Moody's Upgrades Albania's Outlook to Positive: Fiscal Resilience and Economic Reforms Drive Optimism

20 Prill 2024, 12:13Economy TEMA

Moody's Upgrades Albania's Outlook to Positive: Fiscal Resilience and

Tirana, April 20, 2024-The renowned international credit rating agency, Moody's, has revised Albania's outlook from "stable" to "positive." This significant shift underscores the potential for a more promising fiscal trajectory, buoyed by Albania's robust resilience amidst multiple economic challenges.

Despite facing consecutive shocks, including the 2019 earthquake, the global COVID-19 pandemic, and the 2022 energy crisis, Albania has demonstrated remarkable macroeconomic stability. Moody's acknowledges Albania's ability to weather these storms, a testament to its resilience and adaptability in navigating turbulent times.

Moody's forecasts a return to a steady downward trajectory in the ratio of public debt to GDP, signaling a reversal of the debt escalation observed during the preceding years. The anticipated decrease in the debt-to-GDP ratio, from 59.2% in 2023 to 56.3% in 2024, reflects concerted efforts to restore fiscal health. Moreover, Moody's projects a sustained decline in the debt ratio, driven by expected primary surpluses and stable GDP growth.

A pivotal aspect of Albania's fiscal strategy lies in its commitment to fiscal rules outlined in the Organic Budget Law. These regulations mandate a primary balance not falling below zero and a consistent reduction in the public debt-to-GDP ratio until it reaches 45% of GDP. Moody's emphasizes the importance of adherence to these rules for Albania's long-term fiscal sustainability.

The agency is optimistic about the ongoing fiscal reforms spearheaded by Albanian authorities, including the implementation of a medium-term revenue strategy and improvements in public investment management. These reforms are poised to have a positive impact, potentially exceeding Moody's current expectations and further bolstering Albania's fiscal resilience.

Furthermore, Albania's economic landscape is bolstered by favorable external factors. A significant improvement in the current account balance is anticipated to become structural, driven by a thriving tourism sector and increased remittances. Steady inflows of foreign direct investment in key sectors such as tourism and energy, coupled with productivity enhancements and greater labor force participation, underpin a positive medium-term economic outlook. Moody's projects a robust real GDP growth rate of 3.5% for 2024.

Albania's banking system remains a pillar of strength, characterized by robustness and high liquidity. Moreover, Moody's anticipates that Albania's credit profile will benefit from the gradual implementation of further reforms associated with the EU accession process. As EU accession talks progress, the pace of reforms is expected to accelerate, fostering deeper economic integration with the EU, Albania's primary trading partner. This integration is likely to enhance Albania's growth potential in the medium term and narrow the income gap with EU member states.

The Reform and Growth Plan for the Western Balkans, endorsed by the European Commission in November 2023 and supported by EU pre-accession funds and investments under the Western Balkans Investment Framework (WBIF), is poised to catalyze institutional reforms in Albania. Moody's predicts that these reforms will contribute to the convergence of income levels per capita with those of EU countries, further solidifying Albania's economic outlook.


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