Moody’s issues first-ever ratings for Albania

Moody’s Investors Service announced the first sovereign ratings ever assigned to the Republic of Albania – a Ba1 country ceiling for foreign-currency bonds and an issuer rating of B1 for the debt obligations of the government.
The ceiling is based on the B1 government bond rating and Moody’s assessment of a low likelihood of a payments moratorium in the event of a government bond default.

Also assigned were a B2 foreign currency bank deposit ceiling along with a local currency country ceiling of A3 and a local currency bank deposit ceiling of Baa1. The local currency country ceiling rating is the highest rating possible for any obligor domiciled in the Republic of Albania. Short term ratings of “Not Prime” were assigned to the government bond ratings, the country ceilings for foreign currency bonds and deposits, and the country ceiling for local currency deposits. All ratings carry a stable outlook.

“The ratings reflect the fact that Albania began its transition to a market economy from an isolated, administered economy, and from a very low per capita income level,” said Moody’s Vice President Jonathan Schiffer. “All existing institutions and economic mechanisms were deemed inappropriate and discarded, allowing the country’s transition to start from a clean slate.”

He said this is fortunate as Albania has not had to deal with a legacy of dysfunctional institutions and mechanisms associated with powerful interest groups whose influence distorts economic policy decision-making.

“The macroeconomy suffers from a weak export performance, a shortage of energy, poorly defined and enforced property rights, including an absence of a comprehensive land title registry, a court system that is sub-optimal, and a generally cumbersome business environment,” said Schiffer. “With the exception of the trade performance, all these weaknesses are being addressed currently by government and multilateral projects.”

Because of its underdeveloped capital markets, he said, Albania has an unfavorable debt maturity structure. However, the overall level of government debt in relation to gross domestic production will probably not grow significantly over the medium term.

On the positive side, he said, Albania benefits greatly from a political elite that is pro-business. There are no major differences between political parties in the realm of economic or foreign policy, as all participants tend to be pro-EU, pro-Nato, and very much in favor of the cautious economic policy recommendations received from the IMF, US Treasury, and World Bank.

“Similarly, there are no major differences in goals and policy orientation between the government and the central bank,” said Schiffer.
“Also, with a fragmented civil society and a populace that fends for itself, there are no significant pressures on the budget for major social transfers.”
He added that Albania benefits greatly from a large, steady flow of remittances from Albanians who live abroad, which helps offset the trade deficit and tends to strengthen the local currency.

The credit implications for Albania of the difficult geopolitical situation in the Balkans are deemed by Moody’s to be insignificant. Schiffer noted that “While the resolution of this contentious issue will be anything but easy, it is unlikely to have any meaningful macroeconomic or budgetary implications for Albania.”