TIRANA, Nov. 2 – Albania’s public debt slightly dropped to below 70 percent of the GDP in the third quarter of the year while debt servicing also slightly fell as interest rates on both domestic and external debt were down due to key interest rates at a record low.
Finance ministry data shows public debt dropped to 69.77 percent of the GDP at the end of the third quarter of 2016 down from a record high of 72.21 percent at the end of 2015 when it climbed to 1 trillion lek (€7.5 billion).
Debt servicing, which includes interest payments plus the repayments of principal to creditors, cost the Albanian government about 41 billion lek (€300 mln) for the first three quarters of this year, slightly lower compared to the same period last year.
The Albanian government spent 25.7 billion lek (€189 million) in debt interest rates in the first nine months of this year, down 5.5 percent compared to the same period last year as yields on government securities, the key instrument of government’s internal borrowing, dropped to a record low. The amount spent in interest rates is at about 80 percent the Albanian government spend on public investments during the first three quarters of this year, unveiling that public debt at 70 percent of the GDP is huge burden for the current stage of development in the Albanian economy.
Earlier this year, the Albanian government set a 45 percent ceiling on public debt, making it compulsory for debt to be forecast at a lower level compared to the preceding year in each annual budget until it drops to 45 percent of the GDP.
The Albanian government and the IMF expect the country’s public debt to embark on a downward trend in 2016 that will gradually bring it back to 60 percent of the GDP by 2019 in a slightly overoptimistic considering the sluggish performance of public finances even after an aggressive late 2015 nationwide campaign against widespread informality.
In addition, a recent rise in yields, could further increase debt servicing costs and further affect much needed public investment in infrastructure, health and education sectors.
Spending on interest, at about 3 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, the World Bank has warned.
In late 2015, 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.
