2007 Report Shows Higher Trade Deficit, Insufficient Domestic Productivity

TIRANA, May 12 – The central Bank of Albania reported the general balance of payments for 2007 yielded a surplus of 149 million Euros and that inflows of capital have covered up to 96 percent of the current deficit.
Further, the Albanian trade deficit has reached 2.3 billion Euros, or 27 percent higher than 2006.
The 2007 current deficit reached 878 millio n Euros, An increase of 64 percent compared to 2006, which is equivalent to 11 percent of GDP.
Remittances represent the main source of financing the deficit in the trade of goods and services.
The external sector saw intensive activity during 2007, in terms of a considerable growth in spending and revenues. The current transactions’ volume expanded by approximately 20 percent over 2006, reaching up to 8.3 billion Euros, of which 60 percent have been spent. Over 95 percent of current spending has been allocated to the purchase of goods and services. Meanwhile, 60 percent of revenues have been accumulated from the export of goods and services and the rest has been accrued from current transfers (33 percent) from returns to labor and from investments (7.4 percent).
The high trade deficit during 2007 has neutralized any positive effect from narrowing the deficit gap as well as the positive net growth in revenue flows -thus the trade deficit is the main causal factor in deepening the current deficit during 2007.
2007 saw a high level of commercial exchanges, which resulted in a volume trade of 3.8 billion Euros, 26 percent higher than the previous year. The trade of goods also contributed with 44 percent in the 2007. The intensified commercial activity during this year was owed to an increase in general prices, fluctuations in the market, as well as the gradual decline in custom duties; all part of the trade liberalization process.
Even though the trade dynamic shows increasing rates of growth in imports (26 percent), and in exports (25 percent), the low export base did not help to improve the trade deficit.
Productivity at home, quite insufficient to address the domestic growing demand for goods, has led to imports overwhelming exports, and the latter being at low levels, accounting for 26 percent.
Foreign trade transactions attest to a high concentration in intermediate goods, which made up 53 percent of imports during 2007. Consumption goods have fallen by 7 points as a share of imports, making up for 30 percent of total imports. The noticeable growth of capital goods by 36 percent has granted them a high share of 14 percent of the total 2007 imports.
Unfavorable climate conditions and the growing demand in a developing economy have boosted power imports by 3.5 x times over 2006. This resulted in a monetary value six times as high compared to last year, reflecting higher costs of electric power in international markets.
The high volume of machinery and equipment entering into the domestic market during 2007 (an increase by 30 percent) is owed primarily to the construction sector developments in home construction and investments in infrastructure. The year 2007 saw positive growth in the service trade. The net value of services reached 3 million Euros, performing far better than the previous year (-67 million Euros).
During this year, export revenues attributed to services grew at a higher rate.
External Sector Developments in the Albanian Economy during 2007 was higher than expenditures for importing services, respectively with 22 and 15 percent relative to 2006. Tourism has constantly taken the lead in generating revenues of 69 percent and expenditures of 64 percent of the total. Annual growth in revenues accrued from tourism reached approx 24 percent, due to the increasing number of foreign visitors and immigrants who have visited the country (62 percent) and due to the increase in daily expenditures.
Meanwhile, expenditures of Albanian travelers abroad amounted to 923 million Euros, 20 percent higher than in 2006, due to the increase in the number of travelers by 48 percent, while coefficients that measure the duration of stay abroad and daily average expenditures have dropped mildly.
During 2007, an improved trade balance was seen in all service industries.
Like every year, current transfers accumulate in the form of remittances. These represent the main source of financing the deficit in the trade of goods and services.
During 2007, remittances came up to 947 million Euros (with a light annual growth of 1.3 percent), or 12 percent of GDP. Remittances contributed in narrowing the 2007 trade deficit gap by 44 percent, which was 11 percentage points lower relative to 2006.
The year 2007 saw high flows of capital in both directions, mainly as inflows.
This is primarily owed to investments in the communication field, triggered by the privatization process and the growth of foreign capital stock / shares in the Albanian financial sector.