TIRANA, August 03rdian Fullani, Bank of Albania governor, has called for the private sector to adapt a more aggressive investment strategy in order to boost production and economic growth. Fullani insisted that business should react to the ongoing global economic crisis which seems to have already affected many economic sectors in the country. The governor pointed at the trade balance, which has shrunk in volume but has deepened in deficit, as a sign that Albanians should start to worry.
“The gap between exports and imports is becoming more of a disturbing fact with time, a signal of structural problems in this deficit as a result of low competitive levels from our products. More attention should be paid toward cost control and productivity growth in our economy by investing heavily in education and the latest technological innovations,” noted Fullani.
The governor asked for the entrepreneurs to adapt more with economic reality of the country, also dictated by the current crisis.
“I think time has come for the private sector to reflect the new development stage by improving and strengthening its managerial capabilities. It requires a better administration of business and financial risk and a closer collaboration with specialized market agents, the adaption of long-term business plan perspectives and their orientation toward the global reality and the economic priorities of the country,” emphasized Fullani.
However, undertaking substantial investments in technology could be a difficult task for the private sector, especially in a time when businesses are faced with tightened credit from banks.
Even if banks are keen to provide a loan, interest rates remain too high. Only a few days ago, Fullani called for second tier banks to ease credit toward the private sector in order to not block long term economic growth. Data from the Bank of Albania reveal that the credit portfolio has registered a modest increase of 7.5 billion Lek in 2009, five times lower than the same period a year ago.
Investing according to economic priorities
Once again, Fullani asked the government to better administer its public spending by focusing investments in priority sectors.
The governor noted that the first 6 months of 2009 were characterized by a fast increase in spending and budget deficit, while budget revenues increased only slightly.
“Even though it remains within the planned level of 2009, the budget deficit of 30 million Lek remains far too high when compared with the same period a year ago,” said Fullani.
He noted that is necessary for the government to take the necessary measure to keep the budget deficit and public debt within its planned levels in order to guarantee the continuity of internal and external economic balances.
“Bank of Albania regards as vital the continuity of economic structural reforms, which should precede future development tendencies,” declared the governor.
According to Fullani, investments in infrastructure should remain a priority in the use of economic funds.
Economic standpoint
The economic recession that has affected most of the countries Albania has trade relations with, has affected its trade volume and reduced the foreign currency levels in the country.
Both factors have resulted in reduced consumption, diminished exports, lower investments, with an overall effect in an economic activity slowdown and parallel pressure over fiscal indicators of budget deficit and budget revenues.
Remittances from abroad decreased by 8% in the first quarter of 2009. Together with a regressive service balance, they affected the current account deficit with a negative increase of 5% toward the Gross Domestic Production (GDP).
Meanwhile, economic growth in 2009 is expected to be below the 2008 growth. Forecasts vary from 4.8% (Ministry of Finance) to as low as 0.1% (International Monetary Fund). The Bank of Albania has reported that despite the global economic crisis, the Albanian economy has registered a positive growth in the first half of 2009, but its growth rate is slowing down. All in all, GDP growth in 2009 should remain in positive levels.
According to Fullani, diminished banking funds and insecurities in economic sentiments have had a big impact in slowing down the growth rate in crediting to the economy.
Despite a liquidity panic at the end of 2008 which saw many deposits being withdrawn from banks, which hardly resulted in a liquidity crisis anyway, the banks kept providing credit to the economy even though at more modest levels. The credit growth rate in Q1-2009 was 5 times lower than Q1-2008, but Fullani insists that banks have restored their faith in the economy and increased credit levels from quarter to quarter.
Yet, Bank of Albania has reported that more efforts should be made by the banking system to increase credit to the economy and they should also increase transparency and make their products more effective.
Banks enjoy profits despite their conservatism
Banks in Albania managed to earn 660 million Lek, (5 million euro) in the first six months of 2009, thanks to better results achieved in June, statistics published from Albanian Banks Association shows.
The earnings are a tiny fraction of the 5.7 billion Lek (46.2 million euro) that the sector earned in the first half 2008, but according to experts, it give hopes that the worst impact on the local sector from the global financial crises had passed.
Nonperforming loans and writes offs, the factors that created sharp looses during the last few months, showed some improvements in June.
Decreased deposits pose the main concern now for the banks and the economy in general. Customer’s deposits decreased by 3 per cent to 5 billion euro in June 2009 compared with the same period in 2008.
The loan portfolio continued to rise despite the fact that new loans are growing at a much slower pace than in 2008.
