on the albanian economy, though hard to be measured, is believed to have been rather a smooth one according to the estimations on the performance of the most exposed sectors to oil price, the transport and industry. exchange rates have been fluctuating over 2004. the american dollar was appreciated in the first part of the year, as a consequence of expectations for a tightening of the united states monetary policy. but, during the second part of the year, the attention of financial markets mainly focused on the structural problems of the american economy, that of the budget deficit and current account deficit. these concerns brought about a quick decrease in the american dollar value, reaching the minimum levels against the common european currency. in face of these developments, both monetary policy and fiscal policy of larger economies maintained expansionist features. notwithstanding the rise of us dollar interest rates, they remained at low historical levels while euro interest rates remained unchanged. the fiscal policy has impacted the growth of domestic demand, either in the euro area or in the united states. the progressive integration of the albanian economy in the international markets of products and capitals makes that this economy benefits from these incentive policies, in the form of lower interest rates for foreign currency and in the form of higher demand for its exports. placed in this positive background, the albanian economy growth continues to be generated from the dynamic development of the private sector, while maintenance of the macroeconomic stability and economic growth support through investments in the priority development fields : infrastructure, education and health, have been a priority to the public sector. during 2004, investments in the economy marked the same level as during 2003, representing nearly 25. 4 percent of gdp. these investments are mainly represented by the private investments, which count for about 80 percent of total investments. the financial sector has given an ever - stronger support to this development, through the increase of lending activity and the range of services provided. thus, credit to the economy increased by an average of 34 percent during the last two years, being at the same time accompanied by a prolongation of maturity term. the sectoral development of the albanian economy has been a dynamic development over the last years. sectors that have provided a major contribution to the annual growth rate are considered to be : “ trade, hotels, restaurants ”, “ construction ”, “ transport ” and “ other services ”. these sectors have contributed about 75 percent of the economic growth over 2004. this development is accompanied by a redistribution of the relative contribution of economy sectors to gdp, and also

may face in the period ahead. first, let me present a brief overview of the economic and financial situation and development perspective for albania. as we have repeatedly said, the bank of albania deems that the albanian economy is set on a steady path of improvement of its cyclical position. aggregate demand has expanded leading, in turn, to acceleration of economic growth, increase in employment and wages, better utilisation of production capacities and improvement of the financial situation of enterprises and households. in parallel, the balance sheets of the banking sector are sound and improving. the key 1 / 3 bis central bankers'speeches parameters of liquidity and capitalisation are above our regulatory requirements, the nonperforming loans ratio is on a clearly downward trend, and the banking sector appears profitable. in addition, as a result of the consolidation process underway in the banking sector, new actors have been introduced to the market – i take this opportunity to welcome them – and premises for fostering competition and efficiency in the banking system are created. lastly, our stress tests show that this sector is capable – overall – to withstand shocks. this process has been anchored to prudent economic policies : monetary stimulus, fiscal consolidation and prudential supervision and regulatory policies. in particular, let me point out that the bank of albania has earnestly worked on the following : approximation of our regulations to european union standards and basel committee requirements ; improving the supervision architecture of the financial system and strengthening safety nets ; improving the credit environment by facilitating the solution of issues related to nonperforming loans ; and, developing and expanding further the financial and payment systems market. dear ladies and gentlemen, the banking sector plays a key role with regard to the administration of the savings of the albanian households, intermediation and allocation of funds, and expansion of financing instruments, risk management and payments. the level of accomplishment for these functions will be mutually related to the pace of albania ’ s development in the long - term horizon. from this perspective, let me identify four primary challenges for the sector : first, the banking sector should accomplish better its intermediation role in the economy. the improvement of soundness indicators, the reduction of credit risk and the consolidation of the banking sector should pave the way for a more active approach of banks to lending. the financial capacity of the country should be reflected better in lending to albanian enterprises and households. second, the banking sector should pay more attention to the efficient allocation of funds, toward more productive and high - potential