A good Albanian harvest is helping to offset the impact of higher food and fuel prices, senior Albanian officials said yesterday, predicting inflation would fall back to its target and playing down rate hike prospects.
Deputy Finance Minister Florjon Mima also said Albania was still considering a long-touted foreign currency bond issue, although not for 2008, and hoped to adopt the euro by around 2015.
In an interview on the sidelines of an investment conference in London, Mima also told Reuters foreign direct investment in Albania rose by 100 percent in the last year, against around 87 percent the previous year, with the main constraint being a lack of power-generating capacity.
However, he said inflation has remained relatively low as global food and fuel prices have surged.
Albania has raised interest rates three times in the last year as inflation rose out of its targeted 2-4 percent range to 4.6 percent now.
“The impact of higher global food and fuel prices has not been reflected to the same extent in Albania,” Mima said.
“This is for several reasons. Our farmers have had good production and gas oil production has also increased. So there is an impact but not to the same amount as in other countries.”
Asked if further rate hikes were likely, Mima said, “I don’t see that.”
In a separate interview at the same conference, central bank Governor Ardian Fullani would not follow Mima and definitively say whether he expected rate hikes or not.
But he said he expected inflation back in the target range within 12 months, with boosting agriculture and ensuring sound fiscal policy as important as monetary policy.
“Improving agriculture will help us to smooth prices on the supply side,” he said. “The central bank should be committed to keeping inflation under control but of course it cannot do so alone... but we think within 12 months it will be back in the targeted range, helped by agricultural production.”
Mima said Albania would not issue a foreign currency bond just yet because it was already close to the debt ceiling agreed to with the International Monetary Fund.
“It’s an option and the Ministry of Finance is looking at that,” he said. “But not 2008. Perhaps in 2009 we will be able to.”
Asked about joining the euro, he said, “I think it will not be by the end of the next decade but by the middle of the next decade at maximum.”
Albania had seen little immediate economic impact from Kosovo’s declaration of independence earlier this year, he said, but he believed international recognition for the ethnic Albanian entity had boosted foreign direct investment in his country.
On energy generation capacity, growing at around 6 percent a year, Mima said this would be less of a problem in 2008 than the previous year because hydroelectric dams were largely full compared to a drought last year. Albania was also aiming to build new power stations, he said.
(By KATHIMERINI, 05/08/2008)