Skopje, 23 March 2023
"Inflationary growth will slow down this year, both in developed and emerging economies, as a result of the stabilization of raw material prices, reduction of pressures on the supply side and the decisive response of monetary authorities. Signs of slowdown have already been visible, however it is too early to declare victory over inflation. It is crucial to safeguard price and financial stability, as this is the only way to preserve public confidence. Besides, financial systems need to adjust to the transition towards greener and digital future." This was said in the opening speeches and the first panel of the Vienna Initiative Full Forum, one of the largest annual gatherings in the field of finance in Europe which this year takes place in Skopje, hosted by the National Bank.
The National Bank Governor, Anita Angelovska Bezhoska, in her welcome speech pointed to the significant role of the banking system in supporting structural reforms. “Keeping banking sector sound and in good capacity to lend is also important in the light of the urgently needed structural reforms in the CSE region. As we are lagging behind advanced Europe in terms of income and productivity, sustaining banks’ financing can contribute in narrowing those gaps. At the same time, climate change and technological innovation continue to accelerate, pressing on our societies to transform towards greener and digital future. Banks can have a crucial role in financing the twin transition”, said Governor Angelovska Bezhoska.
She also emphasized that amid ongoing crisis, macro-prudential management plays an important role, providing more headroom for monetary policy. To that extent, following the pandemics many central banks in the region, including ours, actively deployed countercyclical and/or systemic risk capital buffers.
Boris Vujcic, Governor of the Croatian National Bank said in his opening speech that small open economies in Central, Eastern and South Eastern Europe have been hit by a series of unprecedented external shocks in recent period. Price shocks and global uncertainty represent a huge challenge not only for monetary policy, with a clear mandate of price stability, but also for fiscal policy makers.
“The importance of facilitating dialogue between financial sector stakeholders has not been this critical since the GFC. Thus, in these challenging times, the role of the Vienna Initiative, as a unique public and private sector platform that brings together the key international and European financial institutions, major cross-border banking groups and home and host country authorities, becomes even more important. Discussions within the Full Forum will focus on the upcoming challenges in the banking sector, necessary transformations to our financial systems as the pressure from authorities and investors pushes banking groups to accelerate their transition towards a greener future, on the evolution of financial services and how to balance efficiency gains resulting from digitalization,” said Vujcic.
At the first panel Monetary and Fiscal Policy in a High Inflation World, Governor Angelovska Bezhoska and Governor Vujcic were also accompanied by Governor Peter Kazimir, National Bank of Slovakia, Governor Radoje Zugic, Central Bank of Montenegro, the Finance Minister, Fatmir Besimi and Liliana Pavlova, Vice President of the European Investment Bank.
The Governor of the National Bank of Slovakia, Peter Kazimir, noted that inflation in the euro area is expected to remain too high for too long.
“We can’t, and we won’t stand by. We’re determined to bring inflation down to our target, and we will do so. Monetary policy tightening has begun bearing fruit, and higher interest rates are working. Nevertheless, our inflation fight isn’t over. Risks have not disappeared, and they are specifically stubborn on the upside. So we still have some ground to cover, and I’m confident we have all the tools to reign in reaching our final, desired destination”, stated Kazimir.
Governor Zugic of the Central Bank of Montenegro, noted that in Montenegro, one of the key internal factors influencing the country’s inflation relates to the recent increases in salaries, which was not accompanied by any growth in productivity or the creation of new value.
“This has pushed up the level of demand, not only for products and services, but also for loans, which in the short term can be said to have increased the tax base. However, from the perspective of the medium term it will become a significant fiscal problem because it will widen the budget deficit and increase the costs of funding it. In this context, any further announcements of increases in wages would be very challenging”, added Zugic.
The Minister of Finance, Fatmir Besimi, pointed out that our country, as a small and open economy, is sensitive to external shocks, which spill over quickly.
"That is why the government, in coordination with the central bank, takes prompt measures to mitigate inflationary pressures and through gradual fiscal consolidation maintain macroeconomic and fiscal stability. The government has taken measures to support households and companies to reduce price pressures. Thus, in the first two months of 2023, we saw an inflation slowdown (17.1% in January and 16.7% in February). Energy prices are decelerating, but food prices are not following the global downward trend. Therefore, we have taken additional measures such as freezing the prices of some basic food commodities. We expect that the measures taken will contribute to stabilizing inflation," said Minister Besimi.
The vice-president of the EIB, Pavlova, said that sustainable investment spending will remain the key engine of growth in Europe, both from public and private entities.
“The EIB Group proved to be a reliable partner to both sectors. We think that sustainable infrastructure projects should not be delayed as they enable a number of activities in the chain that would otherwise not be possible. The focus on investment must therefore be on renewables, energy efficiency, innovation, digital and sustainable infrastructures taking into account priorities that are set in each of the countries we operate in”, said Pavlova.
The Vienna Initiative is a platform that brings together international financial institutions, banking regulators and stakeholders of EU-based cross-border banking groups active in the CESEE region. It was launched through coordination of the European Bank for Reconstruction and Development, the European Investment Bank, the European Commission, the International Monetary Fund and the World Bank Group, at the height of the first wave of the global financial crisis in 2009. The Skopje Forum is attended by governors of central banks from CESEE and high representatives of the European Investment Bank, the European Bank for Reconstruction and Development, the International Monetary Fund, the World Bank Group, the European Central Bank and the European Commission, and representatives of the banking sector.