High govt spending keeps demand up

TIRANA, May 10 – Differently from the beginning of 2010, government spending in the first quarter of this year played an important role in keeping demand at positive levels. The budget deficit at the end of the first quarter of 2011 registered -11.8 billion lek compared to a surplus of 0.7 billion lek in the first quarter of 2010, says the Bank of Albania in its latest monetary policy report. Government spending grew by 16.8 percent year-on-year in the first quarter of 2011 mainly as a result of higher current expenditure. The preservation of these spending rates is expected to increase the contribution of government expenditure in the aggregate demand, says the BoA.
However, the budget deficit is even higher compared to 2009 when Albania was heading to general elections. Data show budget deficit in the first quarter of 2009 was at -3.8 billion lek compared to -11.7 billion lek in March 2011, forty days before the May 8 local elections.
Meanwhile, the current account deficit at the end of the final quarter of 2010 grew to 373.6 million euros or 16.4 percent of the nominal GDP, registering the first increase after three consecutive drops during the first three quarters of 2010. The main factor contributing to its increase was the widening of the trade gap despite exports of goods and services growing by 20.7 percent in annual terms.
Government revenues during the first quarter of 2011 remained almost unchanged to the same period a year ago increasing by only 362 million lek to 77.5 billion lek.
The Bank of Albanian says the country’s economy is estimated to have continued its positive trend of growth even in the first quarter of 2011 despite slow progress in consumption and investments.
The Albanian economy grew by 3.9 percent in 2010, 0.2 percent below government’s expectations but far better compared to the 3 percent GPD growth forecast by international financial institutions such as the World Bank, the IMF and the EBRD. Latest data published by the Albanian Institute of Statistics show the country’s GDP grew by 5.4 percent in the final quarter of 2010 with industry and trade as the key sectors contributing to the growth. Meanwhile, the construction and post-telecommunication sectors continued suffering registering negative growth rates.
The economic growth in 2010 remained below the average GDP growth of more than 6 percent Albania recorded from 1998 to 2008, reflecting the global crisis effects. After shrinking by 0.8 percent in the last quarter of 2009, the economy managed to return to positive rates, registering year-on-year growth rates of 2 percent in the first quarter of 2010 and 3.3 percent in the second quarter.
The poor performance after the 3.3 percent GDP growth in 2009, when Albania became one of the few economies to register positive growth in global crisis year, was first of all affected by the sharp shrink in the construction sector and the deterioration in the post-telecommunications market.