Albania Seeks 550 Million Euros of Credit

The ministry announced on Sunday that it has received prior approval from the World Bank for a partial guarantee of up to 200 million euro, which will allow it to request a loan from international lenders of up to 250 million euro. Banks have been invited to make their offers by April 1.

The ministry aims to cover its budget deficit for this year through foreign sources instead of domestic banks in order to provide space for private credit growth.

The debt is expected to have low interest rates due to international market conjuncture as well as the partial guarantee issued by the World Bank.

At the same time, Albania intends to issue up to 300 million euro in new sovereign bonds by the end of this year in order to repay its old bonds issued in 2010.

The government wants to benefit from the current very low interest rates in the international bonds market.

Because of the European Central Bank policy of quantitative easing, announced in January, through which the ECB creates new money electronically to buy financial assets, like government bonds, the interest rates for debts issued in euros are at their lowest point in decades.

German and Austrian bonds are traded for less than one per cent while Italian and Spanish bonds are traded for slightly higher than one per cent.

The Albania government’s first-ever sovereign bonds, issued in 2010, had an initial interest of 7.6 per cent and as such, they eat up a disproportional share of the total costs of the foreign debt service of Albania.

The Ministry of Finance aims to issue its new sovereigns with much lower interest rates than the current ones.

However Albania is currently under pressure to issue the new bonds because it doesn’t have any alternative for repaying its current sovereigns, which could affect interest rates.

If successful, the new foreign debts will ease the government demand for domestic debt and will incentivise the banks to lend to private customers. This could be converted into higher economic growth.

Albania’s public debt has increased heavily during the last few years due to sluggish growth and government refusals to rein in spending.

Total government debt reached 978 billion leks (almost seven billion euro) at the end of last year, showing the biggest year-on-year growth since 2009, according to official data from the debt management office.

Currently Albania has one of the highest debts as a percentage of the GDP in the Balkans, at almost 70 per cent.

However, the government has an IMF-supported programme which foresees a sharp decrease in public debt starting from 2016. The programme aims to return economic growth to about 4.5 per cent per year which could allow debt reduction as a percentage of GDP by three percentage points per year.