The fall of the euro is amortizing the costs of external debt/ 6 million euro savings in the first 3 months

2023-04-28 12:45:00, Ekonomi CNA

The fall of the euro is amortizing the costs of external debt/ 6 million euro

Illustrative photo

The systematic decline in the value of the euro is "crushing" Albanian exports, but the Albanian government is turning out to be the main beneficiary, since the debt service costs are being significantly eased by this fact.

In the first quarter of 2023, external debt service cost the Albanian government about 91.5 million euros, of which 66.2 million euros were principal and 25.2 million euros were interest.

In the first quarter, the annual devaluation of the Euro was over 6%. Only from this devaluation, the Albanian government has benefited more than 6 million euros for servicing the foreign debt.

In 2022, the external debt service was 419 million euros. In this year, the euro depreciated against the lek by about 4%, amortizing the external debt service by about 16 million euros.

More detailed analyzes by the Bank of Albania show that the country's economic growth and the devaluation of the euro against the lek were the main factors that influenced the reduction of external debt costs during the last decade.

Currently, the gains coming from the exchange rate are amortizing the interest rates which last year returned to growth as a measure to curb inflation by central banks around the world.

Albania has a high exposure of foreign debt in euros. The data of the first 3 months of this year show that over 71% of external liabilities are in euros, 13% in SDR (IMF currency), 10% in USD and the rest in other currencies.

Meanwhile, the Ministry of Finance has several scenarios that predict developments in the debt stock from the possible devaluation of the local currency beyond expectations, against the euro currency or other currencies that make up the foreign debt portfolio.

The devaluation of the lek would have an impact on the trajectory of the debt level, slowing down the pace of the planned reduction.

Higher interest rates combined with a 30% devaluation of the lek against the euro could lead public debt to about 75.% of GDP this year in an extreme hypothetical scenario.

Public debt in net subjects decreased for the second quarter in a row in January-March 2023, which was also reflected as a percentage of GDP.

The decrease in public debt is being favored by the increase in budget receipts on the one hand and keeping budget expenditures under control on the other hand.

However, Albania together with Montenegro have the highest levels of public debt in the Region, while the IMF and the World Bank advise that there is still room for further reduction./ Monitor