“The positive outlook continues to reflect the possibility that we could upgrade Albania if progress with fiscal consolidation continues and, underpinned by compliance with its IMF arrangement, debt relative to GDP starts to reduce over the next 12 months,” says S&P
TIRANA, April 13 – Citing progress in fiscal consolidation and reform agenda supported by the IMF, Standard & Poor’s, one of the big three credit-rating agencies, has affirmed its ‘B/B’ long-term and short-term foreign and local currency sovereign credit ratings with a positive outlook.
“We think Albania will reduce general government deficits substantially in 2015 and 2016, while successfully weathering fiscal risks on its consolidation path,” the agency said in its latest rating on Albania.
“The positive outlook continues to reflect the possibility that we could upgrade Albania if progress with fiscal consolidation continues and, underpinned by compliance with its IMF arrangement, debt relative to GDP starts to reduce over the next 12 months.”
The affirmation reflects S&P’s view of generally positive trends in Albania including ongoing fiscal consolidation, implementation of energy reform, the central bank’s continued non-intervention in the foreign exchange market and signs that economic recovery could accelerate in 2015.
Back in October 2014, S&P revised upward Albania’s rating for the second time in a row after a downgrade in late 2013 due to the widening of the fiscal deficit and rollover risk on increased debt stock. In its new rating, S&P revised Albania’s outlook on long-term sovereign credit rating to positive from stable affirming its ‘B/B’ ratings.
Commenting on Albania’s three-year deal with the IMF supported by a Euro 331 million loan, the rating agency says “Albania’s arrangement with the International Monetary Fund in early 2014 provides a policy anchor for needed reforms and fiscal consolidation, while supporting its financing needs.”
The agency warns it could downgrade Albania’s rating from positive to stable if refinancing risks increase, Albania’s commitment to and compliance with the IMF program were called into question, or growth indicators weakened substantially coupled with a pronounced rise in debt. A similar action could follow if Albania’s central bank were to resume intervening significantly in the foreign exchange market.
“If developments in Greece were to significantly erode Albania’s financial stability, we could lower the ratings, although we do not currently envisage such a scenario,” warns the agency.
In line with the Albanian government and the IMF, S&P expects Albania’s growth to accelerate to an average of 3.9 percent in the 2015-2017 supported by exports, investments and consumption as domestic demand picks up. Foreign direct investment is expected to significantly increase fuelled by investments in the hydropower sector and the Trans-Adriatic Pipeline bringing Caspian gas to Europe through Albania, Greece and Italy.
Meanwhile, Moody’s, another big three rating agency, has affirmed Albania’s B1 government bond rating with a stable outlook, citing the Albanian government’s fiscal consolidation and arrear repayment under an IMF deal and the EU candidate status obtained last June.
In its latest report in late 2014, Moody’s said progress with respect to structural reforms, specifically tackling corruption, the strengthening of property rights and judicial efficiency, would result in improved competitiveness and enhanced business attractiveness.
“Failure to stabilize the fiscal deficit and the public debt ratio would exert downward pressure on the rating, as would the materialization of potentially large contingent liabilities stemming from property restitution claims or from the electricity sector. Additional downside risks stem from the still sizable current account deficit amid waning remittance inflows,” said Moody’s in its annual credit analysis report on Albania.”
