Eurobond, Albania is planning to borrow again

Eurobond, Albania is planning to borrow again
Albania will soon borrow from foreign capital markets. Such fact is confirmed by the Albanian financial authorities. The Medium-Term Debt Management Strategy 2018-2020 document says that “during this period, we are projecting an increase of foreign debts through the Eurobond”. According to experts, this method aims at balancing the lack of domestic financing, guaranteeing that despite the increase of foreign capitals, “the level of foreign debt will continue to remain within the object by aiming to reduce threats from shifts in foreign currency rates”.

Let us recall that this practice was initiated seven years ago, namely, in 2010, when Albania borrowed 300 million euros in foreign markets, considered as the first Albanian Eurobond. With a minimum maturity period of 5 years, Albanian taxpayers paid around 22.5 million euros a year worth of interest for this loan. But, at the time, the 7.5% interest rate was considered a real success by the right wing government. Meanwhile, the left wing opposition criticized the application of such practice, although when it came into power, five years later, it would issue the second Albanian Eurobond in foreign markets. This time, the amount was higher, 450 million euros, arguing that the interest rate on this loan was 5.75%. Meanwhile, the buyers of the Albanian bonds are said to include 115 investors in international markets. Based on geographical areas, 30% of them were from Britain, 23% of them were from the US and 46% of them were from Europe.

Currency rate shifts a threat for the payment of the debt

Appreciation of European currency, Euro, may pose a real threat for the payment of the foreign debt by the Albanian government in this currency. “The threat consists on the fact that the 65% of the debt portfolio is in euro, making it susceptible to shifts in this currency’s value”, experts of the ministry of Finance say on this, adding that the trend has been a growing trend in the recent years, lowering the capacity of the state to pay in foreign currency. “The pace of the growth of debt has been quicker than the pace of growth for exports and currency reserves. This means that debt in foreign currency for our country is growing”, they say, adding that risk from currency rate shifts is high, however, it is expected to be reduced.

Experts: Borrowing in foreign markets may have implications

Borrowing in foreign markets may have implications, which depend on the fiscal policies of other countries, but also on the European Central Bank. This is another finding made by financial experts. According to them, these conditions will lead to an involuntary increase of debt, but also an increase of foreign debt, warning for a higher risk that foreign debt may not be paid. “The restricted level of exports and currency reserves may put the state in difficulty when paying loans in foreign currency, thus threatening the stability of domestic currency and macro-economic indicators”, the Debt Management Medium-Term Strategy 2018-2020 states.

Objective, public debt must go down to 63% of GDP in 2020

The government is aiming to reduce public debt to 63% of GDP at the end of 2020. This is projected by the Medium-Term Debt Management Strategy. According to this document, during a period from 3 to 5 years, the domestic market will continue to be the main source of financing and cover on average around 75% of the general need for loans for the central government. “The main instruments that will be used to secure financing are government bills. Meanwhile, state guarantees are expected to range from 5 to 6% of the debt. By 2020, the country is expected to pay around 45 billion lek worth of debt”, the strategy in question says.

Outstanding debts increase, 570 million lek owed by institutions

The Albanian state continues to pay outstanding debts to the business sector. Although several years ago it pledged that it would pay the entirety of debts owed to businesses, it doesn’t yet seem to have won this “battle”, as private companies continue not to get paid about their works. Meanwhile, almost all central government institutions have incurred outstanding debts. Referring to the recent data from the ministry of Finance, for the period July-September 2017, the value of outstanding debts incurred by different institutions amounts to 569.7 million lek. The institution with the largest amount of outstanding debts is the General Directorate of Taxes and the value of outstanding debts is 100.2 million lek.


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