SCAN Exclusive: Moody’s hints Albania’s outlook at “B1”, noting risks from elections, justice reform and political crisis
Scan Television has seen the latest periodic credit report of the credit rating agency Moody`s on Albania, which hints that the country’s sovereign debt rating is unchanged at “B1 stable”.
Moody`s analyzes risk factors and Albania’s progress in four directions, which constitute the main pillars of the assessment: economic strength, institutional strength, the banking sector and fiscal strength.
The first three are estimated at moderate levels, except fiscal strength, which has been assessed as low.
Key factors that stimulate Albania’s lending in “B1 stable” are: (1) the progress made in clearing arrears and fiscal consolidation; (2) ongoing administrative and judicial reform efforts in pursuit of EU accession; (3) strong price stability; and (4) significant foreign direct investment inflows from large investment projects.
The main challenges, according to the report, are: (1) high, albeit declining government debt; (2) weak, albeit improving, domestic funding structure; (3) limited institutional strength, in particular with respect to corruption; and (4) the large stock of non-performing loans.
The prestigious agency projects that Albania’s economic growth will be at 3.5% this year and 3.6% next year.
“We expect the recovery in the Albania economy to continue,” stresses Moody’s report.
“We expect positive externalities to arise from closer EU integration which has empirically been shown to be an important driver of FDI among accession countries.”
“Our assessment also takes into account Albania’s efforts to address persistent challenges with respect to the rule of law and control of corruption”, states Moody`s referring to the June 2014 decision of European Council, including de-politicization of the public administration, the reinforcement of the judicial system, the drive to fight corruption and organized crime, as well the protection of human rights and property rights.
Regarding the factors that could lead to an upgrade of the outlook Moody’s claims that “progress with respect to fiscal consolidation and public debt reduction, in addition to institution building – including success in tackling corruption and judicial inefficiency – resulting in improved competitiveness and enhanced business attractiveness, would be credit positive”.
On the other hand, a failure to stabilise the fiscal deficit and the public debt ratio would exert downward pressure on the rating, as would the materialisation of potentially large contingent liabilities stemming from property restitution claims or from the electricity sector, states Moody’s.
Additional downside risks relate to sizeable current account deficit amid reduced remittance inflows from Greece.
“We expect the debt-to-GDP ratio to continue decline over the next two years due to higher nominal growth and primary surpluses,” reads the reports.
“[T]he approaching general election (in June 2017) may serve to delay reform efforts if it were accompanied by an increase in political instability,” Moody’s claims.
The slowdown in the reform agenda is expected to create problems with the reduction of debt, and can therefore generate a devaluation of Albania in Moody’s ranking and those of other credit rating agencies.