TIRANA, Feb. 22 – Albania’s public debt hit a historic high of 72.2 percent of the GDP in 2015 when it climbed to more than 1 trillion lek (€7.5 billion) while its servicing cost almost doubled to 100 billion lek (€722 mln) compared to 2014, posing a serious threat to the country’s public finances and much-needed public investments, according to finance ministry data.
The publication of the debt report comes few days after Finance Minister Shkelqim Cani was controversially dismissed and replaced by Economy Minister Arben Ahmetaj in the first government reshuffle within the Socialist Party which leads the ruling left coalition that came to power following the June 2013 general elections.
At 72.2 percent of the GDP, the public debt is almost 12 percent higher compared to its previous statutory limit of 60 percent of the GDP until 2011 but no longer includes government arrears of 5 percent of the GDP in accumulated unpaid bills to the private sector cleared during the past couple of years.
Albania had a similar debt level in 2000 following the collapse of the pyramid investment schemes when debt was at 72.4 percent of the GDP but gradually reduced in the following decade before climbing to 70 percent in 2013.
International financial institutions have warned the current debt level, among the highest in the region, poses a major threat to the country’s macroeconomic stability, urging fiscal consolidation to bring it back to 60 percent of the GDP, the recommended level for Albania’s stage of development.
In its latest review last February, the Albanian government which is being assisted by the IMF and the World Bank in its fiscal consolidation efforts, expects the country’s public debt to embark on a downward trend in the next four years with a target of bringing it down to 59.3 percent by the end of 2019.
The poor performance of the country’s public finances in 2015 when the budget was revised down three times to handle lower income from international oil prices, spillover effects from the escalating crisis in neighboring Greece and poor domestic consumption, and the rising public debt cost also affected the much-needed public investments which undershot the revised target by 1.8 billion lek (€13 mln) remaining at 4.3 percent of the GDP (€448 mln) for the second year in a row compared to previous annual levels of about 5 percent of the GDP.
Total debt servicing which includes interest payments plus the repayments of principal to creditors, cost the Albanian government a record high of 100 billion lek (€722 mln) or 7 percent of its GDP in 2015, almost double compared to 2014 due to a sharp increase in repayments as Albania’s 10-year Euro 300 million Eurobond matured in late 2015.
Last November, Albania managed to secure €450 million in a new five-year Eurobond at a coupon rate of 5.75 percent, down from 7.5 percent in its inaugural €300 million Eurobond. The issue of the new Eurobond came on Nov. 5, one day after Albania’s five-year €300 mln matured, allowing Albania to replace its debt in much more favourable terms.
While spending in interest rates cost Albania less due to considerable cut in borrowing costs both in the national currency and in Euro, Albania paid about 61.7 billion lek (about €444 mln) in repayment of principal to creditors, compared to about 18 billion lek (€128 mln) in 2014.
“Spending on interest, at about 3.2 percent of GDP, is already much higher in Albania than in the other SEE countries, crowding out more productive spending and representing a major source of vulnerability,” says the World Bank in a recent report.
With public debt hovering above 70 percent of the GDP and the country’s population slightly declining, the per capita debt, measuring government’s total debt divided by the population, has increased by around 40 percent in the past four years and is expected to further rise, according to a study.
Data published by Open Data research centre show the per capita debt, used as a measure of the state’s indebtedness, rose to 341,643 lek (€2,395) in 2014 and was projected to rise by another 6.5 percent to 363,750 lek (€2,550) in 2015.
Public debt at around 72 percent of the GDP, non-performing loans at 20 percent, sluggish domestic consumption, exports and lending struggling to recover to positive growth rates and an ongoing decline in migrant remittances remain key barriers for the Albanian economy which has been facing poor growth rates of 1 to 3 percent in the past seven years compared to a pre-crisis decade of 6 percent.
