Paper/Speech Details of Conference Program for the 19th NISPAcee Annual Conference Program Overview Fiscal Policy Author(s) Doriana Matraku University of Tirana Tirana Albania Title Public Debt and the relation between financial stability and debt in Albania File Paper files are available only for conference participants, please login first. Presenter Abstract The issue of public debt and debt sustainability has long been a concern for policy makers of both fiscal and monetary authority in Albania. High public debt stems from persistent fiscal deficit and has a significant negative effect on economic activity. It leads to high taxes and puts upward pressure on real interest rates, which may crowd out private investment. When a government is no longer able to finance its deficit, it is forced to cut spending or raise revenues, often at times when fiscal policy is needed to help stabilize the economy. It is important for overall macroeconomic policy to manage the debt and it needs to be coordinated closely with fiscal, monetary and other macroeconomic and financial policies. The main objective of fiscal policy in Albania is to enhance the effectiveness of public expenditure by channeling resources to the appropriate direction and attain faster growth and poverty reduction by mobilizing larger amount of revenue than done presently. In the wake of persistent saving-investment gap, export-import gap, and fiscal deficit, a prudent public debt management is an essential issue for sustained macro stability of Albania. Budget deficit and it’s financing in Albania, like in many other developing countries, are very important parameters for analyzing monetary effect as well as the fiscal effect in the country’s overall economic development. Albania faces similar long-term budgetary challenges like and has run persistently large budget deficits in last 2 decades. These large and persistent budget deficits have generated considerable concern. There is a widespread perception that they reduce growth, and could lead to a crisis if they continue for long or become too large. Thus it is important to examine the sources and effects of budget deficits. The main purpose of the paper is to explain and model how debt sustainability could be explained by the variability of some macroeconomic variables, like GDP per capita, GDP Growth, Inflation, Fiscal Balance, external Balance, Exchange rate and dummy for economic development. The period we are going to take into consideration is from 1997-2009 and the software we use is EViews. The main objectives of the paper consist first of all to review the debt composition and the debt financing and its implications and for the second purpose to assess and analyze debt sustainability of Albania. Key Words: Public Debt, GDP, Primary Deficit, Debt Sustainability
