Dear ladies and gentlemen,

The Bank of Albania and the Albanian authorities have had intensive discussions with the IMF mission over the past two weeks, as part of the Article IV consultations. Discussions during these meetings focused on the current challenges facing the Albanian economy on the road to recovery, and structural reforms that will enable 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 regarding current economic and financial developments, the forward guidance on these developments in the future, and the stance of fiscal, monetary and policy policies. macroprudential in the face of the challenges that await us.

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

The available data, obtained in the first nine months of the year, suggests that the Albanian economy is on a recovery path. This recovery has been faster than our projections and has been supported by a wide range of factors. The reduction in restrictions due to the vaccination process, the improvement in the confidence of Albanian businesses and households, the increase in external demand, coupled with monetary and fiscal incentives, have supported the rapid recovery in consumption, investments and of exports.

Coordinated monetary and fiscal stimulus have played a crucial role in this regard, along with a temporary and targeted relaxation of regulations on the functioning of the banking sector. These measures reduced the financial burden of the shock on Albanian businesses and households. Thus, these measures provided a respite for companies struggling to survive this shock, halted the considerable upsurge in unemployment and paved the way for a rapid and lasting economic rebound once the pandemic has subsided.

In the same vein, the structural reforms we have embarked on in recent years to strengthen the stability and efficiency of the financial system have borne fruit. These reforms, among others, aimed and succeeded in: increasing the use of national currency in financial transactions; reduce non-performing loans; consolidation of the banking sector; and further improve the regulation and supervision of the financial system in general and the banking sector in particular. Their timely implementation has enabled the banking sector to share a considerable share of the financial bill of the crisis, and to continue to supply low-cost loans to the Albanian economy.

The expansion of demand contributed to the resumption of domestic production, bringing it back to pre-crisis levels. However, this recovery is still incomplete in the labor market, where the employment rate is below pre-pandemic levels, and wage increases are still insufficient for inflation to converge towards the target.

This is why inflation continues to be below target, despite the volatility displayed over the past year. Recently, its performance has been subject to supply-side shocks, due to soaring prices for food, energy products and other raw materials on the world market. Market information and our analyzes show that the effect of these shocks will be transitory, but they pose an additional element of uncertainty.

Looking ahead, our projections for the performance of the Albanian economy remain positive. Economic activity in Albania, in the absence of shocks, is expected to grow over the next few years. Even if the dynamic of economic growth should slow down, this rate will be stable and sufficient to ensure: better use of production capacities; an increase in employment and wages; and inflation converge towards the target by 2022.

This development scenario is surrounded by short-term downside risks. In particular, the possible worsening of the epidemiological situation or soaring prices in world markets can have negative effects on the performance of the world and Albanian economies. On the other hand, the balance of risks appears to be more symmetrical in the medium and long term.

The Bank of Albania believes that the realization of the changes in the baseline scenario would require a gradual normalization of the economic recovery. This normalization will provide a better balance between economic growth and the monetary and financial stability of Albania, and will restore the necessary premises to deal with other potential shocks in the future.

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

The Bank of Albania supports a gradual reduction – but in a clear and stable way – of fiscal stimulus measures. The reorientation of fiscal policy towards consolidation and reduction of public debt will help reduce risk premiums in financial markets. In addition, fiscal consolidation will increase the related spaces to deal with shocks in the future.

On the other hand, our assessments suggest that monetary policy should remain accommodative. Monetary stimulus will continue to provide the necessary support for economic recovery and facilitate the process of fiscal consolidation. Current supply-side shocks are not expected to jeopardize price stability over the medium term. As such, they do not require monetary policy interventions. Nevertheless, the Bank of Albania retains its attention to assess the impact, extension and transmission of these shocks to our economy. This will help us to adjust, by tracking, our monetary policy stance in line with our objective of maintaining price stability.

Finally, I would like to stress that the Bank of Albania has completely normalized macroprudential measures of temporary easing. Our attention in the future will focus on: careful monitoring of the consequences of the pandemic on the balance sheet of the banking sector; identify potential problems in advance; and take corrective action in a timely manner.

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

In conclusion, I would like to thank the Mission for the fruitful discussions held in a constructive and transparent spirit, and extend my congratulations to the new Minister of Finance and the Economy and wish every success in his new post.

Thank you!