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Speeches & Transcripts

Questions and Answers

December 1, 2012

Rajmonda Lajthia, “Vizion Plus”: I have some questions: what are the conditions that Albanian government has to meet in order to benefit from the additional financing from the World Bank? What is the amount of this support?  You said that during 2012 you will review the Country Partnership Strategy and this additional financing was not part of the strategy when it was prepared. What has changed that made you change course from the initial strategy?

Kseniya Lvovsky: Let me quickly answer the second part of your questions and I will ask Mr. Hood to answer the question about conditions.

When the Country Partnership was prepared there was an expectation that economic recovery from 2008 – 2009 crisis in Europe and globally will go better than it happened to be. No one predicted in 2009, early 2010 that the Euro zone will be contracting at this moment instead of growing. This has implication for growth and some other economic indicators for Albania and other development countries of Europe, so progress reports which are prepared for these countries will have to make this adjustment.

Ronald D. Hood: The conditions for accessing our financing are under negotiations. First of all let me say that we are at the beginning stage of the discussions with the government now and so we are not really in a position to give you specifics. But let me give you a general outline of what’s likely to be required. There is more than one loan on the table. For all our loans it is necessary for us to have an understanding of macroeconomic framework. One of the loans that we will be discussing with the government has to do with financial sector reforms so the elements of that program will rely of course to financial sector. The second operation that we are discussing has to do with growth and competitiveness so of course the measures that we will be seeking agreement with government in that area will have to do with improving growth and competitiveness in the Albanian economy. My colleague Michael Edwards is responsible for the financial sector operation and my colleague Borko Handjiski is responsible for growth and competitiveness operation.  And we are all interested in having discussions with the government of Albania about the overall macroeconomic framework.

Gjergj Erebara, daily “Shqip”: I wanted to ask you about the public debt reduction that you have mentioned earlier. Is it now just a recommendation as usual or a condition for these loans?

Bardhi Sejdarasi, “Java” magazine: In the “Doing business” report and also in RER report we see a decline of the economic performance indicators of Albania, especially the ones that you are willing to support the Albanian government to improve them.  I’m talking especially about the financial or the fiscal sector. Albania has the highest fiscal deficit in the region. What did the World Bank consider while changing the strategy, when you took in consideration the assistance for reducing the fiscal vulnerabilities of the system? Second question: you have had long discussions with the Minister of Finance, Mr. Bode. What did you discuss about, because there is no information for the media now?

Kseniya Lvovsky: Yesterday there was a regular meeting with the Minister of Finance, introducing the missions of two teams and briefing him on the objective of the teams, what we would like to achieve and ask his advice about whom to meet in the Ministry of Finance and other organizations in Albania in order for the mission to obtain all the necessary information and conduct the needed analysis.

Ronald D. Hood: You packed a few questions into your one question there. Let me say a couple of things in response to your observations about the deficit and about the fiscal situation. Albania has one of the highest public debt levels of any country in the region and while it does not have the largest fiscal deficit in the region, you add up the fiscal deficit over time you get the public debt.

The world is a bit of a dangerous place these days especially given what it is going on in Europe and the level of dependence that countries like Albania have on developments in Europe. That dependence comes from the fact that a large portion of the external trade is directed with Europe and a lot of the financing that it is necessary to cover the public debt also comes from Europe. 
So on both counts Albania is vulnerable to changes in economic developments in Europe. Countries that have big public debt are more vulnerable then countries that have smaller public debts. So we are indeed concerned about the level of public debt and the public deficit that adds up to the public debt over time. We had a nice conversation with Mr. Bode yesterday and we touched on some of these things. 

Regarding the reduction of the public debt is it a recommendation or a condition, we haven’t come to a conclusion in the context of the current loan negotiations but we did have a social sector DPL, which is completed and went to the Board some months ago, in which we projected a decline of level of the public debt from the current level of nearly 60 percent. And those figures are a matter of public records.

Llazar Semini, “Associated Press”: “Associated Press”: I would like to take some technical information from Mr. Edwards. Beyond the impact of the global financial crisis and also beyond the fact that we are being very strongly connected to Europe and the developments in the European countries as Mr. Hood mentioned, from your meetings what have you noticed or what do you thing should be changed in the government’s policies? What are these policies that might have an impact in the increase of the public debt? What is the threat to Albania if we exceed this 60 percent threshold that it is becoming also one of our nightmares?

Michael Edwards: I think there is some generally good news with regards to Albania, that is, through end September the financial sector, banks in particular have performed quite well overall. We see scope clearly to tackle some things. Let me just lay out two areas where we see a real opportunity. Because the discussions are early we haven’t finalized any of our views yet.
It is clear that Albania suffers from a high rate of nonperforming loans among its banks so we are working with the Central Bank, the Ministry of Finance, Financial Supervisory Authority and other stakeholders in government to try to develop a plan to tackle this, over the medium term. Secondly we want to strengthen the capacity of the authorities at the Central Bank as well as Ministry of Finance to better monitor the financial system performance. In essence, we want to improve the capacity to respond in the event that spillover occurs or if some further negative impacts would occur on Albania from the Euro zone.

