Governor Fullani says high government debt has a direct impact on private businesses, as the government is borrowing from Albanian banks too, shrinking the available pool of money.
TIRANA TIMES
TIRANA, July 1 – Bank of Albania Governor Ardian Fullani urged the government this week to be careful about the growing public debt, as the government is trying to borrow more money from domestic and international banks to meet increased demands for funds for pensions and investments.
“Having carefully followed the progress of the current and expected economic situation, and assessing its implications for fiscal indicators, the Bank of Albania deems that fiscal policy should be careful to control the level of budget deficit and public debt,” BoA Governor Fullani told reporters in a press conference this week. “Keeping the budget in healthy parameters will build confidence in the long-term sustainability of public debt.”
Governor Fullani says high government debt has a direct impact on private businesses, as the government is borrowing from Albanian banks too, shrinking the available pool of money.
“Reducing the pressure on domestic financial markets will help to control long-term interest rates, facilitating private sector access to credit markets,” he said. “Bank of Albania remains of the view that borrowing should focus on outside markets, leaving room in the Albanian market for much needed credit.”
Fullani’s comments were related to the government’s recent announcement that it was borrowing 25 million euros from domestic banks because of unfavorable international conditions.
The problem is that there are limited funds in the Albanian banking system for the business community as is, so it makes it harder when the government borrows locally.
The government has consistently preferred to borrow in foreign currency markets, arguing that public sector involvement in the domestic market will reduce credit to businesses and the economy. But it seems that that since Albania is having a hard time selling its 400 million eurobond due to the Greek crisis, officials have had no choice but to go local.
Rates remain unchanged
Bank of Albania’s Supervisory Board decided to keep interest rates unchanged despite the fact that the government, through the finance minister, had urged the central bank to change the rate to allow for more flexible credit options.
Fullani also said at the conclusion of the supervisory board meeting that the country’s economic activity appears have slowed and consumers are spending less. “The data available in the last month show a slower development of the economy during the first four months of 2010. Performance of consumer spending during the first half of the year has continued to be affected by limited financial resources and low levels of consumer confidence,” Fullani said. “Indirect indicators, such as low growth of retail sales, the decline of remittances and credit for consumption and the slowdown of employment indicators show slow pace of private consumption during the first months of this year.”
