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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006 TIRANA STOCK EXCHANGE ECONOMIC AND POLITICAL DEVELOPMENTS Economic and Political Environment A coalition of the Democratic Party of Albania (DPA) and several smaller allies won the parliamentary election on July 3rd, 2006. Since coming to power the DPA leader and new prime minister, Sali Berisha, vowed for deep reforms mainly towards the integration of Albania in the Euro-Atlantic structures, improvement of judiciary system, guaranteeing of free and fair electoral process, respecting of the human rights, decentralization of the local government as well as declared war to the corruption and organized crime. The implementation of such strong reforms gave positive results on the changing of the Albania’s image in the western countries and was finalized with the endorsement of the Stabilization and Association Agreement (SAA) with European Union on June, 2006. Likewise, the Albanian government is undertaking all the necessary steps to make Albania the most attractive country in the region regarding foreign direct investments (FDIs) inflows. In this respect the government unveiled its initiative called “Albania 1 euro”, which intends to offer extremely cheap facilities to all the FDIs planning to invest in Albania. As far as country’s foreign policy concerns, integration to EU and NATO as well as the definition of the Kosovo status in full compliance with the UN and international factor recommendations, will remain key goals under the DPA-led government. Albania has signed a new three-year IMF - Poverty Reduction and Growth Facility (PRGF), which puts a stronger emphasis on structural and institutional reforms, and on improving the business environment. Within this framework, the authorities will face the challenge of tackling widespread poverty. Public investment is likely to concentrate on infrastructure, healthcare and education. Meantime, many soft credit lines have been signed between Albanian government and World Bank, EBRD and many donors in order to finance some strategic public investments. Economic Performance According to international financial organisms who supervise the financial stability of the country (IMF and WB), Albania's macroeconomic performance over the past year has been good, with strong growth, large inward remittances, and a significant reduction in poverty. Macroeconomic stability has been maintained–evidenced by low inflation, decreasing debt, increasing confidence in the currency and the banking system, and rising international reserves. Although the current account deficit has deteriorated somewhat, the Albanian LEK (ALL) has continued to strengthen, reflecting rising confidence and declining risk premiums. The expectation is for growth to moderate slightly in 2006 (around 6%), but to return to a faster pace in 2007 and over the longer term. However, sustaining this pace will require significant reforms to improve infrastructure and institutional quality–including in governance and the rule of law. Such reforms will enable Albania to attract the high-quality investment needed to develop further the export sector, which remains small. The current rapid growth of financial intermediation is a positive development, and necessary for sustained high growth. Actions will be taken to tighten gradually prudential regulations and enhance banking supervision, to safeguard loan quality. The banking system displays satisfactory indicators of liquidity and capitalization at the end of the first semester of 2006. It continues to realize a profitable activity, creating the grounds for its expansion in the future. Credit to economy has maintained its rapid growth rates, although its annual growth rate results to be lower than over 2005. The fiscal framework and the supplementary budget for 2006 are consistent with the authorities' strategy of developing a small but efficient government concentrated on its core functions. A rising share of expenditure will be devoted to investment and other priority areas, while future gains from tax administration reform will be devoted to tax relief and debt reduction. The supplementary budget allocates projected structural revenue gains according to this strategy. Future growthenhancing institutional reforms will focus on areas directly impacting the business climate, such as property rights and contract enforcement. Privatization is to be accelerated in non-core areas of government, including in the distribution arm of the electricity company (KESH).* * Economic Intelligence Unit Ltd., July 2006. Key Information Contacts Bank of Albania www.bankofalbania.org Ministry of Finance www.minfin.gov.al Albanian Institute of Statistics www.instat.gov.all Albanian Securities Commission www.asc.gov.al Ministry of Economy www.mete.gov.al Chamber of Commerce and Industry www.cci.gov.al 2004-ORIGINS OF GROSS DOMESTIC PRODUCT (%) Agriculture, hunting, forestry Construction Industry Trade, Hotels and Restaurants Other services 19.5 38.5 12.5 9.0 20.8 PAGE 134
FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006 TIRANA STOCK EXCHANGE ALBANIA ECONOMIC CHARTS AND TABLES 2002 2003 2004 2005 (E) 2006 (P) Real GDP 2.9 5.7 5.9 5.5 5.0 Retail prices (average) 5.2 2.3 2.9 2.4 2.2 Retail prices (end-period) 1.7 3.3 2.2 2.0 3.0 Consumer Price Index 1.7 3.3 2.2 2.0 n/a Fiscal Sector (In percent of GDP) Revenues and grants 24.7 24.5 24.1 24.4 25.5 Expenditures 31.4 29.0 29.2 28.0 29.3 Overall balance -6.6 -4.5 -5.1 -3.6 -3.8 Net domestic borrowing 3.3 2.9 2.3 2.7 2.3 Public Debt 65.0 61.8 56.5 55.3 55.2 Domestic 41.7 41.1 38.5 37.7 37.4 External 23.3 20.7 18.0 17.6 17.8 Monetary Indicators Broad money growth (in percent) 5.7 8.7 13.5 13.9 13.5 Interest rate (3-month T- bills, end period) 11.1 7.3 6.2 5.4 ... Exchange Rate Lek/US$ 131.67 106.58 97.3 103.33 95.68 External Sector (In percent of GDP unless otherwise indicated) Balance of goods and services -25.9 -25.1 -21.7 -24.1 -24.5 (in EUR millions) -1,214 -1,248 -1,307 -1,629 -1,794 Current account balance -10.0 -8.1 -5.5 -7.8 -8.1 (in EUR millions) -468 -402 -331 -525 -594 Gross international reserves (in millions of euros) 845 834 1,025 1,202 1,260 (in months of imports of goods and services) 4.4 3.9 4.0 4.2 4.1 Memorandum items Nominal GDP (LEK billions) 624.7 682.7 766.4 836.9 899.7 Nominal GDP (US$ billions) 4.4 5.7 7.5 8.4 9.1 Sources: Albanian authorities and IMF staff estimates and projections. 2005-PRINCIPAL EXPORTS (%) (acc. SITC) 2005-PRINCIPAL IMPORTS (%) (acc. SITC) Various manufactured items Manufactured products Crude materials Transport machinery and equipments Food and live animals Other Manufactured products Food and live animals Transport machinery and equipments Minerals fuels and lubrificants Chemical products Other 60.7 15.5 10.6 23.6 13.0 8.6 4.1 3.9 5.2 25.8 8.5 20.5 2004-MAIN DESTINATION OF EXPORTS (%) 2004-MAIN ORIGINS OF IMPORTS (%) Italy Greece Serbia-Montenegro Germany Turkey Other Italy Greece Turkey Germany Russia Other 72.4 10.5 5.0 3.3 1.7 29.3 16.4 7.5 5.4 4.0 7.1 35.4 Sources: Albanian Institute of Statistics - INSTAT PAGE 135
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