Moody’s says fiscal consolidation, EU candidate status support Albania’s creditworthiness

By bne IntelliNews October 23, 2014

The Albanian government's fiscal consolidation measures and the achievement of EU candidate status are supporting the country's creditworthiness, rating agency Moody's said in an annual credit analysis report.

The fiscal consolidation measures and the clearance of arrears towards the private sector under a three-year loan deal with the International Monetary Fund (IMF) counterbalance the sharp deterioration in Albania's fiscal strength in the run-up to the June 2013 elections. These measures are seen as adequate response to the decline in fiscal strength, especially with respect to revenue generation, where Albania is seen performing below regional peers.

Winning EU candidate country status is an evidence for country’s progress in addressing corruption and in advancing judicial reform. Moody's expects positive effects from the EU integration, which has proven to be an important driver of foreign direct investment inflows among accession countries in the region.

Albania's credit challenges remain its high debt ratio, which is projected to peak to over 73% of GDP in 2015 as well as its high gross borrowing requirements next year given large domestic rollover needs and the maturing of a EUR 300mn Eurobond in November 2015.

Moody's affirmed in August Albania's B1 government bond rating with a stable outlook. It maintained the country's foreign currency bond and deposit ceilings at Ba2/N-P and B2/N-P, respectively. The ceiling for local-currency bonds and deposits was changed to Baa3 from Ba1.

The rating agency noted, that an upward revision of Albania's rating could be triggered by a further progress with respect to structural reforms. In particular, improvement in institution building, including success in tackling corruption and judicial efficiency, would result in improved competitiveness and enhanced business attractiveness. By contrast, a failure to stabilise the fiscal deficit and the public debt ratio would exert a downward pressure on the rating, as would the materialisation of potentially large contingent liabilities stemming from property restitution claims or from the electricity sector, Moody's said.

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