Moody's warns of energy, PPP risks to Albania's credit rating

Tirana Times
By Tirana Times September 27, 2018 15:18

Moody's warns of energy, PPP risks to Albania's credit rating

TIRANA, Sept. 27 - Bond-rating giant Moody's expects the Albanian economy to grow at around 4 percent over 2018-19, but warns of risks related to the country's hydro-dependent electricity sector and public private partnerships.

In an announcement made this week, Moody's, one of the top three credit rating which has kept Albania's rating unchanged at B1 in the past few years, warns failure to continue with the debt reduction agenda and other reforms as well as a decline in foreign direct investment could lead to a downgrade in Albania's credit rating.

"The main fiscal risks relate to weather-related electricity imports, and contingent liabilities arising from the energy sector and public private partnerships," says Moody's.

The warning comes as this year's domestic electricity generation in Albania has been at one of its best, but last year's prolonged drought, one of the worst in decades, put Albania's hydro-dependent sector in crisis, triggering costly imports of €200 million that put state-run electricity operators in trouble.

In addition, an ambitious €1 billion PPP program that the government is implementing in the road, health and education infrastructure has come under fire by international financial institutions as lacking transparency and possibly creating new accumulated unpaid bills that could put the debt reduction agenda at risk.

"Negative pressure would stem from a reversal of the fiscal adjustment and failure to stabilize the public debt-to-GDP ratio, or from reduced political commitment to the institutional and economic reform agenda. Emerging challenges in funding the current-account deficit due to a significant decline in foreign direct investment would also be credit negative," says Moody's.

The Albanian government targets bringing public debt to 60 percent of the GDP by 2021, down from a current 70 percent of the GDP. Meanwhile, foreign direct investment is at risk as two major energy-related investment such as the Trans Adriatic Pipeline and the Devoll Hydropower are due to complete their investment stage by early 2019 and no other major projects replace them yet.

Moody's says that a material decline in public sector debt and further advances in institutional building that improve the business environment and competitiveness would be positive for Albania's credit profile.

"Albania has made notable progress in strengthening the quality of its institutions, while judicial reforms are positive for potential future EU accession talks," Daniela Re Fraschini, a Moody's assistant vice president is quoted as saying.

Moody's says Albania's real GDP growth is forecast at around 4 percent over 2018-19, supported by healthy private consumption and robust investment on the back of major infrastructure projects.

Over the longer term, Moody's says it expects real GDP growth of around 4 percent and for it to remain broad-based, assuming that the reform momentum continues to support major economic sectors like energy, agriculture and tourism.

Moody's forecasts are almost in line with the government's expectations of growth ranging from 4.2 percent to 4.5 percent from 2018 to 2021.

U.S.-based Standard and Poor's has also recently reconfirmed Albania's 'B+/B' long- and short-term sovereign credit ratings with a stable outlook in a rating that remains unchanged for the fourth consecutive year with not much impact on Albania's upcoming attempt to tap international markets for a new Eurobond of up to €500 million.

Tirana Times
By Tirana Times September 27, 2018 15:18