The cyclical recovery in Albania remains on track. Our
economy is experiencing solid and broad-based growth, supported
by the improved external environment and an appropriate mix of
monetary, fiscal and financial policies.
Expanding private sector consumption, a positive investment
cycle, higher tourism revenues and a continuously diversifying
export base have underpinned the strong growth trajectory of
the past four years. In addition, growth drivers remain sound.
The recovery of aggregate demand is supported by favourable
financial conditions, as testified by the low interest rate
environment, higher employment and increased overall confidence
in the economy.
Medium-term inflationary pressures are gradually building
up. Inflation averaged 2.0% in 2017, up from 1.3% in 2016. It
has held steady, at around 2.1% in the first half of 2018. The
rise in inflation is due to both domestic pressures and higher
imported inflation. The main economic and financial balances
are also improving. Public debt is under control and declining;
both current account deficit and external debt are decreasing;
the main banking system indicators, including profitability and
NPL ratios, are improving; and private sector balance sheets
The policy mix in Albania remains broadly accommodative,
with the expansionary monetary policy more than compensating
for the ongoing fiscal correction. Financial policy has been
broadly aimed at: enhancing financial regulation and
supervision; strengthening banks' balance sheets, inter alia,
thorough continued focus on NPL reduction; improving the
lending environment; and, promoting financial system
development as well as enhancing its payment infrastructure.
Structural reforms have followed a well-targeted, intelligent
and effective agenda, in a bid to strengthen market
flexibility, increase openness and support technological
Based on robust grounds, the macroeconomic outlook for
Albania is positive, with a rapid convergence to equilibrium
expected over the next few quarters. While downside risks
remain aplenty over the medium term, and policy makers need to
be mindful of them, I believe the recovery should help us
enhance rather than lose focus on the structural reform
In particular, building upon the lessons of the past, three
areas need to be addressed.
First, Albania needs a more efficient and resilient
growth model in the future. Amongst others, the new growth
model should allow for a more competitive, as well as
vertically and horizontally integrated economy. This should
pave the way for a more export-driven growth model, avoiding
the risk of a build-up in domestic imbalances.
Second, we should strive to avoid domestic
financial imbalances in the future. The commitment to public
debt reduction should not abate. Further, domestic savings
rates need to be propped up over the medium to long term, while
– without losing sight of good business prospects
– financial intermediaries should avoid a relapse into
the relaxed risk-controlling practices of the past.
Third, it is vital to further deepen and diversify
the financial market, with an added focus on capital markets,
as an alternative avenue to channel savings into productive
investment in the economy.