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| In Lushnje crates filled with Albanian cucumbers and tomatoes that are ready for export (archive) |
The associations of exporters have sent a letter to Prime Minister Edi Rama, requesting measures to mitigate the serious consequences that export companies are facing due to the high national currency exchange rate, local media say.
Following our ongoing concerns raised for several years and recently reaching the brink of survival, we have organized ourselves along with some economic experts to present findings and recommendations.
We believe that, together with the associations of exporters, an interinstitutional group should be established to identify and implement appropriate monetary and fiscal policies and structural reforms that do not jeopardize macroeconomic stability but rather alleviate the severe impacts of the high national currency exchange rate.
The supportive measures, based on the experiences of other countries, do not harm the primary objective of the Bank of Albania to achieve and maintain inflation at the 3% level and do not adversely affect public finance stability, as stated in the letter.
After deep professional work together with experts in monetary and fiscal policy, please find attached the relevant findings and recommendations:
Monetary Policies:
► Revitalization of the fight against informality and cash payments and the reduction of cash outside of banks. The Bank of Albania and other state institutions should consider the possibility of offering various incentives and facilities (fiscal, financial, etc.) to individuals and economic entities for card payments.
► De-euroization of the economy - reduces the uncontrollable impacts of the exchange rate. The use of foreign currency in domestic transactions should be discouraged, for example, such a policy discourages borrowing in a currency different from the borrower's income.
► Setting maximum limits for the total sum that exchange bureaus are allowed to conduct. These offices should be strictly limited, especially in terms of carrying out transactions of large amounts, categorically prohibiting those above a certain value.
► Strict control and oversight by the relevant institutions on all foreign currency transactions above a certain amount.
► Real-time data processing for incoming and outgoing flows in euros and some annual statistics for the critical period of June-September.
► Issuing financial instruments in foreign currency by state institutions, such as a significant part of controlling excess supply in foreign currency. In the current situation, there is no compelling reason for the government to borrow from international markets when the Bank of Albania could easily do so.
► Sharing reports of the Bank of Albania with the export associations concerning legal obligations to inform and report to the government and the Albanian Parliament about exchange rate fluctuations and trends, as well as recommendations for the protection of export businesses when there are significant dynamics.
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| Combine harvester collecting potatoes in the field near Korça, (archive) |
Harmonizing the Ministry of Finance and Economy (MFE) with the Bank of Albania in the daily and monthly movements of the Money Flow Index to reduce the increase in the supply of euros during periods of high inflow, generated by tourism, remittances, and Foreign Direct Investments.
The Bank of Albania can take monetary measures to reduce the negative impact of the overvaluation of the Albanian currency and the unrestricted exchange rate fluctuations on the economy.
The Bank of Albania and the Ministry of Finance and Economy can implement several measures to support struggling exporters, aiming to enhance export competitiveness, improve financial opportunities for exporters, and address the challenges they face.
These measures are much more effective when coordinated with broader economic and trade policies by the government. Collaboration among different stakeholders such as the government, the Bank of Albania, and export associations is essential to ensure the success of national strategies and measures taken.
In this context, some actions that the Bank of Albania can undertake include:
Exchange rate policy and foreign exchange reserves: The Bank of Albania can implement an appropriate exchange rate policy to maintain a competitive value of the currency. This would make Albanian exports more competitive, increasing demand for domestic goods and services. Foreign exchange reserves can be strategically used to stabilize and maintain the exchange rate for exporters during periods of currency volatility.
The exchange rate with the euro should be partially free. Considering the high dominance of the euro in the Albanian economy, which makes monetary policy semi-autonomous, the option of a partially free exchange rate with the euro should be considered. The band within which the currency would be allowed to fluctuate freely should be studied with great professional responsibility.
Training, retraining, and collaboration in understanding export challenges and reducing exchange rate risks. The Bank of Albania supports a training program for exporters to enhance their knowledge of markets, trade regulations, and export practices. The Bank of Albania can provide exporters with clear intelligence on export trends, opportunities, and competition.
Fiscal Policies:
► Freezing the corporate income tax for the year 2023, which export businesses pay in advance according to tax procedures.
► Expedited refund of Value Added Tax (VAT) within a 10-15 day timeframe.
► Approval of a supplementary budget in the form of subsidies, reallocating funds from revenues generated by the profits of importing companies, as a result of the Euro devaluation, both from Corporate Income Tax and VAT.
► Development of a national strategy to promote exports.
► Establishment of a National Export Promotion Agency, based on the experience of other countries.
Implementation of facilitative and supportive incentives for exports. The Ministry of Finance and Economy (MFE) can collaborate with responsible institutions for export growth, designing the implementation of combined strategies for exporting businesses and implementing export promotion schemes, such as subsidies for exporters, or various tax incentives.
► Financing exports and ensuring export credit: MFE and the Bank of Albania can engage second-tier banks to participate in export financing programs.
► Export development funds: MFE can identify dedicated sectors and, based on the weight in % of exports and social impacts, offer support for research and development (R&D) to increase productivity and the application of value-added technologies, based on the challenges of the knowledge economy (STEM) and the green economy (Agrotech).
► Temporary wage and social security and health insurance subsidies. This measure will reduce the increase in the supply of the Euro, easing the impact of the high national currency exchange rate and mitigating the damage already caused to export businesses.
► Temporary state aid during critical periods, with the obligation to repay within the fiscal year.
Treatment of staff of export businesses regarding exchange rate fluctuation risks. The Bank of Albania should improve and simplify foreign trade regulations, reducing bureaucratic costs, making it easier for exporters to navigate foreign markets. The Bank of Albania and MFE can collaborate with other institutions to reduce the low cost of trade, including export cost and increasing competitiveness.
► Incentives for the adoption of new technologies, by accelerating depreciation rates from 20% to 40%, temporarily reducing the tax burden and creating liquidity opportunities for companies, as promised in Prime Minister Rama's 2021 government program.
► Tax payment restructuring. One of Adam Smith's golden principles of taxation is that businesses should only pay taxes when it is most convenient for them. This implies that tax obligations for periods when the national currency is overvalued and the euro is devalued should be deferred to a later period, but within the fiscal year.
► The Unified Office of Export Businesses (in the Albanian acronym it becomes ZUBE), is ready to discuss with the experts of the government and BSH, for a harmonized package of monetary and fiscal policies as well as for supporting reforms. International experiences make it clear that neither monetary policies nor fiscal policies can reduce the aggravating costs of the appreciation of the national currency, without harmonizing between them and exporters. "EXPORTS MADE IN ALBANIA" have significant contributions to employment and the annual value of exports. Findings and recommendations should be an impetus and awakening for all actors, so that such challenges and similar problems can be avoided, but also serve as a concrete opportunity, that after every crisis there should be a recovery for the economy and growth of Albanian exports.
Awaiting inter-institutional cooperation, With gratitude,
Representatives of the Unified Export Business Office.