Fiscal tightening must stabilise the debt ratio
Overview:
Albania has managed to avoid the sharp economic contraction seen elsewhere in the region as a result of the global economic crisis. However, GDP growth has still decelerated. In avoiding the worst of the crisis Albania has not undergone a significant correction in its unsustainably large external imbalances. As the economy shows signs of picking up speed once more such macroeconomic imbalances may prove problematic. Foreign exchange reserves are at comfortable levels and enhanced exchange rate flexibility provides a cushion to external shocks. Inflation is largely under control. However, the fiscal situation has deteriorated sharply in recent years. More urgent fiscal adjustment is required to stabilise unfavourable public sector debt dynamics.