S&P upgrades Albania’s long-term rating to B+ on better fiscal performance

By bne IntelliNews February 7, 2016

Standard & Poor's Ratings Services has upgraded its long-term foreign and local currency sovereign credit ratings on Albania to 'B+' from 'B’ on better fiscal performance.

Albania’s short-term foreign and local currency sovereign credit ratings were affirmed at 'B', the rating agency said on February 5.

In October 2015, S&P affirmed Albania at B/B, saying it could raise the rating over the next six months on good fiscal performance and successful reviews of the International Monetary Fund (IMF) arrangement. Albania's 36-month EFF arrangement with the IMF was approved on February 28, 2014.

The outlook remained stable, S&P said in a statement, adding it also revised upward its transfer and convertibility (T&C) assessment for Albania to 'BB'.

“The upgrade reflects the rating agency’s view that Albania's fiscal performance will remain strong over 2016-2019 as authorities continue to make progress under an IMF programme that targets fiscal and structural reforms,” it said.

S&P expects Albanian general government debt to decline to under 60% of GDP in 2019 from about 70% of GDP in 2015.

Despite weaker revenue performance in 2015, the fiscal deficit, at an estimated 3.8% of GDP, outperformed expectations (4.6% of GDP) due to lower expenditures, particularly on investment projects. To improve revenue performance, the government is strengthening fiscal institutions and public-sector financial management, said the statement.

The Albanian government is also under pressure from the IMF to increase budget revenues.

The rating agency expects Albania's economy to grow by an annual average of nearly 4% over 2016-2019, with domestic demand contributing more prominently to growth performance over the next one or two years, unlike in recent years when net exports were the primary growth engine.

The Albanian government sees its economy rising by 3.4% in 2016.

“We project significant net foreign direct investment (FDI), especially in the hydropower sector and the Trans-Adriatic Pipeline project in 2016-2018," it said.

According to S&P, FDI inflows will likely fund most of Albania's large current account deficit of 11% of GDP on average in 2016-2018. Remittances are projected to remain subdued at about 7% of GDP in the next few years (compared with an average 13% of GDP over 2004-2008) due to developments in Greece, which is home to a substantial Albanian minority.

Albania's gross external financing needs are estimated at 115% of current account receipts in 2016, which are significant.

The agency assessed that Albania’s external indebtedness is relatively low as financing for the current account deficit has historically been mainly in the form of net foreign investment, particularly in the energy sector, rather than debt-creating inflows.

S&P believes that implementation of judicial reform, currently under preparation, and a successful track record in that area would be key to improving the business climate and could help Albania progress toward opening EU accession negotiations. The country was granted candidate status in 2014.

Reforms are also underway in several other areas such as pensions, local government, and energy supply.

“The stable outlook reflects S&P view of the balanced risks to the ratings on  Albania and the underlying expectation that Albania will continue to comply with its IMF EFF programme, including progress on its fiscal consolidation path,which will bring the general government debt-to-GDP ratio on a downward trajectory," the statement said.

S&P said that Albanian ratings could be raised if structural reforms established a track record of more robust fiscal institutions and strengthened economic growth prospects. A significant government debt reduction beyond current forecasts, potentially alongside higher-than-expected economic growth, would also be positive for the ratings.

However, the ratings could be lowered if, as in 2013, government finances deteriorated again, along with potential financing pressures, potentially tied to noncompliance with the conditions of Albania's IMF arrangement. A significant deterioration in Albania’s external position and ability to fund its current account deficit will also be reasons for downgrading of ratings.

Related Articles

China Everbright Limited completes acquisition of Tirana International Airport

Hong Kong-based investment and asset management company China Everbright Limited (CEL) has completed the acquisition of 100% of Tirana International Airport (TIA), the airport's management said ... more

Albanian parliament adopts controversial law on waste imports despite protests

The Albanian parliament adopted a controversial law on waste imports late on September 22, without the support of the opposition and amid protests by environmental activists.  The ... more

OMNIX abandons $450mn tourist project in Albania after attack on executive

Qatari owned company OMNIX has decided to withdraw its planned investment in a $450mn tourist project in Albania after an executive from the company was attacked and beaten up in Tirana. ... ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.