across the economy, enhancing private sector competitiveness and inclusion through wider access to finance and skills as well as strengthening energy diversification and low-carbon transition.
The EBRD supports the commercialisation and restructuring of key state-owned enterprises, strengthen the corporate governance of firms, improve the quality of institutions and strengthen the rule of law.
Main areas for support are as follow:
- – Enhance private sector competitiveness and inclusion through wider access to finance and skills. The EBRD fosters increased competition through entry/consolidation and a levelling of the playing field. Increased access to finance and promoting entrepreneurship will strengthen economic growth. Improved business skills, standards and business sophistication will improve the competitiveness of domestic firms on local and regional markets. Access to skills development (incl. skills mismatch reduction) creates employment opportunities. The EBRD also supports increased access to infrastructure especially with the goal to unlock economic opportunities for inclusion target groups;
- – The EBRD supports the creation of a more diversified energy mix with reduced vulnerability to climate change and reinforced networks for domestic and regional connectivity;
– EBRD €100 million Albanian Agribusiness Support Facility. The Facility was approved in 2015 to promote and enhance access to finance for agribusinesses in Albania.
The last conclusions of EBRD on Albanian economy are very similar to the findings of the WB and IMF.
The EBRD work in Albania is currently funded by the European Union, Italy, Luxembourg, Sweden and the EBRD Small Impact Fund and Shareholder Special Fund.
Last EBRD projects in Albania:
– Support for strategic transport links in Albania by providing technical assistance and loans;
– EBRD and ProCredit promote energy efficiency in Albania;
– Households light up with support of EU, 3 million credit line for residential efficiency. The fund will be on-lent to householders for investment in energy saving solutions.
In the last EBRD strategy for Albania the Bank pointed that country’s commitment to and application of the political principles stated in Article 1 of the Agreement Establishing the Bank continued since the adoption of the previous Country Strategy, itsef for implementation of the comprehensive EU approximation agenda. This serves as the main external anchor for reforms, including as regards the strengthen in governance and the rule of law, where serious challenges remain:
Transition gaps remain large a cross the six transition qualities of a modern market economy, as defined by EBRD. Governance and competitiveness would benefit from tackling the wide-spread informal economy, as well as strengthening institutions. Low labour costs support competitiveness but the economy is held back by skills shortages and mismatches, uncertainty overland and property rights, lack of know-how and business sophistication, low investment in R&D, and weak innovation capacity. The financial sector continues to have high levels of euroisation and is dominated by well capitalised and liquid banks. Despite significant investments In roadsover recent years, transport networks remain in need of further substantial upgrades. Public sector counterparts require strengthened investment planning and implementation capacity. The country’s electricity generation continues to be almost entirely relian to hydropower and urgently needs diversification to mitigate exposure to climate change. Scaling up energy and water efficiency investments, substantial improvements in waste management, and investing in the circular economy are other key components in the country’s green economy transition.
The Bank is well placed to address key transition gaps, by financing well-targeted investments an dassisting reform efforts in close cooperation with the EU, other IFIs and donors.
The Bank will pursue the following key priorities in Albania till 2025:
- Support governance improvements across the economy;
- Enhance private sector competitiveness and inclusion through wider access to finance and skills;
- Strengthen energy diversification and low-carbon transition.
Albania – European Union
The European Union is the largest provider of financial assistance to Albania and is supporting the country’s socioeconomic development and fundamental reforms with financial and technical assistance through the Instrument for Pre-accession Assistance (IPA).
The Instrument for Pre-accession Assistance (IPA) is the means by which the EU has been supporting reforms in the enlargement region with financial and technical assistance since 2007. IPA funds build up the capacities of the beneficiaries throughout the accession process, resulting in progressive, positive developments in the region and especially in Albania.
For the multiannual financial framework period 2021-2027, the IPA III budgetary envelope is €14.162 billion.
The current beneficiaries are: Albania, Bosnia and Herzegovina, Kosovo, Montebegro, North Macedonia, Serbia and Turkey.
IPA III has a strategic and performance based design with no country specific allocation from the onset and will focus on the rule of law and the respect of fundamental values, strengthening democratic institutions and public administration reform, promoting economic governance and reforms towards competitiveness. It will also tackle sustainable economic recovery, energy supply, transport, environment and climate change, and digital transformation.
The new IPA III will support the implementation of the Economic and Investment Plan for the Western Balkans, aiming to boost the long-term economic recovery of the region, support a green and digital transition, and foster regional integration and convergence with the European Union.
Coherence and complementarity between the Instrument for Pre-Accession Assistance and the new Neighbourhood, Development and International Cooperation Instrument. The thematic and rapid reaction components of this new cooperation Instrument will also benefit candidate countries and potential candidates
The objective of the action entitled “State and Resilience Building Contract for Albania” is to assist Albania in reducing the socio-economic impact of the rising energy prices, in particular on small and medium sized enterprises and households, and to strengthen the Government’s overall capacity to deliver tailor-made services to vulnerable households and support the long-term socioeconomic recovery, energy security, and energy transition of Albania.
The maximum Union contribution for the implementation of the Albania’s action plan 2023 is set at EUR 80 000 000 and shall be financed from the appropriations entered in budget line 15 02 02 01 of the general budget of the Union.
Comments: By carefully reading the goals and conclusions of the individual financial institutions, as well as of the EU, we see a clearly expressed geopolitical line of inclusion of Albania to the democratic Western world. It is also clear that the country makes the necessary efforts and provides the necessary administrative resources to implement the pre-designed programs, guaranteeing an inflow of fresh capital and investments. If we have to summarize – the IMF takes care of the macro financial framework and management of the country’s external debt, three banks (WB, EIB, EBRD) are responsible for good financial management and infrastructure development, and the EU – for everything. The combination of loans and grants enables the country to take on the new obligations more easily, and to allow the consultants to work on the projects related to technical assistance.
