Ex Post Evaluation of MFA Operations in Albania
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Ex post evaluation of MFA operations in Albania Framework contract ECFIN-160-2005 Client: European Commission, Directorate for Economic and Financial Affairs Submitted by In consortium with Evaluation Team: Christian Hiddink Alberto Bolognini Wojciech Paczynski Ferrie Pot Juela Shano Albert de Groot Rotterdam, 27th of March 2008 ECORYS Nederland BV P.O. Box 4175 3006 AD Rotterdam Watermanweg 44 3067 GG Rotterdam The Netherlands Tel: +31 (0)10 453 88 00 Fax: +31 (0)10 453 07 68 E-mail: [email protected] Web: www.ecorys.com Registration no. 24316726 ECORYS Macro & Sector Policies Tel: +31 (0)31 (0)10 453 87 53 Fax: +31 (0)10 452 36 60 Ex post evaluation of MFA operations in Albania 3 4 Ex post evaluation of MFA operations in Albania Table of contents List of abbreviations 7 Preface 9 Executive summary 11 Résumé 17 1 Introduction 23 2 Evaluation objective and approach 25 2.1 Objective of the evaluation 25 2.2 Evaluation approach and method 25 3 MFA operation in Albania 29 3.1 Economic and political context 29 3.2 MFA Council Decision 30 3.3 Overview of MFA implementation and dynamics of events 31 3.4 Relative importance of MFA 33 3.5 IMF and World Bank support to Albania 34 4 Macroeconomic stabilisation 37 4.1 Introduction 37 4.2 Macroeconomic objectives of intervention 37 4.3 Gross impact – actual macroeconomic outcomes 38 4.3.1 General objectives 38 4.3.2 Macro economy 38 4.3.3 Fiscal sector 41 4.3.4 External sector 44 4.3.5 MFA specific objectives 46 4.3.6 Conclusions 47 4.4 Unexpected macroeconomic results 48 5 External sustainability 49 5.1 Introduction 49 5.2 Gross impact – actual evolution of external sustainability indicators 49 5.3 Identification of major risks 52 5.4 Projections for external sustainability 56 5.5 Conclusion 59 Ex post evaluation of MFA operations in Albania 5 6 Structural reforms 61 6.1 Introduction 61 6.2 Structural objectives of the intervention 61 6.3 Relevance of MFA structural objectives 64 6.4 Gross impact – actual structural reform outcomes 65 6.4.1 Conclusions 73 6.5 Impact of complementarity with other EU instruments 75 6.6 Unexpected impact on structural reforms 79 7 Net impact of MFA 81 7.1 Introduction 81 7.2 Counterfactual 81 7.2.1 Counterfactual macroeconomic support 81 7.2.2 Counterfactual structural reforms 83 7.2.3 Conclusion: most likely counterfactual scenario 85 7.3 Effects of the counterfactual scenario 85 7.4 Net impact on structural reforms 87 7.5 Net impact on macroeconomic stabilisation 90 7.6 Net impact on long-term external sustainability 91 7.6.1 Qualitative channel approach 91 7.6.2 Conclusion 93 8 Design and implementation of MFA 95 8.1 Introduction 95 8.2 Findings and conclusions 95 8.3 Recommendations 99 Appendix I Sources of information 101 Appendix II Structural reforms: case studies 105 Appendix III Key persons interviewed 117 Appendix IV Modelling approach to the counterfactual 121 Appendix V Macroeconomic impact of structural reforms 127 Appendix VI Results of Delphi questionnaire 133 Appendix VII Historical overview 143 Appendix VIII Overview of IMF programmes 145 Appendix IX Overview of World Bank programmes 147 Appendix X Review of recommendations 149 6 Ex post evaluation of MFA operations in Albania List of abbreviations AE news Albanian Economy news AECH Albanian Electronic Clearing House AIPS Automated Interbank Payment System ARMO Albanian Refining and Marketing Oil AMC Albanian Mobile Communication AFSA Albanian Financial Supervision Authority ATM Accounting Treasury Management system BoA Bank of Albania BoP Balance of Payments BERIS Business Environment Reform and Institutional Strengthening CARDS Community Assistance for Reconstruction, Development and Stability in the Balkans (European Union assistance programme to the western Balkans) CAS Country Assistance Strategy CCMIS Computerised Case Management and Information System CPI Consumer Price Index CPIA Country Policy and Institutional Assessment CFT Consultative Task Force DG ECFIN Directorate General for Economic and Financial Affairs DG ENLARGEMENT Directorate General for Enlargement DG RELEX Directorate General for External Relations DPL Development Policy Loan EBRD European Bank for Reconstruction and Development EC European Commission EFC Economic and Financial Committee EFF Extended Fund Facility ESAF Enhanced Structural Adjustment Facility EU European Union EURALIUS European Assistance mission to the Albanian Justice System FDI Foreign Direct Investment FIAS Foreign Investment Advisory Sector FSAC Financial Sector Adjustment Credit FSSA Financial System Stability Assessment FSVC Financial Services Volunteer Corps GSM Global System for Mobile Communications GDP Gross Domestic Product GNI Gross National Income IBRD International Bank for Reconstruction and Development Ex post evaluation of MFA operations in Albania 7 IDA International Development Association (World Bank, concessional) IFC Institute For Contemporary Studies IFI International Financial Institution IFS International Financial Statistics INSIG Albanian Insurance Company IMF International Monetary