TIRANA, Oct. 4 – Albania’s central bank governor Gent Sejko has described the Eurobond issue as a success for the country’s public finances and public debt reduction agenda after Albania borrowed €500 million in a 7-year bond at a rate of 3.55 percent, down 2.2 percent compared to three years.
“The Eurobond issue is an indicator of positive assessment of the Albanian economy by international markets. Its emission is a success both for the amount issued – €1 billion was offered despite government needs of €500 million – the interest rate of 3.5 percent and the term,” governor Gent Sejko said this week.
“We have to understand that market interest rates change on a daily basis, but this rate is a result of two factors. The first factor involves lower interest rates in international markets. The second factor is the positive assessment of the Albanian economy under conditions when twice as much was offered,” said Sejko.
According to him, the Eurobond also has positive effects on the Albanian banking system by orienting local banks toward lending to businesses and households and also sends a positive signal toward foreign investors.
“The important thing is that the Eurobond will not increase public debt. Part of it will be used to pay off old debts and the remaining part will be used in the context of fiscal consolidation. That’s why the Eurobond will not have any effect on increasing debt in the mid and longer run. We have an organic law that forces us to move toward fiscal consolidation and continue the debt reduction,” Sejko said.
His comments came at a news conference this week when he announced the central bank would continue to keep its key rate at a historic low of 1 percent and that the end of the tourist season had balanced the euro to lek exchange rate even under conditions of lack of intervention by Albania’s central bank.
Unlike the previous four months, in its early October monthly meeting, the central bank’s supervisory council did not decide to continue its emergency intervention operations to buy excess euros from the local currency exchange market in a bid to stop Euro’s free fall against the Albanian national currency and prevent a series of negative effects, primarily affecting exports, euro-denominated savings and remittances, but also government revenue.
The Eurobond issue came as Albania’s public debt officially dropped to a five-year low of 65.2 percent of the GDP at the end of the first half of this year, down from about 70 percent of the GDP at the end of 2017, but a faster growing economy and Europe’s single currency trading at a 10-year low against the Albania lek and having lost about 7 percent since late 2017 had the main contribution.
External debt, which accounted for 30 percent of the GDP at the end of June 2018 and whose 57 percent was denominated in Europe’s single currency, had a key impact, dropping from 32.8 percent of the GDP at the end of 2017 and an almost record high of 34.26 percent of the GDP at the end of 2016.
The finance ministry, which reports the public debt stock in the national currency, says it calculated the Euro-denominated debt during the second quarter of this year at 125.93 lek, down from an average of 132.95 lek in 2017 and 135.23 lek in 2016.
The Albanian government targets bringing public debt down to a more affordable 60 percent of the GDP by 2021, but international financial institutions have warned the ruling majority’s ambitious but rather controversial €1 billion public private partnership program risks creating new hidden arrears which if included in the public debt stock could leave it unchanged at about 70 percent of the GDP for the next four years.
