PRESS RELEASE
On IMF Staff Concluding Statement of the First Post-Program Monitoring Mission

The Bank of Albania has discussed comprehensively, via the electronic means of communication, with the IMF Mission, in the framework of the Post-Program Monitoring in Albania, throughout the last two weeks.

The discussions have been fruitful.  The Bank of Albania shares similar views with the Mission regarding the development stage of Albania, the challenges that lie ahead, and the necessary policies and measures for addressing them.

The opinion of the Bank of Albania, on these three topics, is presented following.

The impact of Covid-19 pandemic in Albania has been the main topic of discussions in both economic and financial areas.

The fall in the demand, difficulties in the internal and cross-border movement of goods and persons, and the increase of uncertainty, have driven to the drop of the economic activity and have tackled financial difficulties to Albanian businesses and households.

In macroeconomic view, the fall of economic activity is reflected in weak inflationary pressures, increase of unemployment and expansion of both external and public debts of Albania. 

In microeconomic view, the drop in the economic activity has posed financial difficulties to Albanian businesses and households.

Encountering this shock required a comprehensive reaction from public authorities, to increase the fiscal, monetary and financial stimuli. The Bank of Albania, as one of the main actors in the field of economic policies, has implemented the following actions:

• In the monetary policy field, we have cut the key interest rate and supplied unlimited liquidity to the banking sector, aiming at the smooth functioning of money markets and the reduction of funding cost to all economic agents;
• In the supervision field, the Bank of Albania has:
  • introduced regulatory stimuli, to encourage the extension of the repayment of loans to clients facing temporary difficulties, and the restructuring of loans to clients facing longer-term difficulties;
  • suspended the allocation of dividend to banking industry during 2020, aiming at improving the stability of the banking sector's balance sheet. 
• In the field of payment systems, the Bank of Albania has taken measures to reduce the cost of electronic payments.
• Recently, the Bank of Albania has increased its operational capacities to guarantee the supply with cash to the economy.

In addition to the fiscal stimulus, the objective of these measures is twofold:

• First, to alleviate the funding cost of shock to Albanian businesses and households, by avoiding large bankruptcies and the sharp increase of unemployment; and
• Second, to safeguard the monetary and financial stability of Albania.

Both objectives are necessary preconditions for the stable and long-term economic growth.

We believe that the undertaken measures have been effective.  Judging on the performance of deposits in the banking system, the balance sheets of businesses and households have remained liquid.  Also, the domestic financial markets appear calm, being characterised by low interest rates and stable exchange rate.  Banking sector continued to credit Albanian businesses and households.  Although, this sector has faced a considerable part of the cost from the shock, it continues to maintain sound indicators of liquidity and capitalisation, and fulfil its function of financial intermediation. Last, public sector and Albanian economy have maintained the confidence and access to national and international financial markets.

These are encouraging premises for the recovery of the economic activity in the future.

In the baseline scenario, the Albanian economy is expected to record a sharp drop during 2020.  In reflection of the intensity of social distancing measures, the economic fall is expected to peak in the second quarter, and to gradually recover in the next two quarters.  Further, under the assumption of a favourable epidemic performance, the Albanian economy is expected to grow and recover the lost volume of the economic activity in the next two years.  This performance will provide for the gradual return of inflation to target.

The materialisation of this scenario implies the continuation of the accommodative monetary policy during the continuing year, the gradual withdrawal of the fiscal stimulus, and the return of the regulatory focus in guaranteeing the long-term soundness of the banking sector.

On the other hand, the Bank of Albania continues to highlight that the balance of risks remain titled to the downside. These risks arise from a possible worsening of the epidemic situation, the further weakening of the economic situation in our trading partners, the heightening of uncertainty in both domestic and external environments.

The Bank of Albania deems that the materialisation of these scenarios will require the increase of macroeconomic stimulus. The shaping of monetary stimulus should aim at using more effective instrument being oriented by a complete analysis of costs and possible profits, fully in compliance with the developments of financial markets and the applicable legal framework.

The Bank of Albania is committed to continue the dialogue with the financial market and with all national and international partners, to fulfil its mission and objectives.

Thank You!