“The global financial and economic crisis affected the Albanian economy in the form of increased risk premiums in the internal and external financial markets, as well as a general reduction of investors’ readiness to invest in developing countries compared to the pre-crisis period,” says BoA
TIRANA, Feb. 1 – Albania’s central bank admits the global crisis has affected the country’s economy during the past three years increasing risks in both internal and external markets. In its latest monetary policy report for the fourth quarter of 2011, the Bank of Albania says the unfavourable global situation and especially that of Albania’s top trade partners, Italy and Greece, has curbed investors’ willingness to invest in Albania compared to the pre-crisis period.
“The global financial and economic crisis affected the Albanian economy in the form of increased risk premiums in the internal and external financial markets, as well as a general reduction of investors’ readiness to invest in developing countries compared to the pre-crisis period,” says BoA in its report published this week.
The public debt at around 60 percent of the GDP, the slowdown in economic growth in 2011 and its further expected deterioration in 2012 as the Eurozone stands on the brink of recession remain the key risks for the Albanian economy to attract more foreign direct investment, and could especially harm the privatization process this year, experts say.
After a boom in 2010, foreign direct investment during the first three quarters of 2011 shrank despite a mass privatization campaign government launched. Latest Bank of Albania data published show FDI dropped by 25 percent to 440 million euros in first nine months of this year, compared to 585 million euros during the same period last year. The FDI share to the GDP also dropped to 4.7 percent down from around an annual 10 percent in 2010.
In its latest report, the central bank singles out the construction sector, once the key driver of Albania’s economic growth, as the hardest hit by the crisis registering consecutive quarterly shrinks after the 2008 global crisis.
Albania’s moderate economic growth between 3 to 4 percent in 2009 and 2010 has been promoted by the exports and government spending while domestic consumption and investments have failed to recover, says the BoA. The rising bad loan portfolio, currently at 18 percent, has also affected credit boost, as a promoter of growth, with banks tightening lending standards.
Citing the Eurozone debt crisis spillover impacts, the central bank expects economic growth in 2012 to be in line with growth registered during the first half of 2011, at an average of 2012.
The central bank expects inflation rate to be between 1 to 3 percent in line with its 3ѱ percent target band and credit to the economy to grow by around 12 percent.
BoA has recently lowered the key interest rate for Lek to 4.5 percent, the lowest historical rate, in an effort to stimulate the economy by boosting credit at a time when inflation pressures remain at low levels.
Government expects 2012 growth to be at 4.3 percent, 0.4 percent more than in 2011, which is 2 to 3 times higher compared to what international financial institutions expect.
