TIRANA, July 21 – Declining interest rates in the domestic market fuelled by the key interest rate standing at a historic low of 2 percent since late January 2015 has considerable reduced the cost of Albania’s public debt, currently hovering at a record of 70 percent of the GDP, and posing a serious challenge to Albania’s macro-economic stability and investments in key priority areas.
Latest Finance Ministry data shows public debt hit a historic high of around 1 trillion lek (€7.14 bln) or around 68 percent of the GDP excluding government arrears of around 2 percent of the GDP in the first half of this year.
However, total debt service, which includes interest payments plus the repayments of principal to creditors, cost the Albanian government 28.5 billion lek (€200 million) in the first half of this year, down from 30.6 billion lek (€215 million) during the same period last year and 27 billion lek (€190 million) in the first half of 2013 when public debt was officially reported at 62 percent of the GDP without including accumulated unpaid bills of around 5 percent of the GDP.
The reduction in the debt service was affected by a cut in domestic debt interest rates which dropped to 14 billion lek (€99 million), down from 18 billion lek (€126 million) in the first half of 2014 on lower T-bill and bond yields.
Meanwhile, external debt interests rose to 2.5 billion lek (€18 million) as the depreciation of Albania’s national currency lek against the U.S. dollar and the Saudi Arabian and the UAE currencies increased Albania’s external debt.
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.
Public investments hit a record low for the past seven years in 2014 when they dropped to 60.5 billion lek (€426 million) the lowest level since 2007, according to Finance Ministry data.
Public investments, which are estimated at 5 percent of the GDP and considered a key driver of the economy, were down by 7.5 percent compared to 2013 and down by 8.3 percent compared to the government target.
Turkish-owned BKT, the second biggest bank in Albania, has increased its share of Albania’s domestic debt in the past four years by around 5 percent filling the gap left by Raiffeisen which has sharply withdrawn from investments in Albania’s government securities.
External borrowing by the government of Albania consists of multilateral and bilateral official credits, syndicated bank borrowing, and a Eurobond.
At around 70 percent of the GDP, Albania has the highest public debt in the region.
With public debt hovering at around 70 percent of the GDP and the country’s population slightly declining, the per capita debt, measuring government’s total debt divided by the population, has increased by around 40 percent in the past four years and is expected to further rise in 2015, according to a study.
Data published by Open Data research centre show the per capita debt, used as a measure of the state’s indebtedness, rose to 341,643 lek (Euro 2,395) in 2014 and is projected to rise by another 6.5 percent to 363,750 lek (Euro 2,550) in 2015 as the population continues shrinking.
Immigration was one of the major reasons for the decline in Albania’s population between 2001 and 2011 when 481,000 Albanians left the country. The latest census showed Albania’s resident population shrank by 8 percent to 2.82 million people in 2011 compared to a decade ago.
