TIRANA, Nov. 2 – Albania’s public debt rose to a historic high of 73.7 percent of the GDP at the end of the third quarter of this year, calling into question whether the government will achieve its year-end target of 72.2 percent, according to finance ministry data.
Latest data shows the public debt stock at the end of Sept. 2015 rose to more than 1 trillion lek (€7.5 billion), up 10 percent compared to the same period last year, despite its servicing cost remaining almost unchanged due to lower interest rates. The public debt figure does not include remaining arrears of around 2 percent of the GDP in accumulated unpaid bills to private companies which the government is set to clear by the end of 2016 under a three-year program initiated in late 2013.
Internal borrowing accounts for the majority of Albania’s public debt at 41.3 percent of the GDP, compared to 32.4 percent in external debt.
For the first time since the onset of the global financial crisis in 2008, Albania’s debt servicing costs have considerably slowed down fuelled by lower interest rates as key rates on the national currency and the Euro and U.S. dollar stand at historic lows.
A report published by the finance ministry shows Albania paid 27.25 billion lek (€192.4 mln) in interest rates in the first three quarters of this year, down 5.2 percent compared to the same period last year.
The spending in interest rates remains a huge burden for Albania’s public finances which have been struggling to recover this year despite tax hikes, affecting the much-needed public investments. Data shows the Albanian government spent about 33 billion lek (€233 mln) in the first three quarters of this year in public investments, up 10 percent compared to the same period last year, but only about 20 percent more compared to what it paid in interest rates.
The consecutive cuts to the key rate on Albania’s national currency, lek, currently standing at a historic low of 1.75 percent after a new cut this week, have considerably reduced yields on T-bills and bonds, the government’s key instruments in its internal borrowing.
However, total debt servicing which includes interest payments plus the repayments of principal to creditors, cost the Albanian government about 41.5 billion lek (€293 mln), up only 0.5 percent compared to the same period last year.
Total debt service cost the Albanian government a record of around 57.8 billion lek (€404 million) in 2014, almost the same amount government spend on public investments.
Experts say the current level of public debt, which is too high for Albania’s stage of development, remains a key barrier for the recovery of Albania’s economy which has been struggling with sluggish growth rates of 1 to 2 percent in the past few years.
The Albanian government and the IMF expect public debt to increase to 72.2 percent of the GDP at the end of 2015 before embarking on a downward trend that will reduce it to 65.8 percent at the end of 2018.
Albania is seeking to raise €300 million or more in a five to seven-year Eurobond denominated in Euro or USD to refinance the five-year inaugural €300 million Eurobond which matured in Nov. 4 2015.
Last April, Albania selected Deutsche Bank, Germany’s biggest bank, for a €250 million 10-year loan to support public investments and cover its budget deficit.
