Ardian Fullani: Overview of Albania’s latest economic and financial developments Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the joint press conference of the IMF mission, Albanian Ministry of Finance and Bank of Albania, Tirana, 2 October 2012. *  *  *  Dear journalists, During the last two weeks, intensive discussions have taken place between the IMF mission and Albanian authorities. As a key player in drafting and implementing macroeconomic policies, the Bank of Albania has been active in these discussions, sharing its vision on current and expected developments in the Albanian economy and concerns surrounding it, as well as optimum measures to address them. The Albanian economy is increasingly facing the economic growth challenge. While the Albanian economy enjoys consolidated macroeconomic stability and sound financial foundations, aggregate demand has been weak during the first nine months of 2012. Both domestic demand and foreign one suffer from high uncertainty, relatively tight lending standards, and limited space for discretionary and stimulating policies. In the global context, the Albanian economy encountered a difficult setting, characterised by economic growth problems, high risk premiums in financial markets and decreased appetite of these markets to invest in emerging economies. In the domestic context, the economy continues to face relatively low consumption and private investments, as well as an absent stimulus by the public sector as a result of the increasing orientation of the fiscal policy towards maintaining long-term stability of the public debt.

In the presence of temporary shocks from the supply side, these factors were translated into negative economic growth for the first quarter. According to our estimations, the following months have recorded improved aggregate demand and economic activity, yielding economic growth for 2012. This growth, however, remains relatively low and inadequate to ensure full production capacity utilisation. It has led to low inflationary pressures during 2012 and is reflected in improved external position of the Albanian economy. The banking and financial system remains sound. Banks that operate in Albania are characterised by satisfactory liquidity and capital levels, and fit for financial intermediation. Transaction and risk indicators are also improving, as perceived in the financial markets and, following fluctuation in the first half of the year, interest rates have trended down. Given the above-mentioned circumstances, the monetary policy of the Bank of Albania has been increasingly stimulating. During the past year, we have sequentially eased the monetary conditions; after five consecutive key interest rate cuts, the cost of money in the economy reached its record low. Moreover, through our monetary operations, we have supplied the banking system with the liquidity it needs for smooth operation. Finally, through the review of regulatory norms and application of a prudent supervision of the banking system, we have managed to establish a stable financial environment for the country’s long-term development. Boosted confidence of the public in the banking system was followed by rapid increase of bank deposits, thus reducing reliance on foreign short-term financing.