In 2011, fiscal policy was oriented towards further consolidation of fiscal indicators in order to preserve the public debt thresholds. This approach established a mild fiscal stimulus in the economy, concentrated mainly in the first and fourth quarters of the year. Budget deficit was 3.5% of GDP, up by 0.5 percentage points, y-o-y. The budget deficit was determined by the slow increase in fiscal revenues and expenditures. Revenues increased by 1.8% y-o-y, due to decelerated economic activity. Their performance also determined the prudent approach in carrying out expenditures, which rose by 7% from the previous year. The budget deficit was financed by domestic borrowing with an increasing orientation towards longer maturities, thereby improving the public debt maturity structure and lowering the refinancing risk. The low public sector demand for financing was reflected in the decreased yields on government securities and also made more room for higher private sector financing. Adverse developments in external economy were also reflected in the balance of payments. The curbed economic growth in Albania’s trade partner countries was reflected in decelerated exports, which reduced their annual growth rate to 20.0%. On the other hand, high global market prices materialized into 12.4% increase in import expenditures, in 2011. These developments reversed the adjustment trend of the current account deficit pursued over the past two years. Current account deficit reached 12.1% of GDP, up by 12.5% from 2010. Net flows in capital and financial account increased by 5.6% and contributed to financing 80.4% of the current account.

Despite this contraction in number, the remaining firms have continued to grow and thrive, and now have assets totaling $ billion, which is an increase of about 30 percent. Community banks are much stronger financially today. In 2009, troubled assets were 26 percent of capital, primarily reflecting a large volume of construction lending. That ratio has declined significantly, to 8.5 percent today— demonstrating that community bank leaders have the capacity to take action, effectively work out troubled assets, and generate capital. These data tell a welcome story regarding your ability to successfully conduct business through the economic recovery. So, where does the industry go from here and what challenges lie ahead? That is the theme of today’s conference, and I expect a robust and enlightening series of discussions from both panelists and presenters. From my perspective, there are two challenges that I would highlight: ongoing advances in technology, and interest rate risk. First, major technological changes are compelling banks to embrace technology to better meet the needs of their customers. Today’s customer expects increased digital access, and a bank’s failure to advance technologically would be very damaging for its franchise value. But, the use of new technology comes with its own risks that require significant investment and attention— especially around cybersecurity. Second, in today’s low interest rate environment, we have observed that some community banks have taken on more interest rate risk by increasing the maturity of their assets and the average duration of their loan portfolios.