It is clear that the Central Bank of Albania has done a number of things in the course of 2010 and 2011, proactive steps, to try to mitigate the effects of the crisis. Most recently though the amendments of the law on banking was passed in the parliament. So we are hopeful that with this operation we will have the chance to further strengthen Albania’s resiliency to the effects of this Euro zone troubles, be better prepared for the possibilities and frankly to stimulate growth in the medium term.

Ediol Halila, “TV Klan”: When it comes to the economic growth during 2012, what is the projection or the forecast of the economic growth for Albania compared to the similar economies in the region?

Aurora Sulce, “News 24”: “News 24”: Focusing on the optimistic forecast of the government regarding the economic growth during 2012, any opinion about the 2012 state budget? And second question: you said that you are negotiating with the government of Albania regarding this additional financing, up to what amount the World Bank can provide for the Albania and this additional financing was requested by the government of Albania or by the World Bank?

Ronald D. Hood: We laid out a set of growth projections in the Regular Economic Report and we had 2 percent growth estimate for 2012 for Albania. And for the six countries of the region that we covered in that report the average growth rate was 2.1, so Albania is in the middle of the pack. Bosnia was at the bottom and Macedonia was at the top. Kosovo was also at the top, but they are coming of a very low base.

I have to say that the error bans on these estimates are huge, because the world is so uncertain these days. Even in the developed countries things are quite volatile and I don’t think I have seen a period when forecasts have been changed every five minutes like it is happening now.
Quite frankly the risks going forward are still on the downside. On the amount of the loans I will let Kseniya answer, but I will mention that the Bank decided as a general policy not specifically for Albania, but including Albania, to make larger amount of resources available because of the current disturbances. As part of that, general policy change has got a bigger envelope available too. The indications are that the government is interested in pursuing all of what’s on the table.

Kseniya Lvovsky: Once we informed the government about the change in policy for making additional financing headroom, the Albanian government invited teams of our experts to come to discuss possible needs and use of available financing and to get more clarity on the amount that is available. I saw already numbers circulating on media about the amount. I saw a number of 100 million dollars. I don’t know where this number comes from but it was on several newspapers. If our joint assessment with the government shows the need for this or a larger amount as well as if the government will outline a strong reform program on the financial sector and on growth and competitiveness we will be able to provide this amount and even a larger amount.
The team arrived only two days ago. It is a very early stage of the discussion. In the next ten days to two weeks we will have much more clarity on what exactly the amount of the financing we are talking about.

Borko Handjiski: One of the questions was about what are the assumptions for the budget forecast for the 2012 and based on our assessment we see that the nominal growth forecast on which revenue projections are based for 2012 is realistic, in line more or less with our projections. But again this is based on certain assumptions that the European economy will continue to grow. So if that does happen this nominal growth of about 6 percent is achievable, but if the European economy deteriorates than the growth projections will face challenges.

Gjergj Erebara, daily “Shqip”: Sorry, what does it make that the nominal growth is realistic and the real growth is nonrealistic?

Borko Handjiski: Our real growth forecast is slightly lower than the government real growth forecast. On the nominal growth forecast the difference is much smaller, because as you know the nominal forecast also includes some projections about where prices will go so here we have some differences in the government projections and in our projections. But the difference on the nominal growth is much smaller.

Klodian Tomorri, “Top Channel”: This envelope is offered only to successful government sor is it available for all the countries in the region? And I want to go back to a question made by my colleague before, you said that it’s very early in negotiations right now, so you cannot talk about any conditions that the government has to meet, but is the reduction of the public debt going to be one of the conditions?

Kseniya Lvovsky: For the increase in financing, the Bank made the decision on the basis of assessing the vulnerabilities of developing countries to the Euro zone turmoil. In South East Europe and in your immediate Western Balkan neighborhood this decision was made for all countries except for Kosovo, because Kosovo is an IDA country, is a special situation.

With respect to debt management and debt reduction if you look at the government midterm framework it does show debt reduction. So I believe the government as well as everyone very much understands that it is important to go below the current level of very close to 60 percent. At the same time we believe the faster the trajectory in reducing debt and the more it deviates below the 60 percent in the medium term the better due to all the risks that Mr. Hood outlined.

We do believe that it is very important and our assistance and our financing will help the government to accelerate and strengthen the debt reduction trajectory.

Ronald D. Hood: I don’t think I have much to add. Whether individual countries are successful in tapping the additional resources depends on whether we come to a successful conclusion on individual loans that are on offer for them. And as I mentioned before there are two parts to these negotiations always: there is the macro framework , which would include public debt, and there is specifics which have to do with financial sector or growth and competitiveness.

Nertila Maho, daily “Panorama”: In which stage is the pension reform that the World Bank is supporting?

Melis U. Guven: Albanian pension system faces challenges like many other pensions system around the world, particularly at this time when the economic conditions are deteriorating and also in the long term in the aging of the population. Recognizing these challenges, there was a request from the government for the World Bank to assist them in designing a pension reform. In order to move forward with this there is a need to undertake the diagnosis of the current system, the current situation and the fiscal sustainability and level of the benefits in the long term taking into consideration the pension system parameters and economic indicators.

At this point, jointly with the government we are undertaking this diagnostics so that the government can take informed policy decisions on the available options.