I. Macroeconomic Policies and Developments Background

developments were characterized by high growth rates, while inflation fell to single digits and external imbalances were reduced sharply.7 This positive macroeconomic performance reflected in large part the wholesale dismantling of controls, an early privatization of agriculture, retail trade and small- and medium-sized enterprises, and improved financial discipline at the budgetary and state enterprise levels. 2. In 1996, however, macroeconomic policies weakened significantly, as the domestically financed deficit increased by over 4 percentage points, to almost 11 percent of GDP, and inflation tripled to over 17 percent. A key factor behind this deterioration was a dramatic 7 The quality of available data makes it difficult to be certain of macroeconomic developments in Albania. Nonetheless, Albania's strong growth performance in the early transition years is suggested also by a number of proxy indicators in particular in the agricultural area and the services sector. For a mo...