BIS Review 8/2004  7  institutions and households in the treasury bills market has demonstrated upward trends in the last two years. In the coming year, their deficit financing is expected to reach the value of Lek 2.6 billion. Budget deficit financing from the banking system in 2004 is forecasted to be Lek 20 billion or 2.3 percent of the GDP. The law provided the Bank of Albania to finance the budget deficit up to the level of 5 percent of the average budgetary government revenues during these three last years. In absolute value, this limit is estimated to be Lek 7.7 billion. The monetary program for 2004 forecasts that the Bank of Albania financing of the budget deficit will be Lek 7.5 billion. This financing by the Bank of Albania is necessary in covering the budget deficit, considering a small growth of the M2 and Lek deposits. The monetary program forecasts that the increase of Lek deposits during 2004 will be sufficient in covering the other part of Lek 12.5 billion of the deficit financing from the banking system. The following table shows the allocation as to trimesters of the budget deficit financing for the banking system. Table 9. Allocation of the budget deficit financing (Lek billion).
3.1  Money supply and its constituents  Money velocity is forecasted to be relatively stable during 2004. This assumption is based on keeping up the monetary developments trends of 2003 even for 2004. Thus: •  Inflation is expected to be within the target of the Bank of Albania  •  Interests rates are expected to be stable or in downward trend  •  The government demand, which is also the main source of requiring funds, is expected to be at the same level, 2.7 percent of the GDP  •  The growth rate demand for the economy is expected to be almost the same as the 2003 one. Based on these considerations, the M3 circulation velocity - as to trimesters - is presented as follows: Table 3. Money circulation velocity in 2004. (GDP as to trimesters*100 / M3) Dec '02  March  June  42.9  43.9  43.9  September Dec '03 42.9  42.9  March  June  44.1  43.3  September Dec '04 43.2  43.1  Based on this forecast, the money supply is expected to grow by 10.6 percent or by Lek 47.4 billion. 3.1.1  Money supply constituents  The ratio of money outside banks versus the money supply noticed during 2003 is not expected to undergo significant changes during the coming year. However, an upward trend of the foreign currency deposits ratio versus M3 is expected, bringing about a decrease of the Lek deposits weight versus money supply.