Total debt service in 2012 climbed to 52.16 billion lek, up from 48.7 billion lek in 2011, accounting for 3.88 percent of the GDP, up 0.12 percent compared to 2011
TIRANA, March 12 – For the first time in the past decade, public debt has officially jumped above the former 60 percent of the GDP statutory limit, posing a real threat to Albania’s macro-economic stability as crisis impacts from the Eurozone intensify. Finance Ministry data show Albania’s total public debt climbed to around 828 billion lek or 61.51 percent of the GDP at the end of 2012, with domestic debt accounting for 34.94 percent and external debt at 26.57 percent.
Total debt service in 2012 climbed to 52.16 billion lek, up from 48.7 billion lek in 2011, accounting for 3.88 percent of the GDP, up 0.12 percent compared to 2011.
What’s particular about Albania’s domestic debt is that the majority 55 percent of it is short-term, i.e maturing in up to one year, but around 99 percent of it is in the national currency making it safer against foreign currency exchange risks.
Facing a sharp drop in revenues, the Albanian government has been forced to revise downward its overoptimistic GDP growth rates and increase debt levels several times during the past year. The latest review was made last January in the 2013-2015 economic and fiscal programme where the GDP growth forecast for 2012 was cut to 1.5 percent down from an overoptimistic 4.3 percent targeted in the initial 2012 budget. Meanwhile, public debt, whose 60 percent of the GDP ceiling was lifted in late 2012, is expected to rise from 61.9 percent in 2012 to 63.8 percent at the end of 2013, compared to a target of 62.6 percent in the 2012 budget.
With an average growth rate of 1.5 percent during the first nine months of 2012, the Albanian economy is reflecting clear signs of crisis from the Euro area partners and developments at home where domestic consumption and exports remains sluggish, and public debt now beyond the previous legal ceiling of 60 percent of the GDP poses a real threat to the country’s macroeconomic stability.
As the debt levels rises and the population shrinks, the per capita public debt has been continuously increasing in the past few years. The per capita debt in 2012 is expected to slightly increase to 287,648 lek. The Open Data centre expects the per capita debt to climb to 314,271 lek (Euro 2,210) in 2013, based on Finance Ministry data and a scenario of a 0.5 percent increase in population.
What puts the Albanian public debt more at risk is that it accounts for more than double the annual revenues, while interest expenditure has risen to 3.4 percent of the GDP, compared to an average of 1.3 percent in the SEE 6, the IMF has warned.
Domestic debt holders
Bank of Albania data show Raiffeisen Bank, the country’s biggest bank, lowered its exposure to Albania’s public debt by 4.77 percent to 29.43 percent of the total debt stock at the end of 2012. Back in 2008, just before the onset of the global crisis, Raiffeisen possessed around 37 percent of the domestic debt.
Implying the withdrawal of Raiffeisen, the country’s biggest bank, from Albania’s public debt in 2012, central bank governor Fullani said earlier that liquidity imbalances were created causing a rise in government security yields and limiting the transmission of the monetary policy. However, Raiffeisen’s withdrawal has been compensated by other commercial banks which have increased their share to 37.52 percent of total public debt , up from 34.85 percent at the end of 2011. The Bank of Albania share has also slightly dropped to 12.48 percent, down from 14.3 percent at the end of 2011.
Meanwhile, individuals and non-banking financial institutions have increased their shares to 14.48 percent and 6.09 percent, up from 12.92 and 3.73 percent respectively at the end of 2011.
Although having lowered the key interest rate by 1.5 percentage point to a historical record low of 3.75 percent since Sept 2011, the Bank of Albania interventions in the monetary policy have been poorly reflected in lowering and T-bill yields and interest rates for loans in the domestic currency lek.
External borrowing by the government of Albania consists of multilateral and bilateral official credits, syndicated bank borrowing, and a Eurobond. The most important multilateral creditors to the government are the World Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Council of Europe Development Bank, and the Islamic Development Bank. The most important bilateral creditors are Germany (through KfW Development Bank), Italy, and Austria.
