TIRANA, Aug. 6 – After slightly dropping to 57 percent of the GDP in the first quarter of 2012, Albania’s public debt has risen by 2 percent to around 59 percent standing just one point below its legal threshold of around 60 percent of the GDP. Finance Ministry data show public debt rose to 58.85 percent of the GDP at the end of the second quarter of 2012, up 28.3 billion lek compared to the end of 2011.
At the end of the first half of 2012 public debt stock climbed to 801 billion lek (Euro 5.7 billion), up from 772 billion lek at the end of 2011. Domestic debt represented 56.6 percent of the total debt stock. External debt accounted for 43.4 percent in the first quarter of 2012 compared to only 39 percent in 2009 before Albania made its Eurobond debut.
Public debt in short-term instruments, 3, 6, 9 and 12-month T-bill yields represents 54.41 percent of total debt stock.
The Finance Ministry expects to spend around 49.6 billion lek in interest rates for 2012, up from 41.1 billion lek in 2011.
Public debt at around the legal ceiling of 60 percent of the GDP, and bad loans at 20 percent are the key threats to the Albanian economy which since 2009 has stuck into moderate 3 percent annual growth rates, international financial institutions have warned.
Estimated at over 800 billion Lek currently, the public debt costs the Albanian government 3 percent of the GDP or 50 billion lek (euro 357 million) in interest payment annually. The World Bank suggests a moderate program of fiscal consolidation of reducing the level of debt by about 5 percent of GDP over 5 years is both absolutely essential and pro-growth.
“Staying too close to 60 percent carries a significant risk of crossing it over if a major shock to the budget occurs, as for example, nearly happened during the last winter due to unforeseen electricity imports. Crossing the 60 percent mark, in turn, carries a high risk that markets will take it as a sign of macro-economic instability and react badly, making furthermore difficult to support both growth and fiscal policy objectives,” says Kseniya Lvovsky, World Bank Country Manager.
Under the 2012-2014 macroeconomic framework, government expects public debt to remain within the 60 percent legal limit, at 59.4 percent for 2012, at 59.1 percent for 2013, and at 58.4 percent for 2014. However, the IMF has warned that under current policies public debt will exceed the 60 percent threshold.
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, has lowered its exposure to Albania’s public debt by 4.76 percent to 29.22 percent of the total debt stock in the first half of this year.
Implying the withdrawal of Raiffeisen, the country’s biggest bank, from Albania’s public debt in 2012, Fullani said liquidity imbalances were created causing a rise in government security yields and limiting the transmission of the monetary policy. “In fact, as a result of the interpretation of the European Banking Authority, one of the foreign banks operating in Albania lowered its exposure to the Albanian government debt by 3 percentage points of the GDP within a three-month period. These actions caused liquidity imbalances in the interbanking market, which could not be solved quickly because of structural problems,” said Fullani of Raiffeisen’s withdrawal.
However, Raiffeisen’s withdrawal has been compensated by other commercial banks which have increased their share to 38.36 percent of total public debt, up from 35 percent at the end of 2011. The Bank of Albania share has also slightly dropped to 13.82 percent, down from 14.3 percent at the end of 2011.
Meanwhile, individuals and non-banking financial institutions have increased their shares to 14.27 percent and 4.33 percent, up from 12.92 and 3.71 percent respectively at the end of 2011.
Although having lowered the key interest rate by 1.25 percentage point to a historical record low of 4 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.
Per capita govt debt
A study carried out by Open Data Albania research centre has shown that the per capita government debt has more than doubled during the past 10 years climbing from around 105,000 lek (USD 1,000) in 2000 to 224,000 (USD 2,240) in 2010. The per capita government debt deteriorated in 2011 when the latest INSTAT census showed the resident population dropped by 7.8 percent to 2.8 million compared 3.2 million to a decade ago. As a result, the per capita debt rose to 272,817 lek in 2011 and is expected to climb to 291,588 in 2012, according to Open Data.
After dropping to 54 percent in 2007 and 2008, Albania’s public debt rose to 59.5 percent in 2009 due to the costly loans for the construction of the Durres-Kukes highway linking Albania to Kosovo. In late 2010 Albania issued its first-ever Eurobond of 300 million euros with a maturity of up to five years and an interest rate of 7.5 percent.
