The 100 million dollar loan would be much needed for the Albanian government at a time when major infrastructural works are underway, public debt cost is on the rise and revenues have stagnated.
TIRANA, April 24 – The Albanian government is negotiating with World Bank on a much-needed loan after Western European banks have considerable cut lending due to rising risks from the Eurozone debt crisis.
“I am here in Washington to negotiate over the possibility of a direct loan from the World Bank to fill up the gap coming from western banks and their change to the lending attitude,” Finance Minister Ridvan Bode told VoA in the local Albanian service this week after attending an IMF-World Bank Spring meeting.
Raiffeisen Bank, the biggest commercial bank in Albania with a 28 percent market share, is reported to have cut lending by Euro 120 million in the first quarter of this year “and this is not a good thing for the Albanian economy,” says Bode.
Earlier this year, the World Bank said it was ready to assist the Albanian government with a USD 100 million loan or even more only if the public debt currently at the legal limit of 60 percent of the GDP is gradually reduced and the economy is kept growing by improving its competitiveness. “If our joint assessment with the Albanian government unveils the need for this huge amount (USD 100 mln) and if the Albanian government outlines a tough programme of reforms on the financial sector, the economic growth and competitiveness, we will be able to offer this amount, and even a bigger amount than this,” said World Bank country director for Albania Kseniya Lvovsky.
The 100 million dollar loan would be much needed for the Albanian government at a time when major infrastructural works are underway, public debt cost is on the rise and revenues have stagnated. Issuing another Eurobond is impossible at these times as the Eurozone debt crisis has put yields at staggering rates compared to the affordable 7.5 percent yield for the 5-year 300 million Euro bonds government sold late in 2010.
Borrowing from the domestic market would also harm domestic businesses and individuals as lending keeps growing at moderate rates due to bad loans at a record 19 percent of the total credit.
Speaking of the global crisis impacts on the Albanian economy, minister Bode admitted its pressure and extension have had undisputed effects on the economies of peripheral countries including Albania with banks considerably cutting lending. “In this severe global economic crisis Albania remained out of the storm, but the reduction of development pace remains an issue for Albania. There is a double challenge, firstly to stabilize the macroeconomic indicators and public debt and secondly to establish an agenda for the country’s development,” said Bode.
He described Albania’s public debt at 58.7 percent of the GDP, only 1.3 percent below the legal ceiling as relatively higher compared to other regional economies “but not making Albania endangered because 2/3 of it is internal debt served in lek through treasury notes.”
Albania paid 48.7 billion lek (Euro 341.7) million in debt services in 2011, up 618 mln lek (Euro 4.3 mln) compared to 2010 as external debt interest payment rose by 14 percent, according to a detailed public debt report published by the Finance Ministry. Data show the Albanian government paid around 6.9 billion lek in external debt interests, up 847 mln lek compared to 2010 when Albania issued its first ever 300 mln Eurobond. However, compared to the GDP performance the Finance Ministry says the total debt service which includes interest and repayments fell to 3.71 percent of the GDP, down from 3.89 percent in 2010.
With public debt costs on the rise and revenues stagnating, several public investments especially in the education and health sectors are expected to be affected by inevitable mid-year budget cuts for 2012, experts have warned. Under the 2012-2014 macroeconomic framework, government expects public debt to remain within the 60 percent legal limit; at 59.4 percent for 2012, at 59.1 percent for 2013, and at 58.4 percent for 2014.
What puts the Albanian public debt more at risk is that it accounts for more than double the annual revenues, while interest expenditure has risen to 3.4 percent of the GDP, compared to an average of 1.3 percent in the South East European region, the IMF has warned.
