The Bank of Albania, being an independent institution, responsible for the monetary policy and for the supervision and regulation of the banking system, has taken concrete actions to boost demand in the economy. We have lowered the key interest rate to record lows and are considering other spaces available in this regard. We have also supplied the banking system with the liquidity needed for a smooth functioning of the financial markets. Finally, we have introduced a new regulatory package to boost lending. Our policies have been successful in maintaining macroeconomic balances, which is also the Bank of Albania’s goal. However, their transmission to boosting economic activity requires better reflection by the banking system. The banking system has worked well to preserve its soundness. It has supported the Albanian economy in its expansion phase and has shared a part of the economic slowdown costs with it. Unlike many other experiences, the Albanian banking system succeeded in withstanding the global crisis without using any public funds. On the contrary, at the peak of the crisis, many banks managed to bring fresh capital in the country, against the setting of fiscal contraction and funds withdrawal by the European banking groups and higher non-performing loans. However, we deem that the banking system is capable of boosting lending. First, the banking system should intensify its efforts to cleanse its balance sheets through collateral enforcement and realistic assessment of borrowers’ creditworthiness.

The cyclical weakness of aggregate demand restricts Albania’s economic growth in the short and medium term, whereas the solution of structural problems will determine its long-term development. Overcoming these challenges requires joint, brave, coordinated and forward-looking action. The Bank of Albania deems that this action should be based on four pillars: (i) safeguarding macrofinancial stability in the country and pursuing stimulating economic policies; (ii) reducing uncertainty in economy; (iii) ongoing structural reform and (iv) convergence with the European Union. 1. First pillar: Macroeconomic stability and economic stimulus  As already known, Albania’s economic development is in a fragile stage. Against the backdrop of the global crisis, the economic growth rates have decelerated, posing difficulties to the public and private sectors, to businesses, households and the financial system. In plain terms, the aggregate demand is weak and does not manage to fully utilise the country’s productive capacity. Consumer spending is low, primarily due to households’ uncertainties about the future, but also due to their slowing income. The two other aggregate demand components also show limited ability in providing stable economic growth impulses: public spending is limited, due to lack of fiscal room because of a higher public debt, while Albania’s exports suffer the sluggish demand from the international markets and the low degree of diversification. Finally, business investments are downward, reflecting businesses’ restricted room for boosting their sales and banks’ tighter lending standards. BIS central bankers’ speeches  1  The economy is a complex and interdependent mechanism.