Gent Sejko: Future Balkans - towards a global inclusion
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the Tirana Economic Forum
"Future Balkans: Towards a global inclusion" Leadership, Institutions and Policies Convergence
2017-2020, Tirana, 24 January 2018.
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Your Excellency Mr President,
Your Excellency Deputy Prime Minister of Albania,
Your Excellency Deputy Prime Minister of Kosovo,
Honourable Minister of Finance and Economy,
My fellow Colleagues and Honourable Participants,
It is a pleasure for me to participate at this Conference, convened to discuss on the importance
of regional integration, which should be promoted by a forward-looking leadership and supported
by the policies convergence.
I believe that the dialogue that focuses on sharing our vision for the future, the convergence of
perspectives about the challenges ahead of us, and identifying the objectives and drafting
agendas for joint action, will be a fruitful dialogue to all of us. Policy convergence, both within and
between countries, promotes efficiency and minimizes negative spill-overs.
The role of institutions in the growth and development
Institutions are the backbone of any modern society, in as much as they generate and implement
laws, regulations and policies of development, thus laying out the rules of the game in a market
economy. From a broader perspective, these rules should provide for a stable and transparent
environment, thus enabling a predictable and long-term decision-making process. They should
promote fair competition and equality of opportunities, and they should engender fairness and
social cohesion.
It is clear that richer economies and stable societies tend to have stronger and more stable
institutions.
It is, therefore, my belief that our region should not subscribe to an 'organic model' of institutional
growth. By 'organic', I mean a growth model where institutions catch up to economic
development, and tend more to ensure a certain level of prosperity rather than instigate it.
To the contrary, I believe institutions and policies should lead the growth and development
processes. In this context, our task as policy makers is to define goals, to identify impediments,
and to undertake the required countermeasures. This, in essence, is the role of leadership.
Let me illustrate my point with just a few examples of the challenges facing us as a region:
First, problems with the business environment, including corruption and informality, rank
high on the list of growth impediments, both in Albania and in the region.
Second, our economic and financial stability should be further enhanced, in order to
increase our resilience to shocks and to decrease our financing costs.
Third, it is becoming increasingly clear that our financial systems have become over-reliant
on banks. Looking ahead, we should rely more on capital markets in order to finance
domestic growth.
Fourth, a common complaint frequently heard from potential foreign investors is the limited
attractiveness of small and fragmented markets. While partly incorrect, we should do more
to increase our trade and infrastructure integration.
Fifth, in competing for the same pool of international investors, countries in the region often
attempt to raise their individual profile through offering tax break or other subsidies. This race
to the bottom does not prove to be productive.
Resolving any of these issues requires foresight, strong institutions, determined policy action,
and regional coordination.
Institutions and integration
Our region is actively involved in the EU integration process. This objective is the lighthouse for
our institutional reform efforts and has produced notable benefits. The EU integration is aiding
authorities in the region to anchor their institutional reforms and policies. On the other hand, the
EU institutions provide oversight and lend credibility to the process. Additionally, since individual
countries are working towards common objectives, regional policy is better coordinated.
However, I also believe countries in the region could do more to share their experiences and
learn from each other. Albania offers a positive example in terms of economic and financial
stability. Macedonia has done exceptionally well in terms of attracting high-value-added FDIs.
Serbia is on the regional vanguard of financial market development. All of us should learn from
our individual success stories; all of us should avoid mistakes we have individually made in the
past. Our countries share more commonalities than differences: what works for one is more
likely than not to work for others, and vice versa.
Furthermore, I believe we should look at regional integration as a goal in itself, rather than as an
instrument to EU integration. Joint EU integration would supersede certain regional integration
frameworks, such as trade and factor mobility, but it would not supplant the need for further
policy dialogue and common regional perspectives and solutions.
Let me now to briefly describe the role of institutions in structural reforms in Albania.
Institutions and structural reforms in Albania
It is virtually impossible to do justice to the breadth and depth of reforms in Albania over the
limited allotted time. Therefore, I will try to highlight only its main items.
In order to improve our business environment, the Albanian authorities have engaged in
comprehensive reforms of the property rights, of the tax regime, of the electricity sector, of
the general infrastructure, and remain engaged in the fight against informality. The most
recent measure in this regard is a banking sector regulation that aims to put an end to the
practice of lending through uncertified company balance sheets. Further, to enhance
efficiency and tackle corruption and informality, a determined drive to improve the functioning
of the public administration, which broadly speaking encompasses also the judicial system
reform, has been undertaken.
In order to increase economic stability and to improve financial resilience, we have initiated a
wide ranging set of reforms. To that end, the Government has improved its public finance
management procedures, has adopted a fiscal responsibility framework, and has
undertaken measures to reduce debt. The Bank of Albania has strived to model itself after
the ECB. Its professionalism has increased while its independence, transparency and
credibility have all improved. Through a joint effort of institutional stakeholders, we have
managed to reform the Financial Supervisory Authority and enhance the role of the Deposit
Insurance Authority. Together with the Albanian government, we have implemented a
comprehensive NPL resolution strategy, which has already brought encouraging results, we
have approved a Bank Resolution Law and we have jointly designed a de-euroization
strategy, aimed at tackling financial vulnerabilities, improving the transmission mechanism
and intensifying the use of the domestic currency. We have also established a new
interinstitutional Financial Stability Advisory Group, vested with coordination powers on
systemically-important stability-related issues.
In order to further develop financial markets, the Albanian authorities have accelerated the
development of capital markets, through the establishment of the Albanian Stock Exchange,
the licensing and functioning of several investment and asset management funds, the
encouragement of the on-going consolidation in the bank and non-bank financial institutions,
the tax encouragement of private pension schemes, the on-going efforts to improve the
functioning of secondary markets for government papers, etc.
However, I am convinced the sharing regional experience would result in an additional impetus to
the process. Furthermore, regional solutions can be sought to common problems.
This brings me to my last point.
Improving regional cooperation
Coordination and cooperation cannot run standalone in an ever integrated and intertwined world.
The same concept applies to our region, where policy initiatives, aimed at achieving a common
objective, should be implemented jointly.
Let me highlight a few potential cooperation areas:
First, I believe there is scope for greater regional dialogue and greater policy convergence, at
all relevant areas of public policy and private sector development.
Second, I believe there is more to be done in order to finish the job of regional integration. In
particular, standards on products and services should be agreed upon.
Third, beyond the convergence of financial development policies, I remain convinced we
should explore the idea of joint financial development projects. Although fraught with
difficulties, a regional stock exchange is a meaningful potential project.
Fourth, I believe the region should strive towards establishing the lowest acceptable
common denominator in terms of tax, labour market, financial sector, and environment
regulation. 'Beggar-thy-neighbour' policies through constantly undercutting each other in any
of these areas are only damaging the region in the long term.
Fifth, the regional infrastructure remains rather fragmented. This refers not merely to the
transport infrastructure, but also the electricity and IT network.
Honourable participants,
Some of the issues I professed here might seem utopian or unrealistic. However, I remain
convinced that through an honest common endeavour, such ideas might, someday, in the
nottoo-distant future, become reality.
Thank you!