IBNA Analysis/Possible effects of Brexit in Albania in the focus of the Governor of BoA

IBNA Analysis/Possible effects of Brexit in Albania in the focus of the Governor of BoA

Governor of the Bank of Albania, Gent Sejko talks in a special analysis for IBNA, on the possible effects of Brexit in Albania

Tirana, 29 June 2016/Independent Balkan News Agency

By Edison Kurani

The Bank of Albania expects economic activity to improve progressively over the medium-term horizon. This performance will continue to be sustained by stimulating financial conditions and growth of private domestic demand. It will contribute to the improvement of economic and financial equilibriums in Albania and to the return of inflation to target within 2018.

Analyzing the situation in the country, Governor of the Bank of Albania, Gent Sejko says that “the realisation of these objectives requires maintaining the actual mix of economic policies”.

“The monetary policy will maintain the stimulating trend over the medium-term horizon, while the intensity of the monetary stimulus will not decrease for some quarters ahead”, Governor Sejko predicts.

On the other hand, the fiscal policy should maintain its consolidating trend.

“The balance of risks related to expected developments remains on the down side. The expansion of economic activity continues to be decelerated by the unfavourable economic performance in the euro zone, which is further complicated by the Brexit, as well as by the behaviour of economic and financial agents, who continue to show reluctance in undertaking long-term business projects”.

Against this backdrop, the Bank of Albania deems that economic policies and structural reforms should focus on three main points…

Mr. Sejko ranks them: “Maintaining and further strengthening the economic and financial stability; Accelerating structural reforms, especially with regard to: improving the legal setting and business climate; encouraging domestic and foreign investments, completing the infrastructure; enhancing productivity; and, improving the labour market; Expanding crediting, to support the country’s medium-term development”.

Mr. Sejko admits that a plan a measures should be taken for the effects that Brexit may have in Albania. But how much exposed are Albanian banks in European markets in front of the pound, but also the euro, which has weakened in the recent days?

Mr. Sejko assures that the exposure in front of the pound currency for banks that operate in the Republic of Albania is almost insignificant. This also comes as a result of the fact that they have very low levels of loans and deposits in sterling.

However, holding banks face these threats. Therefore, BoA is monitoring the situation. Mr. Sejko explains: “We are monitoring and we’re carefully analyzing indirect exposures, meaning, exposures of these holding banks in international markets. Although banks are not directly exposed, they can have indirect forms, the effects of which can be felt in following periods”.

Meanwhile, commercial exchanges between Albania and Great Britain are minimal. Sejko says that this is the reason why Brexit has no direct effect on banks and on the Albanian economy in general.

“In the commercial point of view, imports and exports that we have with Great Britain are insignificant and they make up only 0.5 or 0.6% of all foreign trade. The effect is also insignificant as far as direct foreign investments and level of remittances are related”.

But many people say that remittances have a big effect. It is believed that Britain has over 150-200 thousand emigrants from Albania, but many of them have been registered as Albanians of Kosovo or citizens of other countries to benefit stay permits.

Mr. Sejko admits that there can be an effect on remittances by the depreciation of the British pound, but he adds that officially, the number of emigrants is smaller, around 10 thousand and this makes the effect on the total of remittances insignificant.

However, Sejko looks the situation further ahead, seeing the effect of Brexit in the region: “In the long term, the effects of Brexit must be seen in a regional context and then on a euro zone context. The deterioration of the euro zone economy due to the Brexit, may also be later reflected in our region, including Albania, through the commercial activity and other elements”.

Sejko adds that Brexit may even be positive for the market: “There can be benefits, not only deteriorations, especially in the activity of imports and exports and foreign investments”.

However, he admits that there are still uncertainties, while all international important institutions and especially central banks, are analyzing the possible effects and the probability of their materialization.

“We must wait and see the effects and then analyze them. Nobody can tell what effects there would be and when they would cease”, Governor Sejko says. /balkaneu.com/