Bank of Albania Foreword
We are living in deeply challenging times. The ongoing Covid-19 pandemic has affected every facet of social and economic activity across the globe: it has caused a tragic loss of life, it has induced governments to undertake severe lockdown measures and it has severely disrupted the normal flow of people, goods and services.
The spread of the pandemic is the second shock Albania is facing in a short period of time. First, a devastating earthquake hit the country on 26 November 2019, causing an estimated economic loss equivalent to 7.5% of GDP in damages to physical assets and output reduction. In March, the socially restrictive measures undertaken to combat the pandemic caused a severe drop in economic activity.
On the demand side, the uncertainty about the breadth and depth of the outbreak is negatively affecting consumption and investment decisions in the private sector. In addition, the depressed foreign demand is hindering Albanian exports. On the supply side, strict social distancing measures and disruptions across supply chains resulted in forced closure across whole economic sectors.
As a result, economic activity has fallen sharply and unemployment has risen, while businesses and households are facing severe financial challenges. The depth of the shock can hardly be overestimated.
The response of Albanian policymakers has been both comprehensive and timely. Its main objective has been threefold: (i) to allocate appropriate funding to deal with the medical emergency; (ii) to shield the vulnerable households and businesses from the crisis, so as to avoid undue loss of productive capacity; and (iii) to preserve monetary and financial stability.
To that extent:
- Fiscal policy has delivered a stimulus equivalent to about 3% of GDP, in the form of fiscal transfers to households, delayed tax payment, and sovereign guarantees to facilitate bank credit. Additional measures are planned.
- The Bank of Albania has delivered monetary stimulus in the form of a policy rate cut, now at a new historical low of 0.5%, as well as in the form of increased liquidity injections in the market.
- Furthermore, the Bank of Albania has instructed banks to offer liquidity relief to viable businesses facing temporary difficulties, in the form of a short-term moratorium on credit instalments as well as in the form of targeted credit restructuring, and we have facilitated this process with targeted and temporary regulatory actions. Finally, we have forfeited any cost it charges on using its electronic payment platforms and have issued detailed instructions to banks in order to facilitate the continuity of their operations.
At the same time, I’m proud to see the Albanian private sector has reacted strongly to the crisis. The general public has accepted and abided by the social distancing measures. The business sector has shown operational flexibility, financial resilience, and social responsibility in largely avoiding large-scale lay-offs. Finally, the Albanian banking sector has been far-sighted in standing by their debtor clients, while being mindful of their role as guardians of the financial savings of Albanian households.
At this juncture, any economic prediction is fraught with uncertainty. However, provided the medical emergency is now past, our analysis indicates Albania is bound for a V-shaped recovery after the crisis. While recession is a virtual certainty for 2020, we expect a robust economic rebound over the next year and beyond.
The crisis will leave its marks on us: public debt and private debt will be higher, while businesses and households will be more mindful about operational efficiency and financial resilience. However, I’m confident the crisis will not throw Albania away from its positive growth trajectory and gradual convergence process with the EU. The growing sophistication of Albanian businesses, coupled to a young and increasingly educated labor force and rich natural endowments, make for bright growth prospects.
Furthermore, the EU Council decided in March 2020 to open accession negotiations for Albania. This will offer prospective investors greater political and legal certainty and access to the biggest free-trading area in the world.
I remain convinced the Albanian private sector and its policy-makers will meet these challenges.