The fragility of aggregate demand limits the country’s growth both in the short and mid-term while the solution of structural problems will determine its long-term development, says Bank of Albania governor Ardian Fullani
TIRANA, July 29 – At a time when the country is facing its worst economic growth in the past four global crisis years, central bank governor Ardian Fullani has proposed some new measures which he says will help the country’s recovery in the aftermath of the crisis. Speaking in the meeting with Prime Minister designate and the Albanian Association of Banks, Bank of Albania governor Ardian Fullani announced four pillars to handle the challenges the Albanian economy is facing. “The Albanian economy is facing big challenges. These challenges have both a cyclical and structural character. The fragility of aggregate demand limits the country’s growth both in the short and mid-term while the solution of structural problems will determine its long-term development,” said Fullani, underlining that the action must focus on four pillars. “The Bank of Albania thinks this action must focus on four pillars of action which include the preservation of the country’s macroeconomic stability and the pursue of stimulating economic policies; reducing uncertainties in the economy; continuing structural reforms; and convergence with the EU,” said Fullani. Public debt at around 62 percent of the GDP, non-performing loans at 24 percent, lending striving to preserve its growth rates and sluggish domestic consumption are the key challenges the Albanian economy faces. In 2012, Albania’s GDP growth dropped to 1.6 percent, the lowest in the past 15 years and half of the average 3 percent growth annually from 2009 to 2011.
1. Macroeconomic stability and economic promotion
The Bank of Albania estimates that the macroeconomic stimulus will continue being focused on a stimulating monetary policy and a banking system more attentive to the needs of the economy. “In addition, we believe that there is no more space left for the fiscal policy for such action because of the increase in public debt,” said Fullani. This road map of action preserves the macroeconomic stimulus and the health of macroeconomic balances, shaping the first pillar of development policies. The central bank says aggregate demand remains sluggish failing to put the country’s production capacities into full utilization rate. Consumer spending remains low mainly as a result of households’ insecurity about their future, but most recently also reflecting the slowdown in income. Public spending remains sluggish fuelled by lack of fiscal space as a result of an increase in public debt, while exports are suffering from poor demand by global markets and the low rate of diversification. Business investments also remain sluggish, reflecting the small space businesses have to increase sales and tight lending standards they face in banks.
2. The reduction of insecurities in the economy
Economic insecurity has many dimensions and a complex impact on the private sector decision-making resulting in curbing consumers and businesses from consumption and undertaking investments. Recommitment to preserve the health of public finances and the increase of transparency in the balance sheets of Albanian companies are the right steps in this respect, says the central bank. Other initiatives supporting the reduction of insecurities include the strengthening of contingency plans and relations with international financial institutions, the increase of transparency and consistency of development programmes at a national and sectoral level, the strengthening of the legal, regulatory and fiscal framework and the minimization of their fluctuation, the improvement of the business climate and relations with the tax administration and the justice system.
3. Structural reforms
The structural reform in the economy must be further strengthened paving the way for a sound, more competitive and balanced development among sectors. “Our determination and success in the implementation of these reforms will determine the long-term development of the Albanian economy.”
4. Convergence with the EU
The identification, drafting and implementation of a package of structural reforms would be productive if carried out in close cooperation with specialized international institutions. “Albania now meets all conditions for quick convergence with the EU. In the long run, European integration is the best way to handle the current crisis and guarantee sustainable development. “The Bank of Albania as part of the Vienna Initiative II remains fully committed in the process of reshaping the financial structure supporting the development of South East countries”
