Annual progress report 2015 albanian contribution – input I september 2014 – may 2015 table of contents
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- Total 14.3 16.0 16.8 16.8
- Total 14.8 16.4 17.2 17.1
- Total 25.4 27.9 27.3 28.3
- Total 11.7 13.0 14.2 13.5
- Trend indices on inflation, core inflation
- 1.2 Reporting on monetary and fiscal policies Evolution of the monetary policy framework and monetary policy stance
- Exchange rate framework and recent developments of exchange rate
- Assessment of the macroeconomic policy mix
- Table 4: Public debt figures
- 772,517 827,981 884,692 976,930
- 1,239,645 1,300,624 1,335,488 1,364,782
- 1.3 Interplay of market forces Privatization
Table 3: Unemployment rate
For more information, please refer to Chapter 19 “Social Policy and Employment” Trend indices on inflation, core inflation In the last quarter of 2014, average inflation rate fell to 1.3%, from 1.7% in the previous quarter. The low value recorded in December drove inflation downward. The pronounced fall of inflation in this month reflected the low rise of food prices and the continued fall of oil price. Demand-side factors continued to determine the low inflation rates. Spare production capacities in the Albanian economy created weak pressures for increase in wages, in production costs and in profit margins. In the first quarter of 2015, inflation edged up to 1.9% as a result of a different behaviour of unprocessed foods prices. Structurally, the increase in inflation came as a result of the inability of domestic production to match demand for these goods in the aftermath of floods in agricultural regions of Southern Albania. During this quarter, the contribution of this category was 1.8 percentage points to headline inflation. The persistent weakness of aggregate demand continued to be reflected into low core inflation27. In 2014Q3, core inflation was slightly negative (-0.1%). Meanwhile, it turned positive during 2014Q4 and 2015Q1 at respectively 0.35% and 0.48%. Net non-traded inflation ranged from 1%-2%. Both, long-term and domestic components of inflation remained at low levels and below their historical average. During the second half of 2014, the short-term inflation was highly volatile. Non-core inflation was 5.6% and 3.2% for the two consecutive quarters. The latter reflected low inflationary pressures from the food component, mostly generated by the agricultural products prices. During 2015Q1, non-core inflation edged up to 5.2% as a result of higher prices of unprocessed food products. The registered drop in inflation was determined almost entirely by the performance of food and oil prices. Inflation of “Unprocessed food” items fell considerably with its contribution being 0.7 percentage points lower. Unprocessed food inflation grew by 3.4% during December in monthly terms, or 3 percentage points lower than the average of this indicator during the last five years. 1.2 Reporting on monetary and fiscal policies Evolution of the monetary policy framework and monetary policy stance In line with the projected low inflation rate and economic performance below potential, the BoA has reduced the policy rate further, by 0.5 p.p. in the last 6 months, bringing it to its lowest historical level of 2.0% in January 2015. During the last 9-months (June 2014 to March 2015), interest rates have revealed two different trends according to their maturities. The short ones continued to follow a downward trend in almost all financial market segments while for the longer maturity interest rates where more volatile. The government T-bill and bond yields declined until August 2014 but have increased slightly since September 2014. Overall, the reduction of the key policy rate by the BoA is gradually being passed through to banks’ deposit and lending rates. For the latter, weak economic conditions and the need for banks to consolidate their balance sheets is still exerting upward pressure. The decline has been facilitated also by BoA’s liquidity injection and by lower liquidity and inflation premiums. Financial market indicators are stable in the Q1 2015. The monetary policy easing has been transmitted in the short segment of the money market. In the latter, interest rates declined further between end May 2014 and early April 2015 following the BoA’s decisions in November and January 2015. The overnight and 7-day interbank rates have fluctuated close to the base rate. The short term T-bill yields remained broadly unchanged but the slope of the term structure has slightly increased. From September 2014, the 12-month T-bill yield has experienced a slight increase reaching 3.59% in early March from 3.18% a month prior. Besides increased demand from the government at the end of the year, the increase of yields was also affected by investor unwillingness to increase the weight of government debt securities in their portfolio. However this increase was reversed in March and data from early April confirm the declining path of the 12-month Tbill yield. Interest rates in the deposit and lending market have followed a declining path. In 2015 (January-February), the average lending rate in ALL is 8.06% from 8.56% in 2014. The average lending rates stood at 10.32% in 2013. Nevertheless, lower loan rates have not yet induced the growth of demand for loans, confirming the high uncertainty of the investors and the overall weak economic activity. Despite improved monetary conditions, credit recovery is fragile as it remains under constrains from both demand and supply factors. After a pick-up in May-August last year, lending activity has stalled again and credit to the private sector has been weak in the first two months of 2015. Annual growth rates adjusted for the effect of exchange rate are around 1.0%, down from the latest peak of around 3.0% in November. Sluggish credit growth reflects the weak performance of credit to businesses while growth of credit to households has edged up since the second half of 2014. Money supply growth has improved since December 2014. The improved growth rate in the last months has reflected