Albania

Albania was an isolationist centrally planned economy in the 1970s and 1980s. It had a somewhat chaotic transition in the early 1990s, but then began to implement a more coherent monetary policy, including a flexible exchange rate, before moving in 2000 to a form of inflation targeting with limited monetary instruments and limited central bank forecasting capacity.

YearsTargets and attainmentClassification
1974-89[Note: no IMF sources available before 1992] largely closed economy, comprehensive central planning, monobank undertaking both central and commercial bank functions, plus some specialised financial institutionsmultiple direct controls MDC
1990-92international political upheavals from 1989 lead to major economic (and political) crisis despite very limited reforms in some areas 1989-90, with steep declines 1991 in industrial and agricultural production, collapse of tax revenues and massive rise in domestic credit; successive devaluations but rapid growth of parallel forex market with soaring premium; political pluralism allowed late 1990, old governing party wins 1991 elections but political tensions lead to transition government mid-1991, then new government elected 1992 embarks on wide set of reformsunstructured discretion UD
1993-99official exchange rate abolished July 1992, unified rate determined in domestic interbank market, wider trade and exchange liberalisation; difficult move to two-tier banking system from mid-1992, foreign bank entry from late 1993; fiscal deficits reduced, hard budget constraints imposed on SOEs, while central bank relies on credit ceilings for non-government sector, introduces refinancing window and reserve requirements, encourages interbank market and begins to use interest rates; many statistics poor but efforts to improve; treasury bill auctions from mid-1994, teething problems; growth of pyramid schemes outside formal financial sector which attract huge deposits but collapse late 1996/early 1997, leading to riots, economic crisis, near civil war, and new government which closes pyramid companies, stabilises economy and reinforces structural reform (including rise in central bank autonomy); as of 1997 forex trades dominated by curb market, interbank market remains thin; dominant state-owned banks remain technically weak, and central bank still relies on credit ceilings in pursuing its primary target of price stability, with only occasional forex interventions; 1999 short-lived influx of refugees from Kosovoloosely structured discretion LSD
2000-172000 bank credit ceilings abolished, minimum deposit rates phased out, standing facilities to create interest rate corridor, weekly repo auctions become main instrument; narrow inflation target announced and mostly met, but transmission mechanism unclear and forecasting capacity weak; fiscal discipline inconsistent; moderate, stable euroisation; 2003 database remains poor in parts; 2004 privatisation of old banks finally completed; credit boom mid-2000s, prudential/supervisory as well as monetary reaction; previously built-up buffers allow policy response to avoid recession from GFC, but recovery slow and hard, impeded by euro area crisis 2010-12; 2009 application to join EU; ongoing efforts to improve bank supervision and reduce NPLs; euroisation now higher; secondary financial markets remain limited; 2014 some statistical data still poor; 2011-15 limited forex interventions but exchange rate stable vs euro, policy rate follows ECB rate with narrowing spread, while interbank rate tracks policy rate; longstanding problem of slow credit growth; 2017 efforts to reverse euroisation; inflation targets still mostly met, but monetary transmission to economy weak, central bank independence and forecasting capacity still limited; most statistics now adequate but national accounts remain weakloose inflation targeting LIT

Selected IMF references: RED 1992 pp19-23, 24-6 27-8, 82; SR 1992 pp1-6, 9, 12; RED 1994 pp1-2 16-21; BI 1995 pp1-16; SR 1995 pp50-2; RED 1997 pp14-17, 27-31; SR 1997 pp8, 12-13, 16-17, 19-22; SR 1998 pp5-6, 9, 22-5; REDSA 1999 pp11-13; SR 2001 pp15, 17; SR 2003 pp4, 12-13; SISA 2005 pp4-20; SR 2005 pp12-15; SI 2006 pp72-9; SR 2006 pp13-15; SR 2008 p15; SR 2010 pp4-8, 17; SR 2012 pp46-7; SR 2014 pp18, 23-4; SR 2016 pp16-20; SR 2019 pp16-18; SRIA 2019 pp7-8.