Gent Sejko: Seventh review of the arrangement with the IMF concluded
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the joint press conference
with the IMF mission and the Minister of Finance, Tirana, 22 March 2016.
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In accordance with the agreed agenda, during the last two weeks, we have held intensive
talks with the IMF mission, which focused on the Review of the Arrangement with the IMF.
Also, in the framework of Article IV discussions, talks focused on identifying those structural
problems that hamper economic development in Albania.
The Review concluded that economic indicators and macro-economic policies have been in
line with our projections and commitments, despite the challenges facing the Albanian
economy during this period. Moreover, Article IV discussions noted the need for accelerating
structural reforms, which should pave the way for faster and steadier development.
Let me now present a summarized opinion of the Bank of Albania on the country's economic
performance and the policies we have implemented and should continue to implement in the
future.
The Albanian economy continues to be on a positive development trajectory. Economic
growth accelerated during 2015, driven by the expansion of investments and improvement of
the balance of trade with abroad. Private consumption showed signs of recovery in the
second half of the year, whereas public consumption remained limited, in accordance with
the fiscal consolidation strategy.
During this period, economic activity expanded, among others, thanks to the monetary
policy and supervisory and regulatory measures by the Bank of Albania. Our
accommodative monetary policy stance has contributed to lowering interest rates further
down, mitigating liquidity pressures and maintaining the confidence of financial markets in
price stability. In parallel, our supervisory and regulatory measures have contributed to
reducing non-performing loans and improving the financial soundness of the banking sector.
These developments are a prerequisite for sustainable crediting to the economy in the future.
Inflation remains at low levels, below our target. This performance has reflected the
unutilized production capacities in the Albanian economy, and the disinflationary tendencies
arising from trade exchanges with abroad.
In particular, over the first two months of 2016, inflation dropped, descending to 0.2%
in February. Our analyses suggest that it dropped due to external factors, namely the
pronounced fall in food and oil prices in global markets. As such, the rapid drop in inflation
and its low levels represent a supply shock to the Albanian economy, rather than a
disinflationary situation, which is related to actual or expected recessionary situations. Its
effect on inflation is expected to persist for some time ahead; however, it will only be a
transitory one.
Regardless of these conclusions, the Bank of Albania is constantly monitoring the
situation. It has all the proper instruments to prevent long-term negative effects that may
arise from low inflation, and stands ready to use them, if necessary.
Our projections suggest that the Albanian economy will improve progressively over
the next two years. The improvement of the growth rate will contribute to strengthening the
economic and financial equilibriums in Albania, and will be a determinant factor for the return
of inflation to target in the medium term-horizon.
The balance of risks surrounding this projection is mostly on the down side. Thus, the
expansion of economic activity continues to be decelerated by unfavorable economic
developments in the euro area, low oil prices in global markets, as well as the still hesitating
behavior of many economic and financial agents to undertake long-term business projects.
Against this backdrop, the Bank of Albania deems that economic policies and structural
reforms should focus on the following:
Continuation of the actual combination of economic policies, based on the
•
stimulating monetary policy and the consolidating fiscal policy. The monetary
policy will remain accommodative over this horizon and the intensity of the monetary
stimulus may be further strengthened if that is judged as necessary. Fiscal
consolidation mitigates the structural weakness in Albania and creates more space
for expansion in the private sector.
• Implementation, without delay, of the plan of measures for tackling and
finding a final solution for non-performing loans. This plan seeks to reduce the
crediting risk and increase the bank credit supply in Albania. Its success is an
essential precondition for the medium and long-term growth of the Albanian
economy.
• Acceleration of structural reforms, especially in relation to completing the
infrastructure, improving the business climate, expanding the knowledge, and
improving the labor market.
In conclusion, I would like to once again thank the IMF Mission for the useful and
constructive talks.
Thank you for your attention!