The revised rating comes four months after the giant credit rating agency lowered Albania’s long-term sovereign credit ratings to ‘B’ from ‘B+ with a negative outlook on rising debt levels and subdued economic growth and after a new deal has been signed with the IMF.
TIRANA, April 15 – Standard & Poor’s has revised its outlook on Albania to stable from negative and affirmed its ‘B/B’ long- and short-term sovereign credit ratings. The revised rating comes four months after the giant credit rating agency lowered Albania’s long-term sovereign credit ratings to ‘B’ from ‘B+ with a negative outlook on rising debt levels and subdued economic growth and after a new deal has been signed with the IMF supported by a loan to pay off accumulated unpaid bills to the business community.
“We revised the outlook to stable because we think that the recently concluded International Monetary Fund (IMF) program will serve as a policy anchor for fiscal consolidation and support the sustainability of Albania’s high government debt. We expect that timely official support and concurrent fiscal consolidation efforts should help reduce refinancing pressure,” said Standard & Poor’s, one of the top three international credit rating agencies.
The ratings on Albania reflect the country’s very high general government debt burden, weak institutional and governance effectiveness, and comparatively low per-capita GDP. The ratings are supported by moderate external indebtedness and S&P’s expectation that fiscal consolidation efforts will push government deficits to moderate levels.
The stable outlook reflects the assessment that Albania’s refinancing pressures will abate over the coming year on the back of timely official support and concurrent fiscal consolidation efforts.
The high share of foreign currency loans and deposits (at over 50 percent), although not uncommon among Albania’s peers, is hampering the effectiveness of monetary policy, warns the report.
Outlook
The stable outlook reflects the expectation that IMF support will effectively alleviate Albania’s refinancing risks and that fiscal consolidation efforts will materialize, coupled with the initiation of reforms that should enhance the robustness of fiscal institutions and processes.
S&P said it could lower the ratings on Albania over the next year if fiscal consolidation efforts fell short and the high government debt stock continued to rise, potentially tied to noncompliance with conditions of the IMF program. “We could also lower the ratings if growth prospects deteriorated significantly below our current projections.”
Standards & Poor’s could consider a positive rating action if structural reforms enhanced the robustness of fiscal institutions and processes and strengthened economic growth prospects. A sustained improvement of government finances and significant debt reduction, potentially alongside higher-than-expected economic growth, would also be positive for the ratings.
According to S&P’s definition, a short-term obligion rated ‘B’ is regarded as vulnerable and has significant speculative characteristics. “The obligor currently has the capacity to meet its financial commitments; however, it faces major ongoing uncertainties which could lead to the obligor’s inadequate capacity to meet its financial commitments.”
Last December, citing a significant widening of the fiscal deficit and rollover risk on increased debt stock, Standard & Poor’s lowered Albania’s long-term sovereign credit ratings to ‘B’ from ‘B+ with a negative outlook.
Moody’s Investors Service, another top rating agency, has also affirmed Albania’s B1 rating, but warned it could downgrade the country’s credit rating on rising debt levels and subdued economic growth. Moody’s says that Albania’s B1 government bond rating remains constrained by the country’s significant fiscal challenges, its rising debt levels and the subdued economic growth that the rating agency expects over the next few years. Positive externalities are likely to be derived from Albania potentially being granted EU candidate status and the construction of the Trans Adriatic Natural Gas Pipeline in 2015, says Moody’s.
Obligations rated B are considered speculative and are subject to high credit risk. Both S&P’s B+ and Moody’s B1 ratings signify that the issuer or carrier is relatively stable with a moderate chance of default and that investors and policyholders of the rated entity are taking a low to medium risk.
