Salary increase/IMF: To be accompanied by significant measures

2023-06-21 19:22:00, Ekonomi CNA

A team of the International Monetary Fund (IMF), headed by Mrs. Anke Weber visited Albania on June 13-19, to discuss the latest macroeconomic developments, the economic forecast and priority policies.

At the end of the visit, the IMF issued a statement, where, among other things, it mentioned the issue of salary increases.

The IMF states that future wage increases in the public sector must be accompanied by significant revenue measures and gains in public sector efficiency.

"We support the authorities' commitment to achieving a non-negative primary balance in 2023, one year ahead of the deadline set in the Organic Budget Law (LOB). Aiming for a primary surplus of 1.5 percent in 2024 will help quickly recreate fiscal space and ensure resilience to future shocks. This approach will also reduce inflationary pressures. We emphasize that the increase in the budget for public sector salaries must be accompanied by significant measures for income and benefits in the efficiency of the public sector and not endanger the medium-term objectives of fiscal consolidation.

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The medium-term revenue strategy should anchor a credible fiscal consolidation and tax reform agenda. We support the recently adopted "Income" law, which is expected to expand the tax base. Timely implementation of other planned measures to increase tax revenues is also important. Other income administration reforms, including increased compliance by wealthy individuals, complement tax policy efforts. The continued progress of fiscal structural reforms will strengthen financial management, investments and risk monitoring," the statement said.

Regarding the intention of the Bank of Albania to continue the normalization of the monetary policy, the IMF claims that it is the right one.

"Further reduction of inflation is essential, especially to protect families in need. We support the Bank of Albania's intention to continue with the normalization of monetary policy and note that this policy remains accommodative, despite the increase in the base interest rate in March. If inflation continues to be more stable than forecast, the pace of tightening should accelerate. We advocate an approach to monetary policy decisions that is flexible and data-driven. Interventions in the exchange rate should be limited to cases of disturbances in market conditions, maintaining the role of the exchange rate as shock absorber.

The banking system has proven resilient to successive shocks, but tightening financial conditions could expose its weaknesses. Overall, the banking system has a strong capital and liquidity position, but the higher number of non-performing loans could erode this capital. In this context, we welcome the Bank of Albania's efforts to strengthen the regulatory and supervisory framework, including the gradual creation of larger bank capital additions. We encourage continuous monitoring of bank credit risk, exchange rate risk and interest rate risk. The collection of more data on the real estate sector will be key for the further development of the macroprudential framework", emphasizes IMF./ CNA.al