Albania Country Report - September, 2014

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Albania Country Report - September, 2014

This report covers the main macroeconomic releases from September 7 to October 6 as well as the financial and political events that took place in Albania during this period.
Last month both the European Bank for Reconstruction and Development (EBRD) and Raiffeisen International kept their forecasts for Albania’s economic growth for this year at 1.7% and 2%, respectively. Despite leaving the forecast unchanged from May, the EBRD said prospects for Albania improved since then because of expected spillover effects from the progress in clearing arrears. The clearing of public arrears to companies should help alleviate the problems with the high share of non-performing loans and weak credit growth, thus contributing to a modest upturn in growth in 2014 and 2015, the EBRD commented.
For next year the EBRD is more optimistic about Albania's economy improving its forecast to 2.5% y/y from 2% y/y projected in May.
An IMF mission visited Albania between August 26 and September 9 to hold discussions on the second review under the EUR 330.9mn stand-by arrangement. The completion of the review, however, was delayed due to the arrest of central bank governor Ardian Fullani. The parliament voted on Sept 18 to dismiss Fullani after an employee at the bank admitted he had been stealing millions of dollars from the bank's vaults over the course of four years.
London-based Business Monitor International said that the arrest of Fullani will cast doubts over the country's progress in fighting corruption and hence undermine the country's attractiveness for foreign investors.

Key points:
• Albania’s consumer prices increased by 2% y/y in August, speeding up from 1.8% y/y the month before, mainly due to a faster growth in food prices.
• Producer prices edged down 0.7% y/y in the second quarter on the year, following a 0.5% drop in the previous quarter.
• The general budget deficit narrowed by 43.7% y/y to ALL 30.9bn in the first eight months of 2014 and equalled to 2.2% of the full-year GDP forecast.
• The country’s foreign trade gap widened by 8.7% y/y to ALL 178.7bn in January-August 2014. The shortfall accounted for 12.8% of the projected full-year GDP, lightly up from 12.7% of GDP a year earlier.
• Albania’s gross external debt expanded by 2.1% q/q to EUR 6.372bn as of end-June 2014, accounting for 63.9% of the full-year GDP projection, up from 60.9% a year earlier.


Table of Contents

EXECUTIVE SUMMARY 3
MACROECONOMIC OVERVIEW 5
EBRD keeps Albania's 2014 GDP growth forecast at 1.7% 5
Raiffeisen keeps Albania’s 2014 GDP growth forecast at 2% 5
Parliament approves 2014 budget revision 6
Yields on Albania's two-year bonds rise on weak demand 8
Albanian parliament votes to dismiss central bank governor over vault theft 8
BMI says arrest of c-bank governor casts doubt on Albania’s progress in fighting corruption 9
IMF mission visits Albania for second review of EUR 331mn stand-by deal 9
REAL SECTOR 10
1. Inflation 10
CPI inflation speeds up to 2% y/y in August 10
Producer prices edge down 0.7% y/y in Q2 11
2 Labour market 11
Unemployment rate edges up to 17.2% in Q2 11
3 Industry and trade 12
Retail sales growth speeds up to 4.2% y/y in Q2 13
Albania's industrial sales rise 8.5% y/y in Q1 13
FISCAL SECTOR 13
General budget deficit narrows 43.7% y/y in Jan-Aug 13
FINANCIAL SECTOR 15
Growth in bank assets eases to 3.2% y/y at end-August 16
Bank lending rises 2.2% y/y in August 16
Insurers’ gross premiums up 41.2% in Jan-Aug 16
EXTERNAL SECTOR 17
Balance of payments 17
Albania's current account deficit widens 21.4% y/y to EUR 618mn in H1 2014 18
Foreign trade deficit widens 8.7% y/y in Jan-Aug 19
Foreign debt edges up 2.1% q/q in Q2 2014 20
PRIVATISATION AND INDUSTRY NEWS 21
World Bank approves USD 150mn loan to support Albania's energy sector 21
Albania starts payment of compensations to Czech energy group CEZ 21
Albania suspends activities of 37 oil and gas trading companies 21
Albania revokes 170 mining permits and 40 concessions for small hydropower plants 22

Table 1 CPI Inflation 10
Table 2 PPI 11
Table 3 Retail sales 13
Table 4 General budget balance 14
Table 5 Insurance premiums 17
Table 6 Current account 18
Table 7 Foreign trade 19

Figure 1 Yields on 2-year bonds 8
Figure 2 CPI inflation 10
Figure 3 Bank assets 16
Figure 4 Bank loans 16
Figure 5 Foreign trade 19

Number of pages: 22
Release Date: Mon, 06 Oct 2014