By Giulio Tremonti
In 2010, the Albanian economy grew at an average rate of 3.6 percent during the first 3 quarters, and preliminary indicators suggest the pace of growth improved further in the fourth quarter. The expansion in economic activity was supported by a favorable external environment, resulting in fast export growth, and improved internal financing conditions, resulting in a gradual increase of private sector demand. Macroeconomic policies have been cautiously stimulating domestic activity throughout 2010. The re-orientation of fiscal policy towards long-term budget sustainability was accompanied by progressive easing of monetary policy.
Inflationary pressures remained controlled and inflation expectations were anchored throughout the year. The average annual inflation rate for 2010 was 3.6 per cent, remaining within the Bank of Albania’s target band of 2-4 per cent. Partly reflecting base effects and favorable external markets conditions, exports of Albanian goods and services grew by 56 percent during 2010. The rapid exports growth contributed to the expansion of overall demand and GDP as well as to the smoothing of external imbalances and the stabilization of the exchange rate. While remaining at a still high 11.9 percent, the current account deficit decreased by 3.5 GDP percentage points in 2010. To a large extent, this reflected an improved savings-investment balance from the public sector.
The fiscal consolidation was necessary in order to comply with the public debt ceiling prescribed by the fiscal rule. The budget deficit decreased by 4 percent of GDP, reaching 3 percent in 2010, as a result of both higher government revenues and lower public spending.
The public debt decreased to 58.4 percent of GDP, remaining within the 60 percent target stipulated by law. A more cautious fiscal policy, declining risk-premia, and the positive inflation outlook, enabled the Bank of Albania to lower its policy rate to a historical low of 5.00 percent by mid-2010. At the same time, the central bank revised its operational framework in order to increase the efficiency and transparency of monetary policy.
Fiscal consolidation and stimulative monetary policy resulted in improved liquidity and lower interest rates in the domestic financial markets. The bank financing of private investments and private consumption has remained subdued, but improving, throughout the year. Credit grew by 10.1 percent on nominal terms, but its base increased and its composition has improved. Credit standards have eased slightly during the year and the banking system has remained well-capitalized, highly liquid, largely profitable, and able to meet any potential increase in credit demand. Lastly, Albania issued its first Eurobond note during 2010, marking its debut in global international markets, thus diversifying its public investors’ base and alleviating public pressures on domestic markets. A surge in inflationary pressures during the first months of 2011, stemming from the external environment in line with higher food commodity prices in the international markets, was prevalent in the Albanian economy. In order to maintain anchored medium- and long-term inflation expectation and to circumvent spiraling inflation and second round effects, the Bank of Albania raised its policy rate by 25 basis points at the end of March.
(Statement by Giulio Tremonti, Italian Minister of Economy and Finance, and Governor of the IMF for Italy, speaking on behalf of Albania, Greece, Italy, Malta,
Portugal, San Marino, and Timor-Leste at the International Monetary and Financial Committee, Washington DC, April 16, 2011)
