Governor Sejko: Statement at the joint press conference with the IMF Mission Chief for Albania and the Albanian Minister of Finance, 12 October 2021

Dear Ladies and Gentlemen,

The Bank of Albania and the Albanian authorities, over the last two weeks, have been engaged in intensive discussions with the IMF Mission, in the framework of Article IV consultations. Discussions in these meetings were focused on the current challenges to the Albanian economy in its path towards recovery, and the structural reforms which will enable a faster and more stable development of Albania in the long term.

I am pleased to see that the Bank of Albania and the IMF Mission share similar views related to the current economic and financial developments, forward guidance on these developments in the future, and the stance of fiscal, monetary and macro-prudential policies to the challenges that lie ahead.

Let me briefly detail the vision of the Bank of Albania on the above-cited issues:

The available data, obtained during the first nine months of year, suggest the Albanian economy is on a recovery track. This recovery has resulted faster than our projections and was supported by a broad gamma of factors. The reduction of restrictions due to the vaccination process, the improved confidence of Albanian businesses and households, the increase of external demand, coupled with monetary and fiscal stimuli, have underpinned the swift recovery of consumption, investments and exports.

The coordinated monetary and fiscal stimulus had a crucial role in this regard, together with a temporary and targeted facilitation of regulations on the functioning of the banking sector. These measures reduced the financial burden of the shock on the Albanian businesses and households. Thus, these measures provided a breathing space to struggling businesses to survive this shock, halted the considerable upsurge of unemployment and build up the premises for a rapid and sustainable economic rebound once the pandemic abates.

In the same line, the structural reforms we have been committed with during the last years on enhancing the stability and effectiveness of the financial system, have given their fruits. These reforms, amid others, were aimed at and succeeded in: increasing the use of the national currency in the financial transactions; reducing the non-performing loans; consolidating the banking sector; and further improving the regulation and supervision of the financial system in general, and banking sector, in particular. Their timely implementation, enabled the banking sector to share a considerable part of the financial bill of the crisis, and continue to fuel lending, at low costs, to the Albanian economy.

Expansion of the demand has helped the recovery of the domestic production, driving it to the pre-crises level. Nevertheless, this recovery is still incomplete in the labour market, where the employment ratio stands below the pre-pandemic levels, and the increase in wages is still insufficient for inflation to converge to target.

That is why inflation continues to undershoot the target, notwithstanding the volatility showed in the last year. Recently, its performance is object to supply-side shocks, which have been stemming from the upsurge in the prices of foods, energetic products and other commodities in the global market. Information from markets and our analyses show that the effect of these shocks will be transitory, but it poses an additional uncertainty element.

Looking ahead, our projections on the performance of the Albanian economy remain positive. Economic activity in Albania, in absence of shocks, is expected to grow in the next years. Though, the momentum of economic growth is expected to slowdown, this pace will be stable and sufficient to ensure: a fuller utilisation of production capacities; an increase of employment and wages; and inflation converge to target within 2022.

This scenario of developments is surrounded by downside risks in the short run. In particular, the possible worsening of the epidemiology situation or the spike of prices in global markets may trigger negative effects on the performance of both global and Albanian economies. On the other hand, balance of risks appears more symmetrical in both medium and long terms.

The Bank of Albania deems that the materialisation of the developments in baseline scenario would require a gradual normalisation of the economic stimulus. This normalisation will provide a better balance between the economic growth and the monetary and financial stability of Albania, and will re-establish the necessary premises to tackle other potential shocks in the future.

At the same time, the Bank of Albania assesses that the normalisation process should be prudential, conditioned by the speed of the recovery and the stability of sources to the economic growth; as well as coordinated amid the employed policies and instruments.

The Bank of Albania supports a progressive reduction - but in a clear and stable manner - of fiscal stimulus. The shift of fiscal policy focus towards the consolidation and decrease of public debt will help to reduce risk premia in financial markets. Also, fiscal consolidation will increase related-spaces to deal with shocks in the future.

On the other hand, our assessments suggest the monetary policy should continue to remain accommodative. The monetary stimulus will continue to provide the necessary support to the economic rebound and facilitate fiscal consolidation process. Current supply-side shocks are not expected to jeopardise the stability of prices in the medium term. As such, they do not require interventions of monetary policy. Nevertheless, the Bank of Albania retains her attention to assess the impact, extension and transmission of these shocks to our economy. This will help us to adjust, in following, our monetary policy stance in compliance with our objective to maintain price stability.

Finally, I would like to highlight that the Bank of Albania has completely normalised the temporary easing macro-prudential measures. Our attention in the future will be on: carefully monitoring the pandemic consequences in the banking sector's balance sheet; identifying in advance the potential problems; and taking the corrective measures in a timely manner.

In addition, the Bank of Albania will continue to work for: the approximation of its regulatory and supervision framework with the European Union standards; the further development of the financial system - in collaboration with other institutional stakeholders - ; and the enhancement of payment systems.

Concluding, I would like to thank the Mission for the fruitful discussions held in a constructive mode and transparent spirit, and extend my congratulations to the new Minster of Finance and Economy and wish much success in her new post.

Thank You!