ECONOMY

IMF sees strong growth in 2007 prompting much-needed reforms

TIRANA – Albania’s economy is on track for more strong growth next year that should create the perfect environment for much-needed reforms, the head of the IMF mission to the country said in an interview this week. Speaking at the end of a two-week visit, Istvan Szekely told Reuters the situation was »promising.» The economy was coming out of a slight slowdown prompted by a power crisis last winter that crippled industry and small business alike. «In my view it is going to accelerate toward the end of the year and return to 6 percent in 2007,» Szekely said. GDP growth has stabilized at around 6 percent in recent years from 9 percent in the late 1990s. Services, construction and remittances are the main drivers of the boom. «At this stage we think that Albania is going to have a good year, a solid year which can be then used to do the job of structural reform and on other fronts. It’s the perfect environment to do good things.» The reforms would also help Albania on its path to the European Union. Tirana has signed a Stabilization and Association Agreement, the first rung on the ladder to membership, but an invitation to join will probably take years. The prospect of EU membership «should be a very important anchor for the country and the economy,» Szekely said. «We want to see this anchor firmly in place because the IMF program is a graduation program so we’ll not have this three-year program with Albania in the future.» But he cautioned that Albania still needed to make major reforms, saying the legal system and institutions were «very weak» and did not yet offer enough reassurance to investors. «We basically think Albania needs to do more about enforcement of contracts and ownership rights… (that) also includes obviously the courts and the capacity of businesspeople to make sure that if a contract goes wrong, then there is a clearly defined mechanism that will sort out the problem.» Keeping the budget safe The IMF began assisting Albania early in the 1990s after the fall of Enver Hoxha’s Stalinist regime. It helped revive the economy when fraudulent pyramid schemes collapsed in 1997, draining the banking system of $1 billion worth of savers’ money. Earlier this year, Tirana signed a three-year $24.7 million deal with the Fund that allows it more freedom to determine fiscal policy. The government said it would be the last, and Albania would soon be strong enough not to need the Fund. But for now, the IMF scorecard is still watched by donors allocating loans or grants to the cash-strapped country. Challenges included keeping credit growth in check and making sure the budget was not stretched by large projects such as a recently announced plan for a highway from the Adriatic port of Durres to the breakaway Serbian province of Kosovo, whose population is 90 percent ethnic Albanian. The government last month commissioned a US-Turkish group and said it will pay for the 418-million-euro road from its budget. The project has been long shunned by foreign donors for fear of stoking «Greater Albania» nationalism. Szekely said Albania’s overall infrastructure plans, of which the Durres-Kosovo project was the main component, were «definitely in the interests of the country.» «The most important thing is to make sure that this large road project is implemented in a safe way,» Szekely said. «We are discussing necessary measures and instruments that can ensure that the execution of the budget remains safe, that the medium-term fiscal framework remains sound and credible.»