higher contribution mainly from net foreign assets and from government financing, while the contribution of credit growth remains low. In the last months, depreciation of the lek against the US dollar has also had implications on monetary developments. Without the exchange rate effect, the growth rates are lower, but the improving trend is still evident. Deposit flows (all maturities), after improving considerably in December 2014, returned to their weak path in the two first months of 2015. Their annual growth was 4.4% in February, being affected also by the evaluation effect of the exchange rate. Without the latter, deposit growth is slowing down after December, reflecting weaker performance of FC deposits, while Lek deposits remain the main driver. The shift towards demand deposits and deposits with longer term maturities continues. Exchange rate framework and recent developments of exchange rate During the period September 2014 – March 2015, the Albanian Lek depreciated in average by 1.3% in annual terms as calculated by NEER[1]. After remaining almost stable in the last quarter of 2014, NEER has recorded an average annual increase of 3.0% in Q1 2015. The NEER dynamic was caused mostly from the depreciation of ALL towards US dollar. Since September 2014, ALL has depreciated against the US dollar by 20%, in line with the EUR/USD performance in the international markets. In 2014 Q4, one euro was traded on average at ALL 139.74, or 0.5% less than the previous year. Despite the wider trade deficit for the period under review, the higher annual foreign inflows as shown by deposits and euro’s depreciation in the international markets have been reflected in weaker euro in the domestic market. In Q1 2015, EUR appreciated against ALL by 0.4% q-o-q, reflecting a higher demand in the market against a lower supply due to decrease of exports and of foreign deposits. Assessment of the macroeconomic policy mix In the Q4 2014, the policies mix remained broadly unchanged. They continue to be implemented with the aim to support a sustained medium-term economic growth. The fiscal policy continues to be consolidating, while the monetary policy continues to be stimulating. The fiscal policy has shown a strong consolidation during the second part of the year reflecting the attempts to correct the path of increasing fiscal debt due to the payments of arrears. The tight policies are applied on revenue collection as well as on execution of expenditures. In the second half of the year, the budget deficit is 31.3% lower from the second half of the previous year. The tight fiscal policy has produced a negative contribution of the public sector to GDP in the short term. Nevertheless, in the long term, the consolidation of fiscal indicators is expected to contribute positively in reducing risk premia in the economy and strengthening the macroeconomic stability. In the short term, the consolidating fiscal policy will help to provide better financing conditions for the private sector. On the other hand, it has allowed more room for more stimuli from monetary policy. The monetary policy has strengthened its easing cycle aiming to bring inflation close to the target in the medium term. The policy interest rate was cut only once in the second half of the year by 0.25 percentage points, reaching a level of 2.25% on November 26, 2014. The output gap remains negative and the capacity utilization rate is below average. This has produced a slow increase of wages and production costs as well as of profit margins, hence generating very low inflationary pressures. At the same time, imported inflation has been decreasing as a result of a stable exchange rate and low foreign inflation. BoA has continued to use forward guidance to communicate its intention of keeping the monetary policy easing in the near future. Its monetary operations have been in line with this approach. The monetary policy has been successful in reducing the financing costs of the public and private sector helping to create conditions for the expected recovery of domestic demand and economic activity. Further, it has helped to anchor medium term inflation expectations. Inflation is expected to remain low in the short term and to increase close to the target as the domestic demand recovers. As the MF reports, the economic growth has slowed down considerably last year with a first flash estimation of GDP growth at 1.4%. While the estimation for 2014 shows a relatively improved situation with a level of 2.1% of economic growth. The macroeconomic policies have been driven by the need to support a sustained medium-term economic growth. Key issues in setting appropriate policies have been the preservation of the stability of consumer prices, public debt and financial system. Given that inflation expectations remain well anchored, the monetary policy has eased trying to stimulate aggregate demandwith the aim to support economic recovery.. The easing cycle has been associated also with a set of macro prudential measures which aimed at facilitating credit supply to the economy. Changes in the Civil Code (effective September 2013) and the proposal for some changes to the Law No 8438 of 28.12.1998 “On Income Tax" (approved by the Parliament on August - 2014) have been introduced to address issues with the execution of the collateral and the burden of lost loans on banks' balance sheet. The overall monetary and macro prudential policies have yielded positive results with respect to a decline in the cost of lending in domestic currency as well as a slowdown of increasing NPLs (22.8% in December – 2014). The effects on boosting aggregate demands have been weak while an improvement in this component showed during 2014. These policy decisions have carefully taken into consideration the balance of risks to financial stability. Further, the authorities are committed to implement the recommendations that follow from the recent Financial Sector Assessment Program with IMF and WB, in order to strengthen supervisory regulation and ensure the safeguard of the overall financial system. The tight fiscal