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The IMF has published two reports on Albania regarding foreign currency devaluation and intervention in the foreign exchange market, as well as on how well-protected banks are in the face of shocks.
The first report notes that Albania has experienced a sustained appreciation of its currency, driven mainly by fundamental economic factors, such as foreign investment. In this context, interest rate policy is seen as the most appropriate instrument for maintaining price stability.
However, in special circumstances where the lek is strengthened by non-fundamental factors – such as changes in risk perception by foreign investors – interventions in the foreign exchange market may be useful as a complementary tool to mitigate the negative consequences on inflation and economic growth.
The IMF emphasizes that the exchange rate should continue to function as a shock absorber for economic shocks, while interventions should be reserved for exceptional situations. However, the use of FXI should be cautious, as it can have side effects, including risks to the central bank's balance sheet, weakening monetary policy, and slowing the development of financial markets.
The final recommendation is that the Albanian authorities allow greater flexibility in the exchange rate and rely primarily on interest rate policy to maintain economic stability.
In its second report, the IMF notes that the banking sector has undergone significant transformation, thanks to strong economic performance and sound financial reforms. However, challenges remain, some of which were also identified during the IMF's Financial Sector Assessment Program (FSAP) in 2014.
According to the report, banks have broad resilience to shocks from bad loans and interest rates. On the other hand, significant vulnerabilities have been found related to exposures to large borrowers and sovereign debt, which could create risks for the sector.
The IMF says that, based on the results of the study, further strengthening of the macroprudential tool is required and continued efforts are needed to deepen financial markets, to improve the sustainability of the banking sector in the future, and to face new challenges that may arise.
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