It will be constantly necessary to strike a difficult balance between appropriately signalling the commitment to budgetary stability and, at the same time, not curbing the path of economic recovery. Past experience shows that the success of fiscal consolidation strategies hinges largely on their composition, so that cuts in public spending, especially non-productive spending, play an essential role in reducing the deficit. Unproductive spending, both on consumption and investment, should therefore be particularly scrutinised and monitored. In any event, when structural distortions have become considerable, certain elements of the tax structure have inevitably to be revised. Here it is vital to fully preserve efficiency in agents' saving and investment decisions, so that long-term growth prospects are not compromised. Selecting tax measures is never easy, and less so when the tax base is being eroded; consequently, tax instruments that cause least distortion should be used. In any case, we should ensure that increases in tax revenue are actually earmarked to reducing the budget deficit and not to financing potential spending slippages. The government has announced its intention to resume deficit levels compatible with stability in 2012, in line with the horizon defined by the European authorities in the application of the rules of the Stability and Growth Pact. The State Budget for 2010, the first to be prepared under this general consolidation strategy, confirms this commitment.
Until August, public spending posted annual growth of 5.2% in annual terms, while revenues slowed down, growing only by 2.2%. Budget deficit was ALL 30.6 billion as at end-August. Foreign demand continues to support Albanians economic growth. Exports’ annual growth was 28.8% in July. On the other hand, imports continued their downturn trend that had  BIS central bankers’ speeches  1  started in the second quarter of the year, increasing by 4.6% in annual terms. Export uptrend and import slowdown materialised in narrowed trade deficit in July, contracting by 6.0% yearon-year. However, the economy’s external position remains a structural weakness of the Albanian economy, which reflects the need for higher competitiveness of our products in global markets and conditions the effectiveness of stimulating macroeconomic policies. Indirect indicators analysis of private consumption reveals its moderate performance. Consumption continues to suffer from perceived uncertainty by Albanian families, leading to higher saving although aggregate revenues increased. Private investment slowed down in this period, but it retained positive growth rates. This is supported by good performance of foreign direct investments, up by 38% during the second quarter, and higher import of capital goods, which suggest higher private investment in the economy. Nonetheless, this hike is conditioned by the fact that many businesses are operating below their production capacities, limiting their needs for new investments. Monetary inflationary pressures remain controlled in the medium run. Annual growth of money supply, M3, which resulted 11.2% in July, retained the average rates recorded last year.