Questions and answers at the joint press conference with the IMF Mission and the Minister of Finance and Economy, 27 October 2023

Publication date: 27.10.2023


Question: The Bank of Albania acts as advisor of the Albanian government. What recommendation or advice have you provided to the Albanian government that is related to this policy on the cost of living pressures through fiscal policies, particularly concerning the low-income strata of the population in economic difficulty who are affected by these policies?

Governor: The Bank of Albania acts as an advisor of the government. First, we have continuously advised the Government of the Republic of Albania in an official and public manner. The Bank of Albania, as the central bank of the country, considers - from its prospective - the macro indicators in the framework of macro policies. Fiscal policy is a direct attribute of the Albanian government, while monetary policy is an attribute of the central bank. Related to the fiscal policy, we have constantly communicated and concurred with the Ministry of Finance and have presented to the Parliament of the Republic of Albania and to the Economy and Finance Commission recommendations to reducing the level of public debt, without going into details of the fiscal policy that it is not our responsibility.

Meanwhile, the central bank has undertaken initiatives in regard to low-income strata of the population that are mainly related to its financial inclusion and financial education objectives. In this view, as I mentioned in my speech, the focus has continuously been on the strategy of financial education and financial inclusion. These are concrete actions, by which we require from the population to be as involved in banking as possible, since the higher the involvement in banking according to studies by the World Bank and other international institutions, the more it decreases the social inequality through the benefits that the population receives through financial products and services.

More specifically, last year we implemented a Euro payment system within the Republic of Albania, using our capacities the same way we did for the domestic currency. This system made possible to have more than Eur 10 million in savings during the first year, and this year it will show even higher figures in direct savings, not only from the low-income strata of the population, but also from agents and enterprises. I want to also mention the last law on the basic payment account that the Albanian Government just adopted having regard to our proposal and will soon be approved from the parliament. This law is dedicated to the low-income strata and vulnerable groups of population, part of the population with lower income who will be able to have bank accounts and banking products at zero cost. This is another very important step in this regard.

Regarding the advisory role, the opinion of the central bank is given yearly before the preparation of the budget in the Ministry of Finance and Economy, in writing and publicly in the Commission of Economy and Finance. Meanwhile, the fiscal policy is an absolute attribute of the Albanian government.

Question: Is the current exchange rate the new normal?

Governor: Under a floating exchange rate regime, no one can tell what the exchange rate is or what will the exchange rate be. The exchange rate is determined by supply and demand in the market. What we know from experience is that since 2015, more specifically since 2018, the appreciation of the exchange rate has been in line with the economic growth and the development of the Albanian economy. So it has been in line with the fundamentals.

This year’s lek appreciation has also resulted a strong one. But, if we go back as referred above, this appreciation has started in 2018, also in line with the fundamentals. The data of the balance of payments clearly show the inflows in the foreign exchange market, as well as the foreign surpluses which come exactly from these channels that I highlighted, without going into specific details.

Certainly, the Albanian economy will continue to grow and develop further. To this end, we are working hard to implement all the needed structural reforms in order to achieve a sustainable growth and development of the Albanian economy. Then, the foreign exchange rate related to the fundamentals, from the theoretical point of view, may continue to maintain these levels or even stronger.

The exchange rate is so complex and affected by many factors: it is affected by both domestic and international markets. And one cannot foresee all these complex factors nor say whether it is a new normal or not.

Based on the fundamentals, the growth of the Albanian economy, both in principle and in theory, is expected to lead to a strong exchange rate. But, in concrete terms, other factors that affect the exchange rate, which arise from international markets, can never be excluded. We operate a floating exchange rate regime. The latter displays that the market is based on demand and supply. Thus, we cannot determine concretely because even if it was possible that way we would mislead the market. We would be making a theoretical and practical mistake if we were to say this concretely.