Fund MEFP Memorandum of Economic and Financial Policies MFA Macro Financial Assistance (EC) MIGA Multilateral Investment Guarantee Agency MoU Memorandum of Understanding NPAL-SAA National Action Plan for the Approximation of Legislation and SAA implementation NPV Net Present Value NSDI National Strategy for Development and Integration NSSED National Strategy for Socio-Economic Development OA Operational Assessment OECD Organisation for Economic Cooperation and Development OeNB Österreichische Nationalbank PACTA World Bank Albania Public Administration Reform Project (2000-2006) PHARE Poland and Hungary Assistance for Restructuring of their Economics PRGF Poverty Reduction and Growth Facility PRSP Poverty Reduction Strategy Paper PRSC Poverty Reduction Strategy Credit PIFC Policy Paper on Public Finance Control QFD Quasi Fiscal Debt SAA Stabilisation and Association Agreement SAP Stabilisation and Association Process SB Structural Benchmark SDP Supervisory Development Plan SDR Special Drawing Rights SERVCOM Service Company of Oil and Gas SIGMA Support to the Improvement of Governance and Management SITC Standard International Trade Classification SMART Specific Measurable Achievable Realistic and Timely SMOU Supplement Memorandum of Understanding TPL Third Party Liability Insurance USD United States Dollar WB World Bank 8 Ex post evaluation of MFA operations in Albania Preface This report has been prepared by a team of a consortium led by ECORYS Netherlands in association with CASE - Center for Social and Economic Research (Poland) and Economisti Associati (Italy). The ECORYS consortium has been contracted to conduct an ex-post evaluation of EC Macro Financial Assistance (MFA) provided to Albania in the period from April 2004 to July 2006. This report includes the results of desk research, the work undertaken during one mission to the International Financial Institutions in Washington DC (September 2007), and two field missions to Tirana, which were conducted in October and December 2007, respectively. We would like to express our special gratitude to all officials in Tirana and other resource persons in the country, to staff members of the IMF and World Bank in Washington and Tirana, EC officials in Brussels and Tirana for their cooperation and willingness to contribute to this evaluation by providing us with a good understanding of the facts and events at the time of the MFA operation. We would also like to thank the Steering Committee for its constructive comments. Responsibility for the opinions presented in this report rests exclusively with the authors and should not be attributed to the Government of Albania, the European Commission or the IFIs. Christian Hiddink Alberto Bolognini Ferrie Pot Wojciech Paczynski Juela Shano Albert de Groot Ex post evaluation of MFA operations in Albania 9 Executive summary Background 1. This report presents the results of the evaluation of Macro Financial Assistance (MFA) provided by the European Commission to Albania in the period from April 2004 to July 2006. The MFA consisted of a loan of EUR 9 million and a grant of EUR 16 million that was disbursed in two tranches. 2. The main goals of the MFA were to help to ease the country’s external financial constraints, support the balance of payments and secure the position of the reserves. It also referred to the residual financing gap remaining to be covered after International Monetary Fund (IMF) and World Bank (WB) financing to support the policy objectives attached to the authorities’ reform efforts. 3. Immediately after the Council decided to grant MFA (April 2004) Albania’s balance of payments situation improved substantially due to the proceeds of the Savings Bank privatisation. The inflow of FDI of EUR 103 million filled the financing gap in the year 2004. Therefore, MFA disbursements were postponed until 2005 when a new financing gap was identified. The grant part of the first tranche amounted to EUR 3 million, and was released in November 2005. The loan part of the first tranche amounted to EUR 9 million and was released in March 2006. The loan was held up, because of a delay in Parliamentary approval. The first tranche was conditional upon the fulfilment of two prior administrative actions, a satisfactory track record under the IMF programme, and the signing of the MoU. The second tranche (a grant of EUR 13 million) was released in July 2006 after the conditionalities agreed in the MoU were deemed to have been fulfilled. 4. In 2006, the MFA accounted for about 15 percent of the total financial assistance for Albania, and roughly 1/3 of EC assistance for that year. Evaluation objectives and approach 5. The main objectives of this ex-post evaluation of MFA are to (a) assess the effects of the MFA operation in Albania and (b) to learn key lessons, which can be applied to future interventions and/or the possible need for a reorientation of the present approach. Ex post evaluation of MFA operations in Albania 11 6. The evaluation focused on three core areas of effects: (i) macroeconomic stabilisation; (ii) sustainability of the fiscal and external financial situation; and (iii) structural reforms.