The Albanian government will issue 20-year bonds for the first time in 2025

2024-12-17 07:18:00, Ekonomi CNA

The Albanian government will issue for the first time in 2025 bonds with a maturity of 20 years.

The Ministry of Finance has planned to hold the first auction for testing the market in January 2025, while a reopening of the January auction is also planned in March. The amount planned for issuance in both auctions is a total of 2.5 billion ALL.

The 20-year bonds will be the longest-term instrument issued by the Albanian government. To date, the longest-term securities are 15-year bonds, which were issued for the first time in November 2021. Almost three years later, the Ministry of Finance has decided to take the next step in extending the maximum maturity of the instruments of internal debt.

The extension of the maximum maturity of the debt is in principle a signal of the strengthening of the creditworthiness of the borrower. In recent years, public debt indicators have improved, thanks to the good performance of the economy after the pandemic, the strengthening of the lek in the foreign exchange rate and a more conservative fiscal policy, with lower budget deficits.

After reaching a record level of more than 74% of GDP in 2021, public debt has been declining rapidly over the following years and at the end of 2023 it was down to 57.5% of GDP. According to the preliminary estimates of the Ministry of Finance, at the end of the 9th month of 2024, the public debt was 55.45% of the GDP.

The reduction in debt caused the main credit rating agencies, S&P Global Ratings and Moody's, to upgrade the country's sovereign debt rating this year.

In the last decade, the Ministry of Finance has followed a strategy of gradually extending the maturity of the public debt, with the main aim of reducing the risk of refinancing, but also benefiting from the cycle of low interest rates.

At the end of September 2024, the average maturity of domestic debt instruments increased to 928 days, from about 630 days a decade ago.

In parallel, such a strategy has been followed with Eurobonds that are issued in international markets. The Eurobond issued in 2021 reached the longest maturity to date for these instruments, with a 10-year time horizon.

The improvement of public debt indicators and the assessment of sovereign debt, as well as the satisfactory returns in relation to the investment risk, have made institutional investors from abroad to invest in the domestic bond market for the first time this year. Until now, these investors have mainly focused on medium-term maturity instruments, such as 3-year and 5-year bonds.

From the perspective of investors, the issuance of 20-year bonds creates opportunities to further increase returns on investment in government debt securities. These instruments can serve especially institutional investors, such as private pension funds.

On the other hand, the addition of debt instruments with longer maturity creates more premises to develop the secondary securities market, to make these securities more liquid./ Monitor Magazine