BoA: 2011 growth to be based on domestic demand, private investments

TIRANA, Feb. 15 – Albania will be able to continue its positive growth rates even in 2011 but the expansion will be based more on domestic demand and a bigger contribution of the private sector, says the central bank in its latest monetary policy report.
Differently from 2010 when the growth was based more on exports which registered a 60 percent increase, this year’s contribution of exports is expected to lower because of the short-term phenomenon of the electricity sales abroad which last year registered a record growth because of the heavy rains. Electricity production during the first 11 months of 2010 increased by 44 percent year-on-year meeting the country’s needs but also exporting large quantities which brought considerable revenues to government.
The reinvigoration of the economy will be made through increased levels monetary and fiscal stimuli. “The expected improvement in the macroeconomic climate, the ease of lending standards by commercial banks and increased banking liquidity accompanied by increased economic activity are expected to stimulate the expansion of the credit growth during 2011,’ says the central bank in its monetary policy report for the fourth quarter of 2010.
The central bank expects credit to the private sector to increase by 9 percent this year with 42 billion lek of which 25 million lek (180 million euros) in foreign currency.
The Bank of Albania says the narrowing trend of the trade deficit could prove short term in the face of falling Albanian exports and high risk premiums for investments in South East Europe.
Inflation rate which in 2010 recorded 3.4 will continue remaining under the central bank’s 3ѱ percent target band even this year.
Consumer expenditure during 2010 remained at low levels mainly because of lower revenues and a saving trend affecting private investments by businesses which shrank in the first half of 2010 but slightly improved during the remaining of the year.
With budget revenues expected to grow by 11 percent, 2 percent more than under the revised 2010 budget, government projects the Albanian economy will grow by 5.5 percent in 2011, up from an estimated 4.1 percent in 2010, which is almost twice higher compared to what international financial institutions expect.
The Finance Ministry’s main priorities in 2011 will be keeping the high public debt under control, currently at 59.5 percent and expected to drop to 59 percent of the GDP by the end of this year, keeping inflation rate within the central bank’s 3ѱ percent and further reducing current account deficit to preserve the country’s macroeconomic stability. The 2011 budget, considered the biggest ever at 4 billion dollars will continue supporting wage and pension increases, and keep deficit in check. The 2011 budget, worth 409 billion lek (4.08 billion dollars) and with revenues at 362.2 billion lek, will take budget deficit to 46.8 billion lek, up from 38.1 billion lek in 2010 or 3.5 percent of the GDP.
Unemployment rate is also expected to be brought down to 12.5 percent down from 13.6 percent in 2010.
Last July, government lowered its 2010 GDP growth forecast to 4.1 percent, down from the previous 5.5, after deciding to cut spending by 25 percent, some 39 billion lek (390 million dollars).