PRESS CONFERENCE
Speech by Ardian Fullani, Governor of the Bank of Albania at the joint press conference with the Ministry of Finance and the International Monetary Fund, 17 December 2013

Dear media representatives,

In recent days, intensive negotiations have taken place with the International Monetary Fund on the direction of economic and financial policies that Albanian authorities will undertake for the medium-term period 2014-2016. I have the pleasure to say that, overall, these discussions have been successful. Upon their conclusion, we were able to reach an agreement with the IMF on compiling a package of measures, which would help Albania cope with immediate problems and support sustained economic growth. From the central bank perspective, the agreement addresses our main concerns, which we have shared with you in earlier communications.

I believe that, in the period ahead, you will be informed in more detail about the agreement. At this press conference, however, I would like to brief you on Bank of Albania's views regarding the situation of the economy and financial system in Albania, and highlight the main points that will steer our policies in the next three years.

The Albanian economy is characterised by slow and below potential growth. This situation poses a number of problems to the economy, such as:

• difficulties in businesses¡¦ financial situation;
• deceleration of employment and wage growth rates;
• deterioration of financial indicators, especially of credit;
• more conservative financial agents; and,
• added pressures on the deficit and debt indicators.

All the above-listed problems are present in the Albanian economy. For that reason, the Bank of Albania has persistently pointed out that low growth rates are a primary concern facing the Albanian economy. Hence, the right understanding of growth-related problems is the key to appropriate development policies.

In our view, like in other countries of our region, economic growth-related problems pertain to both cyclical and structural aspects. In order to bring the Albanian economy on the track of sustained economic growth, they should be addressed simultaneously.

Given the current situation, I believe the agreement with the IMF is an optimal solution.

-- On the cyclical aspect, aggregate demand appears low and unable to fully utilise the country's production capacities. The reasons are evident:

• foreign demand for Albanian goods and services is problematic, in part owing to the problems facing our trading partners;
• public sector has limited capacities for fiscal stimulus because of the high public debt;
• private sector is reluctant and faces tight lending terms by the financial system.

--Against this backdrop, the Bank of Albania deems that the agreement with the IMF contributes to solving the standstill. First, the signed agreement will serve as a guarantee for consistent economic policies and provides low-cost financial guarantees for the country. 

     As such, it boosts the national and international investors¡¦ confidence in the Albanian economy and has positive effects on investments and consumption. Second, the agreement opens the way for a softer fiscal adjustment than the one we could be obliged to do in its absence. In other words, the envisaged financial assistance avoids a stronger fiscal contraction, which could be imposed by financial markets. Third, financial support by the IMF and the World Bank implies reduced government borrowing in domestic markets, allowing more liquidity for lending to the private sector.

-- On the structural aspect, the Albanian economy should adopt a new growth model to create a more competitive and dynamic profile, which is more immune to global conjuncture volatility. This objective requires reallocation of financial, enterprise and human resources in the economy, from domestic market-oriented industries to those focusing on regional and global perspectives. Moreover, to achieve this objective, structural reforms should continue with improving the legal and regulatory framework, investing in infrastructure and upgrading the skills of workforce. All these actions require time, financial resources and technical expertise. I believe the agreement with the IMF addresses these issues structurally and duly.

In our view, these policies pave the way for a progressive economic growth in the years ahead. They will certainly require constant attention, clarity and flexibility to align the dynamics of the economic and financial reality with our objective and policies.

Maintaining and strengthening the country's macroeconomic stability is yet another important aspect of economic and financial policies. 

The Bank of Albania will keep focusing on compliance with the price stability objective. In the last two meetings of the Supervisory Council, the key interest rate was cut twice, settling at 3%. These decisions were made exclusively to abide by our 3% inflation target. They seek to ease lending to the economy, boost domestic consumption and investments, and bring the rate, presently standing at low levels, in line with the target.  We have been and will continue to be heedful to this indicator, standing ready to take the necessary measures to guarantee price stability in the economy.

Finally, the banking system has been and continues to be sound and profitable. According to the Financial Sector Assessment Program (FSAP), the Albanian banking system is sound, capable to withstand shocks, supervised and regulated by sound principles. The Bank of Albania is committed, also in the framework of FSAP recommendations, to improve the supervisory and regulatory framework, in order to provide the economy with a sound banking system. Furthermore, in the framework of multilateral initiatives, such as Vienna Initiative 2.0, or bilateral cooperation with counterpart institutions, the Bank of Albania will seek to raise the attention of public and private financial institutions to investments in the Albanian economy.

Such initiatives and projects, besides other commitments that are part of central bank¡¦s business, serve the improvement of lending terms and Albania¡¦s economic growth.

Thank you for your attention!