TIRANA, Feb. 2 – U.S.-based Standard and Poor’s has once again affirmed Albania’s ‘B+/B’ long- and short-term sovereign credit ratings with a stable outlook, but warned external and monetary vulnerabilities remain high.
In a statement on the Albania rating, S&P, one of the ‘big three’ credit rating agencies, warns of public finances and credit growth risks that could force it to lower Albania’s rating.
“We could lower the ratings if we observed a deterioration in Albania’s government finances, potentially alongside resumed constraints on borrowing conditions. We would also downgrade Albania in the event of a prolonged period of repressed domestic credit growth, pointing to a weakened monetary transition mechanism, or if we observed marked deterioration in Albania’s external position and ability to finance its high current account deficit,” says S&P.
Albania’s credit to the economy has struggled to return to positive growth rates in the past couple of years amid tight lending standards triggered by a declining but still high levels of NPLs estimated at 15 percent, down from a record high of 25 percent in mid-2014. The NPLs have mainly reduced thanks to a compulsory write-off of loans that have spent three years in the ‘loss’ category.
S&P says Albania’s ratings are primarily constrained by the country’s “ineffective institutional framework, weak rule of law, and endemic corruption, as well as by its low level of economic development.”
The credit rating agency has kept its Albania rating unchanged since early 2014 after Albania signed a three-year fiscal consolidation deal with the International Monetary Fund that was not renewed after it expired in early 2017.
The last time S&P downgraded Albania was in late 2013 when the country’s long-term sovereign credit ratings were changed to ‘B’ from ‘B+ with a negative outlook affected by a significant widening of the fiscal deficit and rollover risk on increased debt stock following the June 2013 general elections.
In its revised GDP outlook, S&P expects the Albanian economy to slow down to 3.6 percent in 2018, down from an expected 3.9 percent in 2017, but accelerate to 3.9 and 4 percent from 2019 to 2021.
Public debt, currently hovering at 70 percent of the GDP, is projected to drop to 61 percent of the GDP by 2021, when the Socialist Party’s second consecutive term expires.
The S&P forecasts are slightly lower compared to the Albanian government’s more optimistic scenario of growth ranging between 4.2 to 4.5 percent over 2018-2021 and public debt dropping to 60 percent of the GDP by 2021.
“We expect Albania will continue on its path of relatively high economic growth and ongoing fiscal consolidation, which will support a gradual reduction of the country’s high public debt burden,” says the rating agency.
“The stable outlook balances our views on continuing reforms to the country’s institutional framework, as well as steady economic growth and generally improving public finances, with external and monetary vulnerabilities that remain high,” the agency adds.
In its latest rating action, Moody’s Investors Service, another ‘big three’ rating agency, also reaffirmed Albania’s B1 long-term foreign and local currency issuer ratings with a stable outlook.
Obligations rated B are considered speculative and subject to high credit risk. 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 planning to address international markets again to secure financing for its declining but still high debt burden as the country’s five-year Eurobond matures by 2020, the government says.
The last time Albania addressed international markets was in late 2015 when it managed to secure €450 million in a five-year Eurobond at a coupon rate of 5.75 percent, down from 7.5 percent in its inaugural €300 million Eurobond in 2010.
