Gent Sejko: Prospects and challenges facing Albania
Statement by Mr Gent Sejko, Governor of the Bank of Albania, at the conclusion of
discussions on the eighth review of the arrangement with the International Monetary Fund,
Tirana, 28 June 2016.
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In the last two weeks we have been engaged in intensive discussions with IMF Mission
representatives, in the framework of the review of the IMF arrangement. The discussions
focused on: the analysis of the current situation of the Albanian economy and financial
system; identification of development prospects and challenges facing Albania; and the
policies to be implemented with a view to supporting the country's development.
The conclusions of our discussions may be summarised in three main points:
(i) Economic activity appears upward and the development outlook remains positive.
(ii) Yet, the external environment is unfavourable and the Albanian economy continues
to face structural weaknesses, which decelerate the pace of growth.
(iii) Therefore, the monetary and fiscal policies should continue to generate a prudent
economic stimulus, whereas structural reforms should accelerate their pace.
In this context, the Bank of Albania deems that the arrangement with the IMF and the
measures envisaged as part of the Eighth Review provide a consistent framework for drafting
and implementing a programme for the country's development.
Let me now present in greater detail the opinion of the Bank of Albania.
The growth pace of the Albanian economy continues to show progressive
improvement. The improvement reflects the expansion of domestic demand - that is
increase in consumption and private investments - whereas foreign demand appears weak
and fiscal policy continues the consolidating trend. The new information obtained in the first
half of the year is in line with this judgement.
The intensity of supply shocks, which led to the rapid decline in inflation over the first
half of the year, seems to decrease. Inflation recorded a slight increase in May, reaching at
0.7%. This performance confirms our judgement about the transitory nature of the
abovementioned shocks. However, our analyses confirm that the balance of inflationary pressures
is still weak. Economic activity remains below potential, suggesting that the return of inflation
to target will be a gradual and medium-term phenomenon.
Our monetary policy has assumed a stronger stimulating stance over 2016. After two
consecutive cuts in April and May, the key interest rate currently stands at 1.25%. The
strengthening of the monetary stimulus has led to lowering the interest rates across all
segments of the financial market, thus stimulating the increase in consumption and private
investments. The Bank of Albania deems that the financial setting - characterised by low
interest rates and ample liquidity - should encourage banks for a more positive approach
towards lending.
Banking sector's soundness indicators have been improving, in response to
economic activity recovery and other measures undertaken by Albanian authorities.
Liquidity and capitalisation indicators maintain good parameters, whereas the stock of
nonperforming loans - albeit fluctuating - has been put under control.
Our projections have not changed: the Bank of Albania expects economic activity to
improve progressively over the medium-term horizon. This performance will continue to
be sustained by stimulating financial conditions and growth of private domestic demand. It
will contribute to the improvement of economic and financial equilibriums in Albania and to
the return of inflation to target within 2018.
The realisation of these objectives requires maintaining the actual mix of economic
policies. The monetary policy will maintain the stimulating trend over the medium-term
horizon, while the intensity of the monetary stimulus will not decrease for some quarters
ahead. On the other hand, the fiscal policy should maintain its consolidating trend.
The balance of risks related to expected developments remains on the down side. The
expansion of economic activity continues to be decelerated by the unfavourable economic
performance in the euro area, which is further complicated by the Brexit, as well as by the
behaviour of economic and financial agents, who continue to show reluctance in undertaking
long-term business projects.
Against this backdrop, the Bank of Albania deems that economic policies and structural
reforms should focus on:
- Maintaining and further strengthening the economic and financial stability.
- Accelerating structural reforms, especially with regard to: improving the legal setting
and business climate; encouraging domestic and foreign investments, completing
the infrastructure; enhancing productivity; and, improving the labour market.
- Expanding crediting, to support the country's medium-term development. Issues
related to credit growth were addressed at length in the Albania Financial Forum IV.
The Forum's conclusions will serve as a road map in our joint efforts for lending to
return to the desired levels.
Concluding, I would like to underline that the Bank of Albania will remain committed to
maintaining price stability and strengthening financial stability in Albania. In parallel,
and in accordance with the engagements in the framework of this arrangement, the Bank of
Albania will continue to work to further improve the regulatory framework and to further
develop the financial infrastructure in Albania.
Thank you for your attention!