The top international rating agency expects positive effects from the candidate status and EU integration, which in the past has shown to be an important driver of FDI inflows among accession countries in the region.
TIRANA, Aug. 13 – Citing the fiscal consolidation program with the IMF and the EU candidate country status, Moody’s Investors Service, one of the top three international rating agencies, has affirmed Albania’s B1 government bond rating with a stable outlook.
The first driver of the affirmation of Albania’s government bond rating relates to the fiscal consolidation measures adopted by the new administration under the three-year extended arrangement with the IMF. “Those measures provide a significant initial response to the sharp deterioration in fiscal strength registered in 2013, especially with respect to revenue generation where Albania continues to perform below regional peers,” said the rating agency.
The second rating driver takes into account Albania’s designation in June 2014 as a candidate for EU membership. “Albania has made some progress in addressing corruption and in advancing judicial reform, although the institutional convergence process to EU standards remains long and protracted,” says Moody’s, expecting positive effects from EU integration, which in the past has shown to be an important driver of FDI inflows among accession countries in the region.
Meanwhile, Albania’s foreign currency bond and deposit ceilings are maintained at Ba2/N-P and B2/N-P, respectively. The ceiling for local-currency bonds and deposits has changed to Baa3 from Ba1.
Moody’s sees the payment of arrears and other unpaid bills under the government’s arrears prevention and clearance strategy as credit positive because it allows corporations to repay outstanding bank loans, thereby helping to alleviate tight lending standards amid a non-performing loan ratio (NPL) ratio of 24.1 percent as of Q1 2014. Moody’s expects the public debt ratio to peak this year at over 74 percent of GDP before declining thereafter.
Progress with respect to structural reforms would exert upward pressure on the government’s rating. In particular, improvement in institution building, including success in tackling corruption and judicial efficiency, resulting in improved competitiveness and enhanced business attractiveness, would be credit positive.
Moody’s says failure to stabilise the fiscal deficit and the public debt ratio would exert downward pressure on the rating, as would the materialisation of potentially large contingent liabilities stemming from property restitution claims or from the electricity sector. Additional downside risks stem from the still sizable current account deficit amid waning remittance inflows.
Earlier this year, Standard & Poor’s, another top international rating agency, revised its outlook on Albania to stable from negative and affirmed its ‘B/B’ long- and short-term sovereign credit ratings. The revised rating came few months after the giant credit rating agency lowered Albania’s long-term sovereign credit ratings to ‘B’ from ‘B+ with a negative outlook on rising debt levels and subdued economic growth and after a new deal has been signed with the IMF supported by a loan to pay off accumulated unpaid bills to the business community.
Obligations rated B are considered speculative and are subject to high credit risk. Both S&P’s B+ and Moody’s B1 ratings signify that the issuer or carrier is relatively stable with a moderate chance of default and that investors and policyholders of the rated entity are taking a low to medium risk.
In its latest review, the country’s state statistical institute, INSTAT, revised the GDP for 2013 upward to 1.42 percent, up from an earlier 0.44 percent, giving a wrong impression of 2013 as the worst year in Albania’s economy as the 2012 growth rate is estimated at only 1 percent. Revised data shows the Albanian economy grew by 3.7 percent in 2009, 3.75 percent in 2010, 2.17 percent in 2011 and only 1 percent in 2012.
The Albanian economy has grown by an average of 2.6 percent annually during the 2009-2013 crisis years compared to a pre-crisis decade of an average 6 percent, being one of the best performers in the region, according to INSTAT.
