Albania Central Bank Statement

Author: | Published: 5 Sep 2017
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The crisis impacted Albania through several channels; it posed severe challenges and highlighted various previously overlooked vulnerabilities. Against a backdrop of domestic imbalances and a difficult external environment, our policy response was constrained, but ultimately successful. The economy is on the road to a full recovery, while our main economic and financial balances are stabilising to healthy levels.

Albania is experiencing an upward trend in its business cycle. The ongoing recovery is broad-based, with export expansion and a recovery of private consumption and investments leading the growth cycle. The increased demand is generating higher employment, as well as facilitating an overall improvement of balance sheets across the economy. Our external position remains resilient, while public debt is under control. Concurrently, CPI inflation is gradually but steadily returning to our 3% target, underpinned by labour market improvements and anchored inflation expectations. Based on current trends, the Bank of Albania expects both the economy to return to equilibrium and inflation to return to target within 2018.

This positive outlook reflects the appropriate policy mix we have pursued. While fiscal policy has engaged on a course of fiscal consolidation, monetary policy has provided countercyclical accommodation and our macroprudential instruments have been geared to enhance financial stability. This policy mix, alongside its consistent and timely execution, has proved successful.

The materialisation of our projections is conditional on continuing the current course of prudent policies. To that extent, I am encouraged to see our institutional framework is both politically committed and technically capable to deliver on this front.

However, I remain firmly convinced our tasks as policy makers are far from over.

First, we have to raise our long-term growth potential and boost our resilience to potential shocks. The growth model we employed during the pre-crisis period, based largely on debt-financed consumption and investments in non-tradables, proved to be unsustainable. Countercyclical monetary and fiscal policies can facilitate, but are not a substitute for, proactive and committed structural reforms. Hence, an ambitious economic reform agenda is needed, in order to upgrade our economy, diversify its structure, and increase its productivity.

Second, we have to improve upon the prevailingly weak policy coordination tools and mechanisms at a supranational level. I believe the exchange of information and opinions among international policy makers and regulators should be seen as a merely necessary rather than a sufficient condition to achieve this.

Third, we should strive to avoid repeating the mistakes of the past by learning to incorporate the lessons of the crisis in our day to day work. As policy makers, I believe we have to take a holistic approach to economic and financial stability. We should strive to avoid economic and financial imbalances of any form; we should strive to preserve a flexible and efficient economic structure, while also trying to strengthen further financial safety nets. Furthermore, the policy delivery has to be proactive and forceful, while our instrument tool-kit has to be constantly revised and adapted.




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