IMF Wraps Up 2024 Article IV Consultation in Albania

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation ^[1] with Albania on January 17, 2025.

The Albanian economy has turned in a strong performance in recent years, underpinned by prudent macroeconomic policies. Output is now well above its pre-pandemic trend thanks to a booming tourism sector. Prudent fiscal policies contributed to a remarkable reduction in public debt while proactive monetary policy, falling global commodity prices, and lek appreciation have facilitated disinflation. External imbalances have shrunk considerably.

Growth prospects are expected to remain robust. Following an expansion of 3.9 percent in 2023, real GDP growth is projected to average around 3½ percent in 2024–2029, driven by domestic consumption, tourism, and construction activity. End-of-year inflation in 2024 is expected at around 2 percent, below the Bank of Albania's (BoA) 3 percent target. Although base effects from a significant month-on-month drop in early 2024 will temporarily push up inflation in the first half of 2025, a sustained return to target is not expected before 2026, given the high degree of inertia in the inflation process in Albania.

The authorities are expected to outperform their 2024 budget target. With revenues on track, thanks to the favorable conjuncture, and capital spending execution lagging, the primary surplus is projected at around 0.5 percent of GDP in 2024, marginally higher than the

0.3 percent of GDP budget target. The 2025 budget aims for a zero primary balance. The public debt ratio, expected at around 56 percent at end-2024, is expected to decline to around 50 percent in 2029 and is assessed to be sustainable over the medium-term.

Systemic vulnerabilities in the financial system appear broadly contained. The banking sector remains well-capitalized and liquid with average prudential ratios well above regulatory requirements. However, banks' large-borrower and sovereign exposures represent sources of risk, as does the rapid expansion of banks' lending to the real estate sector, which has seen continued price increases and accounts for two-thirds of unhedged FX loans.

Notwithstanding the upbeat macroeconomic picture, considerable structural challenges remain. GDP per capita stands at just around a quarter of the U.S. and EU-15 levels, amid rapid aging and emigration. Wide-ranging reforms, including to enhance governance and public financial management frameworks, boost human capital and productivity, are needed to catalyze lasting higher growth and convergence.

Executive Board Assessment ^[2]

Executive Directors agreed with the thrust of the staff appraisal. They welcomed Albania's recent strong economic performance, underpinned by prudent macroeconomic policies and booming tourism. Directors concurred that the outlook remains favorable with broadly balanced risks, but noted structural challenges related to rapid population aging, emigration, low productivity, and governance shortcomings. They emphasized the importance of preserving macroeconomic stability while advancing reforms to accelerate convergence with the EU and promote sustainable and inclusive growth.

Directors considered that maintaining a modest annual primary surplus alongside continued efforts to strengthen debt management would reinforce fiscal resilience. While welcoming the progress on the authorities' medium‑term revenue strategy, they emphasized that sustained revenue administration and tax policy reforms will be needed to address rising spending needs. Directors stressed that public investment and fiscal risk management reforms, especially related to state‑owned enterprises and public‑private partnerships, remain critical to fiscal transparency.

Directors agreed that uncertainty around the outlook calls for a continued data‑dependent approach to monetary policy. As the sustained lek appreciation is assessed to be largely driven by fundamentals, Directors emphasized that the exchange rate should be allowed to adjust more flexibly, with intervention serving as a complementary tool to address non‑fundamental fluctuations. Carefully weighing the costs and benefits of further reserve accumulation would also be important.

Directors concurred that continued supervisory vigilance is vital given pockets of vulnerability in the financial sector related to credit growth in the real estate sector as well as banks' large borrower and sovereign exposures. They encouraged the authorities to ensure strict regulatory compliance and greater alignment with EU standards, and to enhance the macroprudential toolkit. Deepening financial markets and improving oversight of non‑bank financial institutions are key to enhancing resilience and preserving integrity.

Directors emphasized that deeper reforms are needed to maximize the gains from the EU accession process. Policies should focus on enhancing productivity by fostering global value chain integration, removing barriers to firm growth, and promoting access to bank lending. Further efforts to update education and training programs, advance on the digital agenda, boost female labor force participation, and diversify renewable energy sources would also be important. Directors emphasized that continued infrastructure investments and governance reforms—including the implementation of the 2024–30 Anticorruption Strategy and further implementation of AML/CFT international standards—are key priorities.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summing up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .