Ardian Fullani: The development of, and challenges for, the Albanian
economy
Opinion of Mr Ardian Fullani, Governor of the Bank of Albania, published in the Albanian
daily newspapers "Panorama" and "Albania Daily News", 2 December 2013.
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Soon enough representatives of the International Monetary Fund (IMF) will come to Albania
to judge on the performance of the Albanian economy and its perspective. During their
mission to Tirana, Fund representatives are expected to discuss the country's economic
outlook in the medium run, from the perspective of the IMF vis-à-vis the perspective of the
Albanian authorities. Given the latest economic developments in Albania, the possibility of
signing a new cooperation agreement between the IMF and Albanian authorities has been a
persisting question in public debates. My approach to this issue has been to fully support
negotiating a new agreement with the IMF. I am certain our economy will only benefit from it,
especially under the current circumstances, as the attitude of the IMF towards developing
economies has become more flexible.
Presently, the biggest challenge facing the Albanian economy is recovering its activity,
ensuring stable economic growth and employment. On the other hand, all the economies of
Central and Southeast Europe are also facing these challenges. The main objective remains
enhancing competitiveness: in other words, creating and boosting production capacities to
produce high-quality goods and services at lower costs compared to our competitors.
Currently, both our economy and the economies in the region are too small to generate
sufficient domestic demand that would promote employment, and, for them, to cope with the
competition from the Asian economies is costly. At the same time, our economies are small
against the economies of Central Europe; they suffer from low productivity, implying that, in
the current conditions, the production quality and quantity for unit of labour is lower than in
our direct partners, both at regional and global levels. Higher production and employment
rates are the only alternatives that lead to creating values that would guarantee convergence
with advanced European economies. In Central European economies, this phenomenon
happened at the end of 1990s thanks to capital investments from European and global
markets. Factors that supported these capital flows weakened at the outbreak of the global
financial crisis and withdrew totally after the sovereign debt crisis. At present, the global
markets have withdrawn from Eastern Europe economies and from other developing
countries. In the absence of free capital from abroad, structural reforms in the labour, capital,
and land markets and pension system remain the only possibilities to attract foreign capital
and investments to support growth and employment. These reforms have high financial costs
and their benefits materialise in the medium and long run.
In the meantime, actual economic policies are oriented towards maintaining the fragile
macroeconomic and financial equilibriums and are obliged to focus on overcoming the
difficulties of the moment caused by the crisis that has stricken not only our region, but also
our European trading partners. The priorities of the moment do not sustain, or better say,
render it more difficult to undertake and immediately implement structural reforms in the
economy, at least for those that require financial resources and support. Nonetheless,
definite solutions for short-term problems will come in the framework and context of
economic benefits and convergence. Consequently, choices related to defining economic
priorities, education, employment, existing vacuum in human and financial capital, fiscal
policies, structural and legal reforms should be guided by the vision and objectives for the
next 20 years.
While long-term solutions and short-term problems in the economy interact with and
condition each other, it is indispensible to adopt domestic and external anchors, which would
support economic and development policies. Assessing the existing situation at 360 degrees,
in a global context, taking into account the decision-making time and approach, I deem that
the country needs and deserves to enter as a partner into a new and flexible agreement with
the International Monetary Fund.
From the overall perspective, the Albanian economy enjoys economic and financial stability.
Our economy continues to produce positive growth rates; it has a stable financial system, low
but contained inflation, relatively stable exchange rate and low interest rates to finance the
public debt. Moreover, macroeconomic policies have been in line with the scope and
recommendations of IMF programmes. Signing under these conditions enables a dignified
agreement and minimises the costs that accompany the implementation of reforms at
present by Albanian authorities. At the same time, from the point of view of foreign investors
in general and those in the banking sector in particular, this development would contribute to
reducing risk premiums for the country. The experience of other countries has shown that the
intervention of the IMF has helped sovereign ratings return to their previous positions. The
spread has narrowed immediately, hence reducing the nervousness and hesitation of agents
to invest in these markets.
In the national and international arena it seems that the highest risk is related to ensuring the
monetary assets to meet immediate needs arising from acknowledging government liabilities
to businesses, and medium-term needs to cope with liabilities or enable reinvestment of
liabilities arising as a consequence of extraordinary fiscal stimuli applied in 2009. An
agreement with the IMF would address the scepticism of the domestic and international
markets about the size of the public debt, especially under the conditions of a sizeable
absence of foreign reserve funds in relation to crediting the economies in our region.
According to reliable analyses of the market itself and of important international financial
institutions, a number of risks exist, not only for developing economies, but also for the
socalled advanced economies. Our main trading and financial partners are focused on their
problems of the real economy and financial system. Their adjustment policies have negative
side effects on the Albanian economy, which appear in low demand for our products,
downward remittances and limitation of financing with direct investment and other forms of
capital while, despite the partial adjustment noticed recently, the current account to GDP
ratio continues to be of concern. The dependency of the Albanian economy on countries
experiencing difficulties such as Greece and Italy, requires measures to face a potential
nonfinancing of the balance of payment.
Moreover, European monetary authorities and regulators of the banking and financial
markets state that there is a political decision that each European economy experiencing
lack of financing must find funds in cooperation with the IMF. The new agreement would
ensure low cost and safe foreign reserve funds directly from IMF accounts. This would
increase Albania's rating in relation to its capacities to pay back the foreign debt, and would
provide for better access in the international financial market with low financing costs.
The agreement is positive news for foreign investors and potential partners as well, not only
from the point of view of ensuring financial assets but also as a guarantee to implement
prudent policies and adopt a reliable fiscal rule, which enables the consolidation of public
finances in the medium run and, at the same time, keeps the trajectory of the public debt in
check.
The IMF may not solve the challenges for long-term developments of the Albanian economy.
Problems related to competitiveness, employment and demographic developments, capacity
utilisation, and repositioning of our economy in the region and global economies, require
structural reforms in the realms of education, employment, expansion and deepening of
financial and capital markets, alignment and unification of legislation and coordination of
structural reforms at regional and European level. Overcoming these challenges, however,
will be easier under the calming effects that an agreement with the IMF offers. This
agreement should and could be characterised by sufficient flexibility, which would guarantee
the necessary space to stimulate on-going structural reforms and sustainable economic
growth in the long run, unaffected by short-term problems.
Concluding, I am confident that the news for an agreement will be received positively by the
domestic and foreign financial markets, and will also be interpreted as a guarantee that
Albania enjoys a sound economic and financial environment, with many opportunities for
investment and profit.