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The World Bank, in its latest report on Central Europe and Asia “War in the Region” has been harsh on Albania’s high level of debt and has warned that its refinancing may be at risk and that the government may be forced to reduce its capital expenditures.
“Public debt increased further in 2021, reaching 78.4 percent of GDP. The government suspended the fiscal rule for reducing debt to GDP and issued a Eurobond of 650 million euros, taking advantage of the country’s stable B + rating. At the current level, high government debt is at significant refinancing risk. “Given the current inflation and the expected tightening of monetary policy in high-income economies, reducing Albania’s public debt and strengthening the credibility of its fiscal policy are vital,” the report said.
In the baseline scenario, public debt is expected to fall slightly to 78.1 percent of GDP in 2022 and more significantly in the medium term. However, the fiscal balance could deteriorate further if the international environment is unfavorable, forcing the government to cut capital spending to prevent an increase in the debt-to-GDP ratio, the bank warns.
Given Albania’s growing dependence on external financing, exchange rate, interest rate and refinancing risks remain high.
According to the report, higher tax revenues and new debt allowed the government to increase infrastructure spending. The government also increased subsidies to State Energy Enterprises (SOEs) to provide energy supply during the last quarter of 2021. Contingent liabilities from SOEs pose major budgetary risks.
According to World Bank tables, public debt is expected to fall to 75.1% of GDP in 2024.
In the past, the International Monetary Fund has often advised the Albanian government to be careful with spending and fiscal consolidation. In its latest report, in December last year, the IMF warned of rising country fiscal risks and a lack of accurate data on public-private partnership (PPP) projects. Court rulings, the new guarantee scheme for the private sector and support for energy companies are also seen as added risks.
The report lowered expectations for growth
In its latest report, the World Bank has lowered its forecast for Albania’s economic growth this year.
The bank already expects the domestic economy to grow by 3.2 percent, or 0.6 percentage points less than the previous ratio. Even for 2023, the economy is expected to grow by 3.4%, or 0.3 percentage points less than the previous estimate.
For 2022, the prospects are uncertain and the risks have increased, says the bank in the section on Albania. The war in Ukraine and ongoing sanctions could push energy, food and commodity prices to even higher levels, reducing household purchasing power and consumption./Monitor
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