Gent Seko, Governor of the Bank of Albania, discusses the country’s economic transformation.
Global Finance: During my 10 years as governor, Albania’s economic outlook has changed. What role did the Bank of Albania play?
Siko went crazy: Albania has witnessed remarkable economic growth, prosperity and macroeconomic stability over the past decade. Our total GDP has grown by a cumulative 38%; Average per capita real income, in terms of purchasing power parity, rose by 54%, while unemployment reached its lowest level after the transitional period at 8.7%. CPI inflation averaged around 2.6%, while external and public debt shrank. This performance becomes even more remarkable when we consider the breadth of the challenges we faced. The Bank of Albania (BoA) has played a pivotal role in this success.
First, our consistent and coordinated approach to monetary policy, based on a modern inflation targeting framework, a flexible exchange rate regime, banking sector regulation, and macroprudential policies, has succeeded in providing a stable environment.
Secondly, we have implemented structural reforms aimed at improving the overall credit environment and enhancing the flexibility, efficiency and competitiveness of the banking sector. This has enabled our banking sector to act as an absorber of domestic and external shocks, while maintaining the uninterrupted flow of credit.
Third, we invested in modernizing our payment system and enhancing financial education for the Albanian people, while delivering tangible benefits to the financial efficiency of the private sector.
Overall, a key measure of our success is the increasing trust the public places in our institution, the value of our national currency and the integrity of our financial system.
GF: What were the biggest challenges that Bank of America faced during that period, and what are the key issues today?
Seiko: The main challenge is to manage recurring and unprecedented political challenges without losing sight of the structural reform agenda and the need to invest in internal capacity building. We have been widely successful in this endeavor.
On the policy side, shocks and the rapidly changing external landscape have required sustained attention, wise and coherent policy responses, as well as precise and targeted policy communications. I am encouraged to note that this process has been greatly facilitated by our strong internal analytical and policy implementation capabilities.
Our structural reform agenda is based on the integration process with the European Union, as well as our commitment to adopting international best practices and standards. We have also benefited from the invaluable resources and expertise of international partners, including the International Monetary Fund, the World Bank, and others, as well as careful coordination with other institutional partners within the country.
GF: GDP reached $25 billion last year, and the goal is to reach $30 billion by 2030. How realistic is this, and where could this growth come from?
Seiko: This goal is ambitious and achievable.
Albania has momentum based on strong private sector balance sheets, a stable economic and financial environment, strong labor markets, positive business and consumer confidence, as well as tourism growth. We expect the economy to continue to achieve strong and sustainable growth, supported by the rapidly progressing European integration process.
At the same time, we remain aware of the complex challenges we face. Externally, these challenges stem from rising international barriers to trade, the reshaping of global supply chains, and a rapidly evolving financial innovation landscape. Internally, these challenges take the form of unfavorable demographic trends, the impact of climate change, as well as the need to gradually reorient the domestic growth model towards a productivity-based model.
However, our positive record on structural reforms, the stability-oriented structure of policy-making institutions, and the remarkable resilience shown by our private sector agents make me optimistic about our prospects.
GF: The BoA takes bank regulation very seriously. For example, non-performing loans fell to 4% from more than 24% in 2013. How did you manage this?
Seiko: The rise in non-performing loans in 2013-2014 highlighted the urgent need to address weaknesses in financial institutions’ loan underwriting and collection, as well as legal uncertainties related to creditor rights and collateral management. Addressing these issues requires an inter-institutional approach and close engagement with other stakeholders from the public and private sectors, including banks. The average non-performing loan ratio has been steadily declining, reflecting the decline in absolute values of non-performing loans and the positive contribution coming from economic growth.