policy stance planned in the medium term ahead will be mostly reflected at stagnant level of public consumption. The high public indebtedness of Albania has called for fiscal consolidation that aims to lower the public debt below 60% of GDP in the medium term. The government has already introduced a fiscal package that affects primarily the tax revenues and tax administration. Simultaneously, the authorities are strongly committed to pay the arrears accumulated over the past years and hence providing a fresh injection of liquidity in the economy. Furthermore, the necessary steps will be taken to prevent future accumulation of arrears. The authorities have also signed a three year EFF agreement with the IMF, which is expected to help the country to meet its financial needs, while providing the necessary support to engage in successful structural reforms. In this respect, the planned reforms and the fiscal measures aim to improve the investment climate in the country. Recent trends in general government debt and its main driving factors At the end of March 2015, the Central Government Debt is estimated to be ALL 1,014,208 million or 67.98% of GDP by decreasing in relative terms with 1.12 percentage points compared to the end of 2014. This decrease in debt level it is attributed to the increase in the GDP level. In absolute terms, debt has been increased during the first three months of the year by ALL 37.3 billion, from which more than ALL 13 billion is attributed to domestic currency depreciation toward foreign currencies and mainly toward USD. Table 4: Public debt figures
Domestic borrowing for the first quarter of the year 2015 is achieved at the level of ALL 9.17 billion or 22.6% of the yearly plan (ALL 39.9 billion). 106.3% of this funding is conducted by long term instruments while the short term instruments have been matured at the level of 6.3%. This funding has enabled considerable improvements in the domestic debt indicators and especially in average maturity of debt. The average days to maturity are estimated at 655 days compared to 630 days at the end of the previous year, thus making improvements as regards refinancing risk management. Even though refinancing risk has shown some improvement it is important to mention the fact that domestic debt remains sensitive to that type of risk, because more than 58% of debt needs to be refinanced within a single a year. It is worth mentioning the diversification of instruments that has continued also during this year, by issuing an amount of ALL 3.3 billion with the 10 year bond instrument. Characteristic for 2014 has been the drastic drop in the interest rates which has enabled a reduction in the cost of debt servicing. Meanwhile, during 2015 the interest rates for domestic debt instruments have been remained stable and almost in the same levels with the end of the year 2014. Beside the positive developments of the domestic market in the segment of government securities, it should also be taken into account that public debt continues to pose a high risk which should be mitigated in the future. From this perspective, it is important for the future that domestic debt borrowing will continue to be financed by long term instruments and the debt structure will be improved further by refinancing some of the short term instruments with those of longer maturity. As regards foreign borrowing, the relations with international creditors have been stable during the first half of 2015 and foreign borrowing has been realized in the level of EUR 69.7 million, from which around 73% is attributed to the budgetary support. During this year it is expected an increase in disbursements of foreign debt, because of the Policy Based Guarantee loan (EUR 250 million) issued by World Bank and planed to be disbursed during June. Also, future foreign borrowing will be based on the expected funding of projects and completed with the provision of external financing in accordance with the agreements with IMF and World Bank for the remaining repayment of arrears. 1.3 Interplay of market forces Privatization For information on the privatization process please see Chapter 20: Enterprise and industrial policy. 1.4 Market entry and exit Business Registration With regard to market entry, e-registration is in place. Amendments to Law No 9723 of 03.05.2007 “On National Registration Centre” transposing the Directive 2009/101/EC “On coordination of safeguards which, for the protection of the interests of members and third parties, are required by Member States of companies within the meaning of the second paragraph of Article 48 of the Treaty, with a view to making such safeguards equivalent”, including the necessary provisions for on-line registration, are approved by law No 8/2015.The 2009/101/EC Directive is fully transposed in the Albanian legislation, through the amendments to this law and the latest changes to the Company law approved in November 2014. The provisions are implementable from 23 March 2015. Concerning the registration data, during the period September 2014 – 14 April 2015, the National Registration Centre carried out the following activity: Directory: files -> documents files files -> Fall 2013 Spring 2014 Program Data: Standard 1 Exhibit 4d files -> Hanban – asia society confucius classrooms network 2010 request for proposal files -> Northern England’s set-jetting locations documents files -> Report: Shelter Support Mission to Afghanistan documents files -> Information and Communication Technologies for Reconstruction and Development Afghanistan Challenges and Opportunities documents files -> Humanitarian Civil-Military Coordination in Emergencies: Towards a Predictable Model documents files -> Rapid Education Needs Assessment Report documents files -> H Report of a Workshop on Coordinating Regional Capacity Building on Gender Responsive Humanitarian Action in Asia-Pacific documents files -> Arizona Department of Administration Risk Management Statewide Motor Vehicle Safety Policy Download 3.84 Mb. Share with your friends:
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