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| Gent Sejko reporting over the Annual Report 2021 to the Albanian Parliament |
The Governor of the Bank of Albania, Gent Sejko, once again called for the budget reserves to be used to alleviate the social consequences of the price increase.
During the Annual Report 2021 to the Albanian Parliament, Sejko said that the rapid rise in prices of energy, food, and basic products in world markets, has increased the cost of living for households and has increased the cost of production of the businesses. Uncertainty over the duration and consequences of armed conflict in Ukraine has also increased uncertainties in financial markets and created new barriers to supply chains.
Inflation in the country and in the world is recording the highest levels of the last two decades and the Governor said that the current projections suggest that the consequences of this shock will be significant during the coming year.
"The Bank of Albania is constantly monitoring the situation. Based on current information and our analysis, the Bank of Albania deems that the Albanian economy has sufficient premises to withstand the shock and avoid recession.
In these circumstances, the focus of economic policies should be oriented toward maintaining price stability, as a precondition for the country's financial stability for sustainable and long-term growth, and in helping the neediest.
"This focus will require a continuous review of the adequacy of the monetary policy stance, as well as maintaining budget flexibility to address potential contingencies in terms of easing social costs, without compromising the long-term sustainability of public debt," he said.
According to him, overcoming this blow, the focus of policies should be oriented once again towards undertaking the necessary structural reforms, which will unleash the productive potential of the country and will help increase faster the welfare of society.
The Governor stressed once again the positive developments in economic activity over the past year.
The keyword of 2021 economic developments was "recovery" and "consolidation". Economic activity in the country marked a rapid and comprehensive recovery, while key indicators of economic and financial health were consolidated.
According to official data, the volume of economic activity increased by 8.5% compared to the previous year, exceeding the level recorded before the earthquake and pandemic. Economic growth was broad-based. It reflected the rapid recovery of household consumption, private investment, and exports of goods and services.
Moreover, the fruits of this recovery were present in almost all sectors and major branches of the economy. Comprehensive demand recovery generated more income for Albanian businesses and households, improving their financial balances and increasing the sustainability of growth sources.
The economic recovery led to increased employment, wages and profit margins, which materialized in rising domestic inflationary pressures. Consequently, inflation increased gradually over the past year, although it continued to remain below target," Sejko said.
Part of the Annual Report 2021 of the Bank of Albania:
Dear reader,Though full of challenges and hardships, year 2021 - in its entirely - was a positive one for the Albanian economy.The economic activity recorded a swift, broad-based and sustainable recovery. Economic growth recorded a high momentum, by exceeding our initial expectations, employment and wages increased, financial balance sheets of private sector improved, while economic and financial equilibriums of Albanian remain sound. In addition, the rapid recovery of domestic product suggests that the Albanian economy has not suffered considerable long-term damages from both the earthquake and the pandemic. The volume of economic activity has already surpassed the pre-pandemic level, in both aggregate and individual sectors levels. Demand recovery and increased wages triggered a gradual rising trend of inflation during 2021. This indicator constitutes the primary objective of the Bank of Albania activity. In 2021, annual inflation averaged 2%, from 1.6 % in the previous year. On the other hand, the rapid upswing in inflation in the fourth quarter of the year appears to have been driven by the sharp rise in prices in the international market. We judge - based on the current information - that this factor will have a transitory impact on inflation in Albania and will not jeopardize price stability in the short and long term. Against this backdrop, financial markets have been calm, interest rates and financing costs were low, and the exchange rate was has been stable. The banking sector has maintained good indicators of profitability, liquidity and capital adequacy. In particular, I would like to highlight the non-performing loans ratio continued to decline and the direct exposure of banking sector’s activity to market risks remains contained.I am glad to affirm that the Bank of Albania has been an important factor in this progress. Through our policies and instruments, we have helped in safeguarding the monetary and financial stability of Albania and have kept financing channels open to Albanian enterprises and households. The Bank of Albania continued to implement a simulating monetary policy throughout 2021, for supporting the economic rebound and inflation converging to target. Our monetary stimulus has: reduced the debt financing and servicing costs; bolstered the sustained growth of credit; and helped the stability of the exchange rate. In parallel, the Bank of Albania has been particularly attentive on the further improvement of its supervisory and regulatory framework, performing new steps toward its continuous approximation with the best standards in this field. Also, we have continued working to expanding the gamma of macroprudential tools, for the prevention of money laundering and terrorism financing, as well as for strengthening the security networks of financial sector. Beyond these two priorities of our work, we have continued to put into practice our strategic vision in other areas as well. In this regard, I would like to emphasize some of them.
