TIRANA, Feb. 28 – Albania’s public debt hit a four-year low of about 70 percent of the GDP in 2017, slightly dropping for the second year in a row after a record high of 73 percent in 2015, but yet remaining too high for the country’s current stage of development.
A report published by the finance ministry shows Albania paid about 32 billion lek (€240 million) in debt interest rates in 2017 when both domestic and foreign interest rates and security yields stood at a record low, taking spending on interest rates to a decade low of 2 percent of the GDP.
The lower than expected debt stock at the end of 2017 is also a result of a stronger national currency trading at an 8-year high of about 132.95 lek in 2017, reducing the cost of Albania’s external debt which accounts for 32.8 percent of the country’s estimated €11.6 billion GDP.
Commercial bank held the overwhelming majority of 61 percent of Albania’s domestic debt at the end of 2017, compared with about 15 percent by non-bank financial institutions and another 15 percent by individual investors and 8 percent by the country’s central bank.
Meanwhile, most of country’s external debt has been obtained from international financial institutions such as the World Bank, the IMF but also includes bilateral debt from Germany and Italy, commercial loans and the Eurobond.
International financial institutions have warned public debt poses a key threat to Albania’s macro-economic stability with its high servicing costs holding back much-needed public investment in key infrastructure, education and health sectors.
In its newly approved 2018-2020 mid-term debt management strategy, the Albanian government says tapping international markets for a new Eurobond is an option to refinance its external debt and not affect domestic lending which has been struggling to return to positive growth rates amid poor demand and a high level of non-performing loans.
The last time Albania addressed international markets was in late 2015 when it managed to secure €450 million in a five-year Eurobond at a coupon rate of 5.75 percent, down from 7.5 percent in its inaugural €300 million Eurobond in 2010.
Albania intends to bring public debt, currently one of the region’s highest, to 60 percent of the GDP by 2021 hopeful that the economy will grow by 4 percent, but international financial institutions are skeptical such a scenario can be achieved.
The International Monetary Fund has warned the ambitious Euro 1 billion public private partnership project the government plans to implement on road, health and education infrastructure in the next four years could hamper efforts to reduce public debt by creating new accumulated unpaid debts to the private sector which if included in the debt stock could take it to 71 percent of the GDP.
In its latest country’s report, BMI Research, a unit of Fitch, describes Albania’s public debt as a key risk facing the country’s economy.
“Given the size of the public debt load relative to GDP, risks to debt sustainability and the broader fiscal and growth outlook in Albania remain prominent. A worse- than-expected fiscal performance, possibly caused by fiscal slippage, an erosion of political will to pursue consolidation, or weaker economic growth, may erode investor confidence and raise borrowing costs,” says BMI Research.
The Fitch unit expects Albania’s economy to slow down to 3.6 percent in 2018, down from 4 percent in 2017 as some major energy-related investments such as the Trans Adriatic Pipeline complete their investment stage.
Due to several costly debt-financed infrastructure projects, Albania’s public debt climbed by about 13 percent of the GDP from 2009 to 2015 when it hit a record high of about 73 percent of the GDP at a time when growth ranged only between 1 to 3 percent compared to a pre-crisis decade of 6 percent annually.
