TIRANA, Aug. 10 – The Albanian government is planning to borrow €45 million in two-year Euro-denominated notes from the local market in mid-August, in the second auction of this kind for this year.
The August 17 auction comes at a time when abundant Euro supply in the local market because of FDI, inflows, tourism income and apparent illegal cannabis cultivation and sales, have led to Europe’s single currency trading at an 8-year low against the Albanian with a negative impact on exports.
The auction also comes at a time when the country’s commercial banks hold significant liquidity in Euro as Euro-denominated deposits account for about a half and lending in Europe’s single currency, currently accounting for about 40 percent, has waned due to poor demand and foreign exchange risks.
With Euro trading at 132.39 lek, down 2.6 percent compared to the same period last year, the Albanian government is expected to benefit from euro’s depreciation and ample market supply.
The Albanian government has held only one Euro-denominated auction this year, in line with the central bank’s de-euroisation initiative to discourage savings and credit in Europe’s single currency currently accounting for half of total deposits and loans in a bid to improve the transmission of its easier monetary policy.
The Albanian government borrowed about €40 million in 2-year Euro-denominated notes in January 2017 at a 0.8 percent yield.
Yields on government securities have almost remained unchanged in the past four months following sharp fluctuations between mid-2016 and early 2017.
The situation comes at a time when the key interest rate has been held at a historic low of 1.25 percent for more than a year and credit is struggling to return to positive growth rates amid high level of non-performing loans and poor demand by both businesses and households.
Central bank data shows yields on 12-month T-bills, the government’s key instrument for internal borrowing, have remained stable at about 2 percent since late March, down from 3.22 in late December 2016, following a gradual upward trend after hitting a historic low of 1.24 percent in mid-2016.
Domestic debt accounted for slightly more than half of Albania’s 67 percent of the GDP public debt at the end of the first half of this year when the banking system held about two-thirds of it.