The Bank of Albania has continued its institutional investment for the establishment, maintenance and development of payment systems, by creating the premises for the establishment of a modern and inclusive market, with a view to expanding the financial inclusion of the population. We have finalised the completion of the new series of banknotes; fulfilled our obligations in the framework of Albania’s process of European Integration; we have worked for the standardisation and unification of the statistics produced with intentional standards; for the strengthening of the internal systems of the institution governance; for the expansion and deepening of scientific research; for the improvement of communication and increase of financial education of the public, etc.Following last year, we also maintained the virtual communication formats to inform the economic debate and explain our actions. Enhancing transparency and the economic and financial education are key instruments that pave the way for taking sound economic and financial decisions. Dear reader,Although facing unprecedented challenges, the Bank of Albania succeeded to fulfil its mandate in capacity of: the monetary authority; primary supervisor and regulator of the financial market; and promoter of the payment instruments and financial markets development. This success is attributable to the dedication of its staff, coupled with our vision to be a leading and far-sighted institution.I am confident that we will be able to put these qualities to work in the future, for building a better, more sustainable and more comprehensive economy.
Gent Sejko
Governor
2021 Year in Brief
Tear 2021 market a rapid rebound in demand and production, and improved employment. A year earlier, the suspension of certain activities due to the COVID-19 pandemic, has plunged the Albanian and foreign economies into a historical contraction. In 2021, the supportive policies, vaccination of the population, and reduction of containment measures led to declined uncertainties and accelerated domestic and foreign demand.
The monetary policy of the Bank of Albania has maintained its accommodative stance, by supporting the economic growth and inflation in compliance with the preservation of price stability. The Bank of Albania has kept the policy rate unchanged, at 0.5%, thus maintaining the interest rates in the economy at low levels, and bolstering credit to the economy.
Iflation averaged 2.0%. Also, core inflation was up in reflection of the expanded domestic demand. Inflation increased considerably at the end of year, due to the high prices in international markets. Inflation is expected to temporary remain high, due to developments in global markets, and to settle durably at 3.0% target in the course of 2023.
In the first three quarters of 2021, GDP grew 10.4%, driven by positive contributions across all sectors. The volume of output reached both the pre-pandemic and earthquake levels. The strong simulating monetary and fiscal policies mainly underpinned the economic growth in Albania.
The activity of the financial sector improved, while risks are assessed to be contained. Assets of banks expanded, profitability and rentability rose, and the quality of credit portfolio improved. Non-performing loans ratio dropped at the lowest level in the last decade, standing at 5.65%.
The Bank of Albania has amended the regulatory framework of banking supervision aiming at its alignment with the EU legal and regulatory act and the Basel Committee acts. The drafting of a regulatory framework for the implementation of the Law “On payment services” was completed this year. Important regulatory amendments are made to strengthen consumer protection.
The Bank of Albania under the assistance of EBRD and PwC has conducted an independent assessment on the equivalence of supervisory and regulatory frameworks with the European Banking Authority requirements. This assessment finds out that the regulatory framework and supervisory practices of the Bank of Albania are largely equivalent and aligned with the European Union standards.
The drafting of resolution plans for all banks conducting their activity in Albania was finalized, and the regulatory framework for the implementation of the resolution Law was completed.
Two important infrastructural projects on payment services were concluded. In October 2021, the operationalization of the interbank “Direct Debit” scheme was realized. In January 2022, the AIPS Euro started to operate, for processing euro-denominated payments within Albania for banks’ clients.