TIRANA, Dec. 6 – Albania’s central bank says it has no evidence over the alleged impact drug proceeds could have had on the country’s economy and the national currency strengthening against Europe’s single currency following a sharp increase in cannabis cultivation and trafficking over the past couple of years.
Central bank governor Gent Sejko says the Bank of Albania monitors money outside banks only for the national currency, but has no information about Euro or dollar cash amounts in the country.
“The Bank of Albania measures the amount of money in circulation inside and outside banks, mainly related to the national currency, lek. We have no information regarding foreign currency, mainly euro but also dollar amounts circulating outside banks,” governor Sejko has told a local TV as quoted in an interview published on the central bank’s website.
Money circulating outside banks in Albania is estimated at 255 billion lek (about €1.9 billion), and accounts for 20 percent of total money in circulation, in a phenomenon which the central bank says is characteristic of developing economies and poor financial education and infrastructure.
Euro-denominated deposits and loans, at a total of €4 billion, comprise about half of the total savings and credit in Albania’s banking system, making the Albanian economy highly euroised and limiting the impact of Albania’s easier monetary policy in boosting sluggish consumption and lending.
Commenting on the strengthening of Albania’s national currency against Europe’s single currency, governor Sejko says the fluctuations have been within targets and there is no indication of macroeconomic imbalances resulting from drug proceeds.
“We don’t think intervening to devalue the national currency is necessary. That is because fluctuations have been within the target and we haven’t had macroeconomic imbalances from the impact of drug proceeds up to now. Social imbalances are as dangerous and must be monitored and kept in check,” Sejko said, adding that the banking system is supervised by both the central bank and other law enforcement bodies dealing with money laundering.
After hitting an 8-year low of about 132 lek last June, the euro has slightly appreciated against the Albanian national currency and currently trades at 133.62 lek, but yet down 3.3 percent compared to the average rate a year ago and considerably below the average exchange rate of 140 lek for about five years until mid-2015.
The central bank says the country’s expected economic growth of 4 percent this year has been a result of higher exports, foreign direct investment and tourism income which have also had an impact on the national currency’s strengthening due to higher inflows of euros circulating in the local market.
Albanian economy experts have previously warned the massive nationwide cannabis cultivation even after the mid-2015 crackdown on the notorious internationally renowned marijuana-growing village of Lazarat, southern Albania, is having detrimental effects on the key agriculture sector, driving farmers away from cultivating traditional crops and making them take the risk of much more profitable illegal cannabis growing. Experts say the phenomenon shifts attention from the key agriculture sector, distorts the labor market and strengthens the criminal economy.
One kilo of cannabis sells at €200 to €300 locally, a huge amount equal to cultivating about 1 metric ton of traditional crops such as wheat or corn.
The opposition and some economy experts have also voiced concern over drug proceeds being laundered in the construction industry which has been the key driver of growth in the past couple of years.
In early 2017, the massive cannabis cultivation was also linked to huge bee losses with experts blaming the phenomenon on the use of pesticides in cannabis plantations.
Albanian police say they destroyed 2.5 million of cannabis plants in 2016 spread over a 213 hectare area nationwide, a 3-fold increase compared to the whole of 2015, making Albania Europe’s largest cannabis producer. Police claim cannabis cultivation has significantly dropped this year.
Albanian law enforcement authorities seized more than €8 million in suspected money laundering transfers and accounts in 2016, a considerable part of which originating from narcotics trafficking and cultivation, according to an annual report by the country’s Financial Intelligence Unit. Another €16 million was seized in real estate assets of suspected criminal origin, says the Agency for the Administration of Seized and Confiscated Assets.
As a rule, banks and other financial institutions have to report on transactions of more than 1 million lek (€7,000) while the Property Registration Office reports on contracts worth more than 6 million lek (€42,000).
TAP, Devoll HPP completion
Albania’s central bank is optimistic the country’s economy will continue recovering in the next few years and return to equilibrium with a growth rate of more than 4 percent and inflation rate at 3 percent by 2019.
The forecast comes despite two of the country’s major energy-related investment, TAP and the Devoll HPP, completing their investment stage by 2018 and leaving a huge gap which the government intends to fill through an ambitious Euro 1 billion public-private partnership project and tax incentives to build luxury hotels and tourism resorts.
The World Bank and the IMF expect the Albanian economy to slow down to 3.5 to 3.7 percent in the next couple of years as the two major energy-related that served as a key driver of growth in the past few years complete their investment stage by 2018.
“We expect the Albanian economy to continue performing well despite the investment and construction stage of those two projects. We have to keep in mind that the conclusion of these two projects, will not stop income that is generated from them which continue even after the construction and investment stage is completed. These projects will generate income in energy and exports and the conclusion of these two projects will not put the Albanian economy to a halt,” says Sejko.
“The Albanian economy will continue its growth mainly because of growth in consumption and foreign and domestic investment. The continuous call we have made to undertake structural reforms and the continuation of reforms undertaken to improve the general economic environment and the business climate makes expectations on the attraction of foreign direct in the country high,” he adds.
The Albanian government has set an annual spending threshold of about 5 percent of annual tax income on PPP projects, but governor Sejko has suggested the ceiling should be legally included in the organic budget law as a percentage to GDP and urged caution on their impact to the country’s public debt.
While the 2018 public private partnership costs pose no threat to public finances, an ambitious €1 billion PPP project the ruling Socialists have announced for the next four years has worried the International Monetary Fund, the opposition and some economy experts who say the planned road, education and health PPP investment could create new arrears and hamper efforts to bring public debt to 60 percent of the GDP by 2021.
Taxpayer support about a dozen public private partnerships the Albanian government has signed with private companies in the key health, waste-to-energy and customs sectors is expected to increase by a third to 9.4 billion lek (€69.2 mln) in 2018, but account for only about 2.4 percent of total annual tax revenue, half of the threshold the government has set.
The Arbri Road linking Albania to Macedonia, some 150 schools, hospitals and healthcare facilities are on the PPP agenda.
