Moody’s keeps Albania rating unchanged at B1

TIRANA, July 9 – After Standard and Poor’s, another top sovereign credit rating agency has rated the Albanian economy as stable. In its latest report Moody’s kept Albania’s rating unchanged at B1. In a statement, the Finance Ministry described the two ratings as proof of the credibility of the Albanian economy at a time when the whole of Europe and the region are facing impacts from the financial crisis and sovereign debt.
“Such a rating transmits positive signals and is the best test for the macroeconomic stability, policies and economic reforms supporting businesses, improving the fiscal environment and continuing reforms,” said the ministry.
However, obligations rated B are considered speculative and are subject to high credit risk, according to Moody’s definition. Both S&P’s B+ and Moody’s B1 ratings signify that the issuer or carrier is relatively stable with a moderate chance of default and that investors and policyholders of the rated entity are taking a low to medium risk.
“Albania is a small-sized, upper middle-income country, with a GDP per capita of around US$4,000. The economy is open and mainly oriented towards the EU. The country experienced robust growth of 6.1% on average over 2000-08 and has proven to be relatively resilient to the euro area debt crisis, having recorded real growth of 3.3% and 3.9% in 2009 and 2010, respectively, which ranks Albania among the best performers in the EU periphery. However, the countercyclical measures implemented during the crisis — large tax cuts and spending increases — have led to a deterioration in the government’s fiscal metrics,” says Moody’s in its latest report.
Failure to execute planned reform programme, both economic and institutional, could put downward pressure on Albania’s government bond rating,
Although the government is addressing the economy’s structural problems, more substantial progress would be needed before we considered an upgrade of the country’s ratings, Moody’s says. Improvement in institution building including judicial efficiency and success in the tackling of corruption would be beneficial, as such shortcomings hamper investment.
Moody’s warns the government debt as a share of GDP is high for a country of Albania’s level of development. The government is aiming to limit the budget deficit to 3.5% of GDP this year and 3% in 2012-14, which would enable government debt to GDP to fall in the near term. Event risks are largely driven by economic as well as political factors. The former reflect the country’s narrow economic base and extensive euroisation. Financial risks are `moderate’ given that the banking sector is adequately capitalised while liquidity has been bolstered by an increase in deposits. However, asset quality remains stressed, as reflected by an increasing non-performing-loans ratio.
Since 2007 when Moody’s starting assessing Albania’s credit rating it has kept its B1 rating unchanged in all reports.