BANK OF ALBANIA

PRESS RELEASE
Interview with Gent Sejko, Governor of the Bank of Albania. Voice of America

Publication date: 20.04.2016

 

VoA: Mr. Sejko, the main topic of the International Monetary Fund and the World Bank [Spring] Meetings was on stimulating economic growth. Speaking about Albania, we have seen improvement, but not as much as expected. For 2015, the forecast was 3% and that figure was revised down to 2.6%. For 2016, growth was forecasted at 3.4%, but the World Bank, several days ago, revised this rate down. According to you, what is hampering the acceleration of Albania's economic growth?

Governor: As you said, economic growth for 2015 was 2.6%. The Bank of Albania's forecasts, in concord with the International Monetary Fund, were revised down for 2015. In addition, two key factors that we have mentioned before contributed to this performance. First, the floods at the beginning of 2015 influenced the prices of agricultural products and consequently the level of economic growth. Second, during the summer, the crisis in Greece contributed significantly to the level of economic growth, as many other internal and external factors are involved. We have stated that we have revised our forecast from 3% to 2.5-2.7%. This has been the forecast by the Bank of Albania, and de facto, at the end of the year, according to the latest official data, Albania's economic growth stood at 2.6%.

As we have stated before, I want to emphasize once again that economic growth should have been higher. However, the economic growth is trending upward and that shows that the economy has a positive development inclination. In 2013, Albania's economic growth stood at 1.1%, in 2014 at 2%, and 2015 closed at 2.6%. The Bank of Albania forecast for the current year is more conservative, at 3-3.2%. The World Bank's forecast is at 3.4%, or 3.2%; but, this not what matters most. What I want to emphasize is that it is not the figure the counts, whether 2.7, 2.6 or 3.2, but the positive trend. If we can keep a positive growth trend, then we are in the positive direction.

VoA: During 2016, economic growth is expected to be driven mostly by foreign investments, also thanks to two major projects, namely the TAP project that has already begun, and the construction of a hydropower plant in Southern Albania. Meanwhile, a German companies' survey shows that the business situation has deteriorated. A similar trend has also been noted by the American Chamber of Commerce in Tirana or other foreign investors and associations. For countries like Albania that expect growth to be driven mostly by foreign investments, is the deterioration of the business climate or the concerns raised by the foreign investors about this climate, a matter of concern?

Governor: Of course it is a concern that must absolutely be at the focus of our attention, mostly the government's attention, but also of all the other participants who have a role and an impact on the overall business environment, the economic environment and in any other development policy in the Republic of Albania. There are certainly many factors that contribute to the business climate, both external and internal factors. It is a known fact that the situation in the region and in the euro area is not positive, our trading partners in the euro area are not in their best days, and the Albanian exports are significantly affected by their economic difficulties. Prices of oil and agricultural products alone have had a strong influence in the Albanian exports. Apart from these, there are many other elements and factors that must be taken into account.

Obviously, foreign investments' growth is the main goal. During 2015, we have seen foreign investments grow 11.5%. This growth has also been a result of the expansion or the reinvestment of existing foreign investments in Albania. For 2016, we have two major investments: the TAP project and the hydropower plant you mentioned. Certainly, our objective is to attract foreign investments in Albania through our development policies. Therefore, we have coordinated our financial and monetary policies with the government's policies for Albania to be an appealing market for foreign investments.

VoA: These last days, INSTAT published a study, which stressed consumer spending. In the United States, consumer spending is the engine of the economy. In Albania, consumer spending has decreased. What does this mean for the economy and will their decrease have an impact on it?

Governor: Consumption is one of the main elements that contribute to economic development, because it is connected with investments. The higher is consumption, the higher are production and employment rates. Consumption is connected with real factors pertaining to employment as well as with psychological factors. In a situation of economic stagnation, of crisis or post crisis, consumption has been always affected by the propensity to save. So, consumers are inclined to save, under the psychology of uncertainties about the future. Practically, what we are trying to do is to give real information about the economy and obviously an increase in consumption would contribute positively to economic growth in Albania.

VoA: The Bank of Albania has published a survey that shows that consumers' confidence in the economy has fallen, which automatically brings a decrease in consumption. On the other hand, we have noticed inflation in Albania has fallen to very low levels. Would you say Albania is at risk from these deflationary tendencies?

Governor: These are dis-inflation rather than deflation tendencies, since the inflation rate has not been negative. It has been low, e.g. 0.2% in February and 0.3% in March. Inflation decreased as a consequence of the decrease in oil prices in international markets and agricultural prices. The Bank of Albania has revised downwards the inflation forecast for 2016. From 2.3% we have revised it at 1.9%. Thus, we expect the inflation to be at 1.9% at the end of 2016. But, we have not revised our forecast that inflation will return to our 3% target by mid-2018.

As far as consumption is concerned, as you said, we are trying with our accommodative monetary policy, lowering the interest rate to boost consumption. The decrease of the interest rate in the national currency contributes to the increase not only in lending but also in spending and investments from deposit holders. With the decrease of the interest rate on deposits, both households and businesses would have a greater interest in alternative forms of investments.

VoA: You have stated in the past that the instrument available to the Bank of Albania is the interest rate and that applies only for the part of the economic activity that is conducted in the national currency. Your instruments may be near exhaustion and you have said that you are not the only ones that can pull the economy out of its difficulties or stimulate its development. Where do you think the focus should be placed to stimulate the economy to grow faster, once you no longer have these instruments available in your hands, in which structural reforms?

Governor: The main instrument of a central bank is the monetary policy, through which it tries to boost economic growth, preserve the macroeconomic and monetary parameters, and safeguard financial stability. Of course, the objective of the economic growth cannot be achieved only through Bank of Albania's instruments. This is a clear and known fact. Otherwise, it would have been very easy and we would have already achieved the objective.

This is a global-wide phenomenon. We have just returned from the International Monetary Fund and the World Bank meetings. In their presentations, IMF Director Lagarde and other senior representative said clearly that central banks alone cannot achieve the objective of economic growth, without a proper coordination of monetary policy and fiscal policy, as well as specific reforms for each country.

These are achieved through well-oriented leadership and political dedication, and clearly-defined strategies. Albania has undertaken and continues to implement structural reforms. Some of these reforms have yielded their positive effects, such as the energy reform and the territorial reform. Meanwhile, the reform against informality is in progress and is a very important one. These reforms, we have said it before, need time in order to produce effects. Again, only through the coordination of monetary policies with the reform in the fiscal sector and other structural reforms will the targeted economic growth be achieved.

*Note: The interview was conducted on 19 April 2016