The Fiscal Peace agreement recently approved and promoted by the government, which offers tax debt cancellation and preferential revaluation of financial statements, risks undermining previous progress in tax administration and compliance, the International Monetary Fund assessed in the concluding statement after consulting on the agreement with Albania.
The Fund assessed that timely domestic reforms are essential to maintain macroeconomic stability and close reform gaps with the EU.
Key to this will be maintaining fiscal buffers through sustainable revenue mobilization, preserving price and financial stability through flexible monetary policy and further improving prudential tools, as well as advancing comprehensive reforms in human capital, labor markets and governance.
Tourism-led growth and Albania’s macroeconomic prospects are expected to remain strong. After averaging 4.3% in the post-pandemic period, real GDP is projected to grow by 3.5% in 2025, mainly driven by private consumption, and 3.6% in 2026, reflecting a modest acceleration in growth in the euro area’s main trading partners.
Risks to the outlook are tilted to the downside due to a more volatile external environment. Geopolitical tensions, escalating trade measures, commodity price volatility, and prolonged uncertainty could weigh on Albania’s main trading partners and weaken external demand.
If the Albanian government is not careful with public spending, the country faces fiscal challenges from demographic changes, defense spending, and climate-related spending, especially beyond 2030, the IMF warned.
To preserve fiscal buffers, staff recommends growth-friendly revenue reforms, improving tax expenditures, modernizing property tax systems, and improving tax administration. These interventions should be accompanied by improvements in spending quality and fiscal transparency, the Fund argues.
The Fund said that the Bank of Albania should be prepared to respond quickly to evolving market conditions, while currency purchases should be limited to addressing non-fundamental fluctuations.
With inflation expectations and core inflation close to target, the current monetary policy rate of 2.5% and the monetary policy stance are both appropriate, being close to neutral.
However, the Bank of Albania should adjust its monetary stance quickly, including if the second-round effects of wage growth are stronger than expected. Since fundamentals largely drive sustained exchange rate appreciation, the central bank should allow for greater flexibility and rely on interest rates for price stability. The objectives of the central bank-subsidized credit line can be better achieved through targeted fiscal policies and by addressing underlying structural issues.
Vulnerabilities from exposures to large borrowers, currency and sovereign exposures, and the rapid growth of real estate lending require vigilant monitoring and proactive and prudent policy design, the IMF said.
The IMF suggested that comprehensive reforms are needed to revive productivity and promote income convergence with the EU.
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