Albania to raise up to €700mn with new eurobond issue

Albania to raise up to €700mn with new eurobond issue
By Clare Nuttall in Zagreb October 14, 2021

Albania plans to raise between €500mn and €700mn with a new eurobond issue by the end of October, Minister of Finance and the Economy Delina Ibrahimaj announced on October 14. 

The bond will be used to support the state budget including financing for the education system and infrastructure, as well as for next year’s budget, Ibrahimaj told journalists after a government meeting on October 14, as reported by local media.

Among the decisions approved at the meeting were the “proposal for the eurobond to be emitted by the Ministry of Finance and Economy to ensure the necessary borrowing of funds to finance the state budget deficit”, Ibrahimaj wrote on Facebook.

“It’s the fifth time we enter global markets in order to obtain foreign currency funds and this has been a test for our government, that will test our credibility in on international markets. The financed amount has been growing and the interest on [our] bonds has been declining, which shows that over the years, we have been able to create a trustworthy economy in the eyes of international markets,” the minister commented. 

It was revealed back in June that the country is planning to raise fresh funds on international markets. The news broke ahead of the approval of changes to the 2021 budget on July 1. 

Albania’s then finance and economy minister Anila Denaj said at the time that the amendments to the budget were made to provide fiscal incentives to support the economic recovery as well as to fund procurement of coronavirus (COVID-19) vaccinations and infrastructure investments. 

More controversially, the government reportedly planned to buy military drones from Turkey and to build a new National Theatre after the old theatre building was demolished last year, despite strong opposition. 

The new issue is planned despite the rise in Albania’s debt burden since the start of the pandemic. Albania became the country in the Western Balkan region with the highest public debt-to-GDP ratio in the third quarter of 2020, overtaking even Montenegro, whose high debt ratio has long been cause for concern, as shown by data compiled by the European Commission in January. 

In Albania, the public debt-to-GDP ratio rose to 79.9% of GDP, higher than in Montenegro (78.1%) and Serbia (57.1%), according to the report. Before the crisis, Albania’s public debt stood at just 66.2% in 3Q19. The rate was on a steady downward trajectory between 2016 and 2019. 

The International Monetary Fund (IMF) said on October 12 that Albania’s debt is expected to stand at close to 80% of GDP by the end of this year, despite the recovery of the economy from the coronacrisis and the 2019 earthquake. Officials from the fund urged Tirana to recreate room for fiscal policy manoeuvre by lowering the "very high" fiscal deficit and public debt ratios, as well as to invest efficiently in people and the economy. 

“With the recovery firming up, fiscal policy should pivot towards rebuilding the firepower to withstand future shocks and reduce debt while meeting Albania’s development needs — all these will hinge on raising tax revenue,” according to the IMF mission. 

Albania last tapped international markets in June 2020, raising €650mn. The issue, which was strongly oversubscribed, had a coupon rate of 3.65%.