Albania loses war with Serbia on a 10-year eurobond

Tirana Times
By Tirana Times June 27, 2019 19:44

Albania loses war with Serbia on a 10-year eurobond

Story Highlights

  • According to official data from the European Commission, Serbia's debt has decreased by 16 percentage points from 2014 to 2018, reaching 53.8 percent of GDP, while Albania's debt has decreased by only by 3 percentage points over the past four years, to 67.1 percent.

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TIRANA, June 27- Serbia lately managed to successfully emit a 10-year Eurobond worth 1 billion euros versus a 1.6 percent interest. According to the auction data, the low interest rate was dictated by the high demand of investors to buy Serbian debt, who offered 6 billion euros against the 1 billion that Serbia demanded. The Balkan country had a less favorable macroeconomic environment than Albania after the 2008 crisis, with bad debt and credit at the highest levels in the region. But while the reforms Serbia undertook relaxed their macro environment, the rest of the regional countries didn’t follow the same trajectory, especially Albania. In the autumn of last year, Albania issued a seven-year Eurobond worth 500 million euros against the interest rate of 3.55 percent.

In 2014, Serbia had the highest level of public debt in the region with 70.4 percent of GDP. Albania ranked second with 70.1 percent, as a result of the re-qualification of hidden bills worth about 500 million euros. But Serbia is now heading to the lowest regional levels for public debt, whereas Albania’s debt risks to remain at the same levels if the government involves these debts in arrears and obligations to concession contracts. The International Monetary Fund (IMF) estimates that the Albanian government has over 20 million euros in arrears in its 2019 balance sheet, as concession contracts signed and payable in the next 10 years are as much as 18 percent of GDP.

According to official data from the European Commission, Serbia’s debt has decreased by 16 percentage points from 2014 to 2018, reaching 53.8 percent of GDP, while Albania’s debt has decreased by only by 3 percentage points over the past four years, to 67.1 percent. During this period, Serbia implemented a strong fiscal discipline by bringing the deficit balance downward and lowering its debt stock in November, as the country’s economy grew at 3 percent. Economic growth and budget surplus were the main indicators of debt reduction, apart from the reforms undertaken to reduce domestic debt costs.

The transaction, which took place on June 19, represents the first issue of Serbian government securities in euros in the international capital market and the proceeds will be used to fund the 1.1 billion dollar bonds that had been issued earlier, according to data from the Serbian Ministry of Finance. In this way, Serbia has saved more than 3.8 billion dinars (32 million euros) in interest payments on the previously borrowed dollar bonds in 2011 and 2013, maturing in 2020 and 2021 respectively. “Successful fiscal consolidation and comprehensive reforms carried out in recent years, together with the favorable conditions in the international financial capital market, resulted in a low interest rate of 1.5 percent (coupon rate) and a yield of 1.62 percent, with a request that reached a record 6.4 billion euros,” saod Serbian Finance Minister Sinisa Mali in a statement to the media. 

About 300 investors from around the world showed interest in the Serbian Eurobond, Mali added. Serbia’s budget was in surplus of 32.2 billion dinars (273 million euros) in 2018, and in the first four months of 2019, the country had a budget surplus of 5.5 billion dinars, about 46.5 million euros. According to official data in January 2019, the public debt of the Republic of Serbia fell by 2720 billion dinars (23 billion euros) compared to the end of December 2018, and its public debt was 50.6 percent at the end of January 2019.

In 2010, when Albania marked its first exit to the capital markets to receive a 300 million euros eurobond with a fixed-rate interest rate of 7.5 percent and a five-year maturity. Although a seemingly high interest today, it should be taken into account that this was Albania’s first test in this market with an overall unfavorable situation as the economic crisis was still apparent and the capital markets were directly affected.

Albania’s second exit was on Nov. 5, 2015, for another 300 million euros. The fixed coupon secured at this outlet was 5.75 percent with five years maturity. The most recent exit of 2018 holds the lowest historic interest earned by Albania in capital markets. But we have only improved in relation to ourselves, but the neighbors appear better. Over the past year, Macedonia’s Eurobond bond was traded at around 3 percent, for example, and now, Serbia issued a longer-term maturity eurobond in 10 years, with only 1.6 percent interest.

Tirana Times
By Tirana Times June 27, 2019 19:44