PRESS RELEASE
Governor Sejko: Statement to the IMF and WBG Annual Meetings

The global economy has so far has exhibited an admirable resilience to the strong adverse shocks initially originating from Russia’s war on Ukraine. The lingering effects of this aggression led to accelerated inflationary pressures, while prompting a rapid monetary policy tightening which, in turn lead to subdued growth and either exposed or exacerbated existing vulnerabilities.

Global inflation has been trending downwards over the past few quarters. However, the future remains uncertain. While the tightening cycle of monetary policy appears to be approaching to its peak, core inflation rates remain persistently high, labor markets are tight, wage growth is unprecedentedly high, and there is a nascent growth momentum in commodity prices. On the other hand, global growth remains subdued and uneven across countries. In addition, the economic and social resilience to additional shocks has been reduced considerably.

This complicated landscape requires the pursuit of a delicate balancing-act from economic policy-makers and – especially central banks. We need to continue to prioritize price stability through determined policy actions, while also being mindful of its detrimental cyclical and structural impact, coupled with its adverse impact on financial stability. The financial system appears to be broadly resilient so far, benefiting from a decade of structural reforms aimed at reducing vulnerability. Nevertheless, continued vigilance is needed, both on a global and on a country-specific level, to avoid potential systemic risk. This is all the more relevant at a time when fiscal buffers are already low, after a determined countercyclical effort in the aftermath of the pandemic.

Against this backdrop, I am fully supportive of the Fund’s current assessment and policy prescription. Furthermore, I fully endorse the Fund’s renewed push towards strengthening the Global Financial Safety Net (GFSN). I believe it will prove to be instrumental to restraining unpleasant economic and financial instabilities at a global level. Reprioritizing the agenda on public debt reduction is an important element and the right first move towards mitigating these potential weaknesses.

Albania has not been immune to the recent adverse global economic trends. Inflation started to pick up by the end of 2021, accelerated fast at the outbreak of Russia’s aggression in Ukraine, peaked in October 2022 and started to decelerate gradually thereafter. In a macroeconomic environment characterized by a cyclical upturn, a tight labor market,- which is reflected in a low unemployment rate and a fast wage growth-, the initial price shock trickled down to all price categories and core inflation climbed to unprecedented levels.

The Bank of Albania embarked on a monetary policy normalization drive, starting from March 2022, increasing the base rate from a minimum of 0.50% to 3.00% as of March 2023. The latter was fully data-driven, transparent and efficiently communicated to local stakeholders. Our current policy rate level is comparatively low compared to a regional and even EU panel of countries, but it is does reflect a lower overall inflation rate, averaging 6.7% in 2022 and 5.2% so far in 2023. Differences in inflation levels are the result of a fixed electricity price for household consumers and a fast appreciation of the domestic currency, by 2.8% in 2022 and 8.0% so far in 2023. Albania’s external balances have improved markedly, especially in 2023, as a result of a strong tourism performance and a steady inflow of FDIs. The currency appreciation has allowed more room for a gradual approach to monetary policy tightening with the currency appreciation cushioning the foreign inflationary impact. Our most recent forecasts point to a gradual reduction of inflation, with a return to our 3 percent target expected by mid-2024. This trajectory factors in a more gradual easing of underlying inflationary pressures and a more subdued growth trajectory of the economy.

Macroeconomic policies are expected to remain harmonized and work in tandem to ensure a stable growth in the medium-term and a low and predictable inflation environment. Fiscal policy should strive to avoid adding to already high demand pressures and maintain its consolidation drive. The financial system has shown remarkable resilience, owing to prior reform drives that have improved the regulatory framework and reduced vulnerabilities. Despite this, we are attentive to potential vulnerabilities that could arise due to: an elevated interest rate environment; the reduced household purchasing power; and the muted activity.

The importance of policy harmonization and coordination at both national and international level is a paramount condition in ensuring an optimal environment for a green, equal and prosperous global economy for the benefit of all, today’s and future generations.

For this, I would like to reiterate the pivotal role of the Fund and the Bank, as they help channel our focus away from immediate challenges on our backyard to existential global issues that will affect us all if they are not pre-empted properly and tackled in a timely manner.