Soaring prices to slow down economy, IMF report says

By Ardit Bejko
TIRANA, July 9 – Current accounts and foreign currency reserve are suffering from the hike of prices in the world markets, says a recent report released by the International Monetary Fund (IMF) last week. The levels of the two indicators, responsible to a great extent for the financial stability of an economy, will decrease in the future if the crisis persists.
The current accounts balance will edge on the negative side, increasing the deficit of the current accounts to 7.2 percent of the GDP. The deficit before the beginning of the crisis hovered about 5.5 percent mark of the GDP. The current accounts balance is composed of ingoing and outgoing foreign currency transactions from the country.
The increase in the deficit is a consequence of the increase in the imports, mainly, of food and oil. The markets have not experienced a visible refill of goods, but it is the rocketing prices of the goods that produced the increase in the value of the imports. During the first three months this year, the oil imports increased with only 1.5 percent, while the value of the imports increased by 50 percent.
Soaring prices are responsible for the decrease in the foreign currency reserve from the four-month-mark to 3.2 months of imports. The reserve is foreign currency that the Bank of Albania (BoA) invests abroad to create an endowment blanket for the country’s international trade. The reserve is measured with the money going out of the country from imports. BoA and IMF had set a 4.6 month mark as an objective for the reserve, but the reserve has decreased since last April, BoA said. The Bank had $2.16 billion in its reserves in April. The current developments in the world economy, highlighted by the oil crisis, are exercising pressure on developing economies, the report says. Experts notice that the increase salaries and unemployment benefits have become a trend for the governments of developing countries. The money needed for the raise and other expenditures have exhausted a big part of the countries’ budgets. The Albanian government had to spend 83 percent of the budget for expenditures, leaving only 17 percent to investments.