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Economy

S&P confirms the rating "B +" and a "stable" outlook for Albania

  • 2/2/2021 11:24 AM
S&P confirms the rating "B +" and a "stable" outlook for Albania

The International Rating Agency Standard & Poor's (S&P), in its latest review (February 1, 2021), confirms for Albania the current rating in "B +", as well as with a "stable" perspective.

S&P predicts that by 2021 the economy will grow by about 4.5%, with the assumption that there will be no other strong wave of infections, which could lead to another strong shutdown, and estimates that the COVID-19 Pandemic and restrictions related to the movement of people, caused the Albanian economy to contract by about -5% in 2020.

The pandemic has had a direct impact especially on the tourism sector. The impact of this sector on the Albanian economy according to Standard & Poor’s assessment may be even more pronounced than in the countries of the region due to the higher weight that this sector occupies in Albania.

The agency also said that the government managed to secure loans from International Financial Institutions, as well as managed to issue a successful Eurobond in international markets to finance the fiscal gap and to stop balance of payments pressures.

S&P states that revenue losses, additional costs associated with the pandemic, as well as increased capital expenditures caused the deficit in 2020 to expand to about 6.7% of GDP, from 1.9% in 2019. The agency considers this high current level of debt and assesses exposure to potential fiscal risks. The agency projects that the ratio of total government debt to GDP after reaching about 77% of GDP in 2021, is expected to fall from 2022 onwards, while the economy recovers, the effect of support measures is gradually extinguished .

The agency says some government efforts will support consolidation in the coming years. The Albanian government expects to implement a medium-term revenue strategy to increase revenue collection.

The Albanian government has begun implementing a number of systems, including Fiscalization, to ensure good fiscal administration, modernize the existing fiscal system, and ensure that GDP revenues increase to over 30% in the coming years. S&P says that in order to restore fiscal discipline, recent amendments made by the authorities to the organic budget law sanction the government to achieve and maintain a positive primary balance from 2023 onwards.

This suggestion adds to the existing debt reduction rule, which requires a decline in the ratio of total government debt to GDP until it reaches 45%. Therefore, the Ministry of Finance and Economy in macro-fiscal forecasts, is committed to a return to fiscal consolidation, as in the period 2013-2019. According to S&P, the authorities are actively pursuing efforts to improve the public debt profile, which is currently characterized by refinancing and exchange rate risk. The average maturity of public debt has recently increased, but remains relatively short, at 4.5 years.

/Klara Ruci/