This is also the first time such financing is sought by the government but on the other side, IMF & WB view the loan as too expensive and limiting on the country’s ability to implement future projects.

On May 20, the government approved an agreement with ABN AMRO bank for a substantial loan of EUR54,085,514 and US$11,518,877 which would be used to finance the reconstruction of the Tirana – Durrës railway. The project also intends to establish the first railway link with the country’s main airport, Tirana International Airport.

“Irrespective of the project’s inherent value as a vehicle to crowd in private investments alongside the Tirana-Durrës corridor, IMF staff has stressed in its bilateral dialogue with the Albanian authorities, including during the last mission in early May, that—in order to safeguard macroeconomic stability and the current growth momentum deriving from the gradually declining interest rates and associated private sector investments—the associated budgetary and financial impacts would need to be accommodated within the medium-term expenditure framework and without undermining the declining path of public debt”, says Jan-Peter Olters, Resident Representative of IMF in Albania.

“It has interest rates higher than the concessional project loans currently contracted, limiting the government’s ability to implement other projects currently projected within the context of Albania’s National Strategy for Socio-Economic Development (NSSED). This project is too large and too expensive for it to be realized on top of current budget projections”, says a press statement released by the World Bank office in Tirana.

Albanian government has signed an agreement with General Electric Transportation Systems S.P.A, the Italian branch of the giant US corporate in 2003. According the agreement, General Electric would provide assistance to the government in receiving a commercial term debt provided by ABN AMRO bank. According to the government, the project has a return on equity of 12 %. But such terms are deemed very high for a railway project and too expensive according to the World Bank.

“The Bank is concerned by the lack of analysis of the economic and social benefits that might stem from the project, and which would be essential to justify the significant costs involved (equivalent to over 1 percent of Albania’s GDP).  Studies to date suggest that the project would also generate a very large negative financial return. The Bank is also concerned about the technical suitability of some of the proposed investments.  Furthermore, in the Bank’s view, open and transparent competitive bidding is a prerequisite to ensuring the efficient allocation and use of scarce public resources”, according to the press release by World Bank today.