Albania's B1 government bond rating remains constrained by the country's significant fiscal challenges, its rising debt levels and subdued economic growth, expected in the coming year, ratings agency Moody’s said in a report.

The agency noted that Albania's credit challenges are primarily reflected in the significant deterioration in the government's fiscal performance over the past year, which has resulted in materially higher debt levels than its B1-rated peers. In addition, Moody’s sees fragile structure of government financing, which in particular displays low average debt maturity, narrow investor base via the domestic banking system and significant FX exposure.

According to the report, mitigating factors include central bank’s macro-prudential track record and strong price-stability credentials, which are reflected in its stable exchange-rate performance over the past few years. In addition, recently implemented improvement in the collateral execution process is expected to contribute for improvement of the quality of portfolio in the banking system.

Moody's expects Albania growth to remain subdued over the next few years.

The ratings agency expects positive externalities to be derived from Albania's potential EU candidate status and from the construction of the Trans Adriatic Natural Gas Pipeline starting in 2015.

Finally, Moody’s stressed that an upgrade of the country's ratings requires more substantial progress in addressing the economy's structural problems.