World Bank: Albania needs to improve external borrowing

TIRANA, Aug. 31 – A World Bank assessment on Albania’s debt management performance has revealed that Albania needs to improve external borrowing by moving to a more systematic planning and assessment of potential borrowings and creditors and some parts of the operational risk management framework.
“Also there is no systematic tracking of foreign holding of the government securities issued in the domestic market. The latest eurobond issue highlighted that the decision-making process for external market borrowing is rather cumbersome,” says the report.
Government debt management is particularly strong in the areas of governance, strategy development, coordination with fiscal and monetary policy, and domestic market borrowing.
The assessment reveals that Albania meets the requirements for the A score in 11 dimensions assessed, the B score in 5 dimensions, the C score in 12 dimensions, and the D score in 5 dimensions. Of more than 50 countries assessed by the World Bank under the DeMPA program so far, Albania stands out as one of the few which has sound debt management practices in the largest number of areas as defined by the DeMPA methodology.
Albania’s received D score in external borrowing in the “borrowing plan and assessment of costs” and “terms and availability of documented procedures.” The country was also assigned D score in the data security for the “Availability and quality of documented procedures for data recording,” “System and access control,” Operational risk management, Business continuity, Disaster recovery plans and Debt statistical bulletin: Quality and timeliness.
Total public sector debt in Albania reached 59.7 percent in 2009ذractically at the country’s legal limit of 60 percent of GDP. Of this, domestic debt was 36 percent, and external debt
(including guarantees) was 24 percent.
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. Official credits have been the government’s preferred source of external financing, as they typically offer funding on concessional or quasiconcessional terms, and are often accompanied by technical assistance. To-date, all official credits have been project-related loans; shifting toward budgetary-support, or program-based, financing has not been a priority for the government. The government has raised two syndicated bank loans, one in 2007 for EUR 200 million and another in 2009 for EUR 192 million. More recently, in 2010, the government issued its maiden Eurobond, totaling EUR 300 million.
Entering the Eurobond market had been part of the government’s plans since 2008, but actual issuance required extensive preparatory efforts, including obtaining sovereign credit ratings from Moody’s and Standard and Poor’s, as well as waiting for market conditions favorable for a successful launch. The proceeds of the issue will be used to retire the syndicated bank loan
raised in 2009 and redeem some domestic debt due to mature in the near future. In a usual year, according to the authorities, around 10 to 20 new external loans are contracted.
In its latest macroeconomic framework review made after last July’s budget cuts government expects to public debt to drop to 58 percent of the GDP by 2014, compared to 54 percent previously. The public debt, currently at the threshold of 60 percent of the GDP, is expected to remain at 59.4 percent in 2011 before continuing its slow downward trend to 59.2 percent in 2012, 58.6 percent in 2013 and 58 percent in 2014.
The important thing is that the public debt should not reach the maximum 60 percent level. For developing countries such as Albania this is a very high level which should drop,” said IMF’s Gerwin Bell.