Bank of Albania Alarmed Over Govt Expenditure

Albania’s central bank warned the government on Wednesday against increasing budget expenditure, as this could put the macroeconomic stability of the country at risk.

The central bank called for a tighter fiscal policy saying the government has no room to offer further fiscal stimulus.

“This is the maximum that the government can do to halt the cost increases for debt refinancing,” the bank’s board of directors said in a statement issued after a meeting that lasted ten hours. 

“The budged deficit was 5.7 percent of GDP in 2008, much higher than the previous year, while public debt increased to 55.6 percent of GDP,” the statement said.

According to the central bank, government expenditures contributed to a sharp increase in imports of goods, with a consequent negative impact on the county’s current account.

The last time the Bank of Albania issued such a critical statement was in July 2001, when former Governor Shkelqim Cani accused the government of emptying the state treasury by spending deliberately before that year’s June general election.

Albanians are scheduled to vote in parliamentary elections on June 28.

The current spending rate exceeds by 0.5 percent the fiscal deficit target agreed between the government and the IMF.

Albania’s current account deficit rose to 14.7 percent of GDP in 2008, the highest ever registered. As a result of the debt increase, interest rates jumped to 9.17 percent for 12-month treasury bills, the highest rate since 2002.

The Albanian currency, the Lek, lost 6 percent of its value in February against the Euro. Increases in government expenditure were related to the so-called ‘Patriotic Road’, a one-billion Euro project to build a four-lane highway linking the Albanian Adriatic coast with landlocked Kosovo. According to the IMF, the project swallowed 2.9 percent of GDP in 2008 and is expected to account for 3.2 percent this year.

The Ministry of Finance refused to comment on the central bank’s statement. Prime Minister Sali Berisha has said repeatedly in recent weeks that he does not see any problem with the country’s economy, provoking criticism from the opposition, which argues that Albania has been hit by the downturn in the global economy and should recognize the risks that come with this.