Sound economic policies threatened by elections?
Overview:
Albania has recorded strong economic growth over the last decade with low inflation and relatively modest fiscal and external imbalances. The authorities have established a strong track-record of macroeconomic and structural reform policies supported by successive IMF programs. The Inflation Targeting regime has operated well during the global financial crisis although Albania’s relative lack of economic and financial integration with the rest of the world has also helped. Albania remains, however, one of the poorest countries in the region and key structural issues still remain to be addressed. Albania’s relatively sound economic policies are accompanied by a volatile and divisive political scene. The government led by the Democratic Party appears likely to defeat the opposition Socialists in June elections.
Recommendation:
The government decided that it would not seek to renew an IMF agreement that expired in January. This raises the risk of fiscal slippage and a delay in implementing structural reforms as parliamentary elections approach in the summer. While the reform effort will still have important external anchors (prospective EU and NATO accession), a new IMF agreement, even of a non-disbursing nature, would seem sensible in today’s increasingly difficult economic and financial market environment. We are neutral on Albania local currency instruments.