TIRANA, Aug. 3 – Central bank governor Gent Sejko has hailed the approval of the long-awaited justice reform as a positive signal for the Albanian economy and the recovery of sluggish credit.
Speaking at a press conference on Wednesday after the central bank’s supervisory council decided to keep the key rate unchanged at a historic low of 1.25 percent, governor Sejko said the justice reform will accelerate the execution of collateral and reduce the high level of non-performing loans, a key barrier for the recovery of credit.
“In theory, every political turmoil, would have its implications on the level of economic growth. In the concrete case, we saw the justice reform approved unanimously with 140 votes like never before. This was a very positive signal for Albania in general, the country’s integration but also the Albanian economy,” said Sejko.
Business representatives and diplomats in Tirana had set the approval of the justice reform and its implementation as a precondition to boost foreign investment.
“Without a better justice system, Albania will continue to face serious challenges attracting investment and growing its economy,” David Muniz, the Charge D’Affaires of the U.S. embassy in Tirana, has earlier warned.
Governor Sejko said the implementation of the reform will be key for the recovery of lending which has struggled to turn to positive growth rates for the past year.
“From the central bank’s point of view, this provides an unusually optimistic signal for the progress of lending, but also for the implementation of the action plan on non-performing loans. The implementation of the justice reform would bring a better collateral execution and better enforcement of contracts in the medium and long-term between banks and borrowers,” the governor said.
“After the approval of the justice, the perception of the Bank of Albania is positive. Normally this creates positive prospects for the Albanian economy. Let us watch the progress of the reform’s implementation step by step as this will also have its steps. Let’s hope than even the implementation will be consensual and will progress the same way as the approval of the constitutional package,” he added.
The central bank says poor demand and tight lending standards continue to keep lending at sluggish growth rates despite the easier monetary policy it has been applying.
“Promoting credit demand and the further improvement of credit supply remains one of the key preconditions for the country’s mid and long-term sustainable growth. The full implementation of the action plan for the treatment of NPLs is of prime importance. For this reason, we hail the justice reform as we estimate that it will pave the way for a more transparent and reliable legal environment for the parties’ commitment in long-term contracts,” says Sejko.
Credit to the economy is estimated to have increased by 3 percent if the write-off of bad debt from banks’ balance sheets is taken into account. The recovery has been fuelled by a 6.4 percent growth in lek-denominated loans, accounting for 40 percent of total loans.
The central bank expects the key interest rate to remain unchanged for the rest of 2016 while the economy is expected to return to normality in the second half of 2017 with higher demand and consumption triggering inflation to achieve its 3 percent target only by late 2018.
Albania’s inflation rate hit a 16-year low of 0.7 percent in the first half of this year, reflecting both a slump in commodity prices and poor domestic consumption.
The risk balance continues remaining on the downside, especially from the possible Brexit implications on the Albanian economy and financial system, says the central bank.
The country’s central bank has warned that while the Albanian economy and financial system are largely immune to the Brexit, the country could face indirect spillover effects from blows to Italy and Greece, Albania’s main trading partners. Remittances from some 10,000 Albanian migrants in the UK accounting for 10 percent of total remittances could also be affected from Brexit and tighter measures on migration.
An important source of income for thousands of poor households, migrant remittances registered a slight recovery in 2015 when they rose to €598 million, up only €6 million compared to 2014 apparently affected by the escalation of the crisis in neighboring Greece and restrictions imposed on banking transactions there. Migrant remittances mainly come from Italy and Greece, the hosts of more than 1 million Albanian migrants.
Despite a slight recovery, remittances remained almost 40 percent below their peak level of €952 mln in 2007 just before the onset of the global financial crisis, according to revised data published by the country’s central bank.
