PRESS RELEASE
First Deputy Governor Minxhozi: Speech at the public consultative meeting in the framework of the draft-law “On Fiscal Amnesty”

Your Excellency Mr Prime Minister Rama

Honourable Deputy Prime Minister Ahmetaj,

Honourable Minister of Finance and Economy Ibrahimaj,

Honourable Minister of Justice Manja,

Dear guests,

 It is a pleasure to participate in this meeting and discuss a rather concerning phenomenon, which has continuously received the attention of the Bank of Albania, also of a number of other institutions, such are: currency outside banks, and informal economy.

The high use of cash is a distinguishing feature of developing economies. In the last decade, currency outside banks ratio to broad money, at regional level, has fluctuated averagely from 17% to 28%, where Albania has the maximum level in this regard.  In Albania, this phenomenon is related to: "force of habit"; the starting point in the most unfavourable conditions of the market economy, where the country was largely rural; the high level of income from remittances and seasonal work; the low level of financial literacy of the population; the level of banking and the use of banking services; as well as with the high presence of informality.

We are all aware that cash transactions feed and are fed by an informal sector of the economy. Despite the progress made in recent years, high informality remains one of the structural weaknesses of the Albanian economy.

It distorts fair competition, makes it difficult to fully utilize the potential production capacities of the country, and increases uncertainty for employees and families working in the informal sector. Studies show that informality reduces fiscal revenues; in turn it increases fiscal pressure on honest businesses and results in a lower level of public services.

In this context, the Bank of Albania has for years been engaged in encouraging and promoting the use of formal and secure channels for money transactions. We have actively worked to: enhancing banking education and culture, improving the infrastructure for payment services; and promoting electronic payments. Expanding the coverage of the population with access to financial services is considered essential to reduce the use of cash and address the problems arising from it, among them, the high degree of informality.

The investment in new and modern infrastructures of payment systems has been part of the strategy implemented by the Bank of Albania in this regard. Until now, the system for conducting interbank payments in euro within the country, avoiding correspondent banks, as well as the one for direct interbank debiting that enables bank clients to perform utility payments, without having to appear at the bank, have been implemented.

The existing real-time settlement systems have been upgraded to include all payment and electronic money institutions (FinTech etc.), competing on equal terms with banks. The operation of these systems brings great advantages for the consumer, through enhanced flexibility, significant reduced costs and increased access to payment services.

Albania was the first country in the region to transpose the European directive PSD2 into its legislation, in the approved Law on Payment Services. Thus we have in place the foundations for reducing the costs of payment services, as well as increasing the financial inclusion of the population. In addition, the law provides a more consolidated regulatory framework for enhancing both transparency on services and consumer protection. On the other hand, “Fin Tech” implementation and progress of innovative payment institutions support the increase of competitiveness and efficiency, coupled with the reduction of costs.

The figures for the expansion of the financial inclusion of the population and the increase in the use of electronic payments in everyday life are encouraging. Thus, from 2021, 70% of the adult population owns a payment account and the number of payments per capita is 12; both of these targets were planned to be reached by the end of 2023. Likewise, the number of payments via electronic instruments has doubled compared to five years ago.

The Bank of Albania has a multidimensional vision for developing payment services. In this regard, our next projects for reforming and advancing electronic payments include:

• the adoption of the Law on "On the payment account with basic services", which enables the opening and use of the payment account to access basic payment services with basic services for consumers and individuals not covered by banking services;
• the development of the infrastructure for the processing of national payments within the country, through Instant Payment or the creation of a national SWITCH, which significantly support the use of electronic payments and the further development of electronic commerce;
• the digitalization of public service payments, where the Bank of Albania will support the efforts of NAIS to expand the acceptance of online payments in e-Albania, in order to expand the range of public services that can be paid in this form.

Improvements in payment systems, increased financial literacy and digitization of financial services are a prerequisite that helps address the high level of cash use, reducing informality is an even more complex problem that requires the engagement of all actors, which significant affect the economic development of the country.

In this perspective, the Bank of Albania considers the draft-law "On amnesty" as a government initiative which aims, first of all, to: increase the formalization of the economy; reduce cash in the economy; and, further, strengthen capitalization in the real sector and of liquidity in the financial sector, although the latter currently enjoys a high degree of liquidity, which enables it to better perform the role of financial intermediary. The capacity of the real economy to absorb funds would increase with the development and sophistication of businesses, the improvement of the business climate; and the addressing of informality. On the other hand, the fiscal amnesty must avoid the penetration of money originating from crime and corruption, in order neither allowing their laundering nor increasing the reputational risk for the Albanian economy. The concept of continuous fiscal amnesties should not be created, but it should be carried out once, be functional, well thought out, practical and create the premises for the formalization of the economy. In parallel with the implementation of the amnesty, all public institutions must tighten fiscal rules to minimize fiscal evasion after the amnesty, to make it more efficient and with as few consequences and market distortions as possible.

I would like to finish my comments by re-affirming the Bank of Albania's commitment to initiatives aimed at creating an economic and financial environment which boosts productivity and sustainable growth of the economy.

Thank You!