S&P affirms Albania’s B/B ratings, revises up outlook to stable on reduced financing pressure

By bne IntelliNews April 14, 2014

Standard & Poor’s has affirmed Albania’s B/B long- and short-term sovereign credit ratings and revised the outlook to stable from negative citing reduced financing pressure, the ratings agency said in a statement. The revision of the outlook reflects S&P’s view that the recently signed agreement with the International Monetary Fund will serve as a policy anchor for fiscal consolidation and support the sustainability of Albania's high government debt. The timely official support and concurrent fiscal consolidation efforts would contribute for reduction of the country’s refinancing pressure.

Albania’s rating reflect its 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 rating agency sees the fiscal deficit at 5.5% of GDP in 2014 assuming increased tax collection as well as clearance of arrears at over 2% of GDP. The fiscal gap should shrink to 2% of GDP in 2016.

The net general government debt burden is projected to decrease to 63% of GDP in 2016 from 65% in 2013.

However, S&P still sees high rollover risk although it is likely to abate with the availability of IMF and other official support in 2014.

The rating agency said it would consider a positive rating action if structural reforms enhance the robustness of fiscal institutions and processes and strengthen economic growth prospects. A sustained improvement of government finances and significant debt reduction, would also be positive for the ratings.

In contrary, a downward revision would occur if fiscal consolidation efforts fall short and the high government debt stock continue to rise, potentially tied to noncompliance with conditions of the IMF program.

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