The timing seems favourable as the European Central Bank continues keeping its key rate at a historic low of 0.05 percent and has undertaken quantitative easing of Euro 1.1 trillion into the ailing eurozone economy, considerably cutting bond yields in international markets
By Ervin Lisaku
TIRANA, March 16 – The Albanian government says it plans to borrow Euro 250 million in a 10-year loan to support public investments and expects to raise another Euro 300 to 500 million in its second Eurobond issue later this year.
In a tender announcement, the Finance Ministry says it is seeking proposals by major financial institutions for a 10-year Euro 250 million loan at a fixed interest rate until April 1, 2015 and expects the full disbursement of the amount by next June.
The loan is guaranteed by the IBRD, the World Bank’s lending arm for middle income and credit-worthy poor countries, which is guarantor for Euro 200 million, or 80 percent of the total loan.
Meanwhile, the Albanian government has also launched a call for a consultant as it prepares to issue its second Eurobond.
The timing seems favourable as the European Central Bank continues keeping its key rate at a historic low of 0.05 percent and has undertaken quantitative easing of Euro 1.1 trillion into the ailing eurozone economy, considerably cutting bond yields in international markets.
Finance Minister Shkelqim Cani has earlier said government is planning to borrow Euro 300 million to 500 million from international markets so that lending to businesses and households from local banks is not affected. After overcoming a 12-month moderate decline only last July, lending continues remaining at sluggish growth rates of 2 to 3 percent with non-performing loans at around a quarter as the key barrier for easier lending standards.
“The new Eurobond is estimated to have a maturity of 5 to 10 years, denominated in US dollar or Euro, but we will follow the markets in order to decide. The amount could be from Euro 300 million to 500 million in order not to affect the debt ceiling but to replace one debt with another one,” said Cani.
In its new rating, Standard & Poor’s, one of the world’s leading rating agencies revised Albania’s outlook on long-term sovereign credit rating to positive from stable affirming its ‘B/B’ ratings, which is expected to have a positive impact on Albania’s external borrowing and the Eurobond interest rates.
In late 2010, Albania issued its first-ever Eurobond of 300 million euros with a maturity of up to five years and an interest rate of 7.5 percent. The money was mainly used to pay off a costly syndicated loan to fund the costly Durres-Kukes highway linking Albania to Kosovo.
The debut Eurobond issue in November 2010 came as international financial markets stabilized and after some changes were approved in Parliament to the government deal with Deutsche Bank AG and JPMorgan Chase & Co. which managed the Eurobond sale. The deal had been put off several times after the Greek debt crisis rattled markets.
Government’s new borrowing comes at a time when the Albanian economy is expected to accelerate to 3 percent in 2015, up from an expected 2 percent in 2014 but public finances continue struggling as public debt stands at a record high of around 70 percent of the GDP.
In its new 2016-2018 macroeconomic framework approved in early 2015, government expects the public debt to embark on a downward trend starting 2015 as part of its fiscal consolidation programme with the IMF.
Public debt is expected to drop by 0.2 percent to 71.8 percent in 2015 before dropping to 68.9 percent in 2016, 65.7 percent in 2017 and 62 percent in 2018, registering the first decline since 2010.
Albania’s public debt, a sizable part of which is domestic, has a large short-term component, implying risk of rollover because of maturing in less than one year, warn the international financial institutions.
Total debt service, which includes interest payments plus the repayments of principal to creditors, cost the Albanian government a record of around 57.8 billion lek (Euro 404 million) in 2014, almost the same amount government spend on public investments, as public debt rose to 72 percent of the GDP, according to a report published by the Finance Ministry.
The high spending on debt repayment, which is a key barrier to other priority investments, had a considerable impact on public investments.
Public investments hit a record low for the past seven years in 2014 when they dropped to 60.5 billion lek (Euro 426 million) the lowest level since 2007, according to Finance Ministry data.
Public investments, which are estimated at 5 percent of the GDP and considered a key driver of the economy, were down by 7.5 percent compared to 2013 and down by 8.3 percent compared to the government target.
Albania’s official public debt stock climbed to a record high of around 978 billion lek (Euro 6.85 billion) or 69.15 percent of GDP excluding government arrears of around 2.6 percent of the GDP.
Recent legal changes allow the Finance Minister to borrow without prior approval by Parliament within the limits set by the budget.
Government argues the legal changes, which were approved again by the Parliament last February after the law was turned down by the President, are aimed at accelerating borrowing procedures in order to secure lower interest rates.
