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
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
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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 growth-
enhancing 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.