Public debt risk indicators are declining for this year

2024-08-27 10:28:00, Ekonomi CNA

Public debt risk indicators this year appear to be decreasing. According to the information published by the Ministry of Finance, the risk of refinancing the domestic public debt this year is at the lowest historical levels.

The value of domestic debt that matures within one year at the end of the 6th month of 2024 was 43.9%, further decreasing from the level of 44.7% at the end of last 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 purpose of reducing the risk of refinancing, but also benefiting from the cycle of low interest rates.

The value of domestic debt maturing within one year suffered a significant decrease from 53.5% in 2016 to 44.8% in 2020. Meanwhile, in the period 2021-2022 this trend was curbed and the weight of short-term debt increased again.

The rapid increase in interest rates by the Bank of Albania caused high uncertainty in the financial market and especially institutional investors, mainly banks, were reluctant to invest in long-term instruments. In this situation, the MFE was forced to adapt and orient its domestic borrowing more towards treasury bonds.

At the end of 2022, the debt maturing within one year reached 47.9% of the total domestic debt, while the peak was marked at the end of the first quarter of 2023, with 51.9% of the total. However, curbing the cycle of interest rate increases and the subsequent drop in yields enabled the Albanian government to continue its strategy to extend the maturity of the public debt.

In the middle of this year, the average maturity of domestic debt instruments increased to 2.56 years, from 2.32 years at the end of last year. This increase proves precisely the greater use of instruments with long-term maturity even during the first 6 months of this year.

Other public debt risk indicators are also following a downward trend this year. Exchange rate risk, expressed as the ratio of foreign currency debt to total public debt, decreased to 43.3%, from 45.6% at the end of last year. This indicator has touched the lowest level since 2016. To the greatest extent, the reduction of this risk is based on the strengthening of the lek in the exchange rate, which has reduced the value of debt in foreign currency and its specific weight.

Interest rate risk, expressed as the percentage of debt that is re-fixed within a year against the total public debt, decreased to 44.4%, from 45.4% at the end of last year. This indicator is also at the lowest level, at least since 2016.

In the market in recent years, Albania's public debt is following a downward trend, supported by the strengthening of the lek in the exchange rate and a more consolidated fiscal policy, with lower budget deficits. At the end of 2023, the public debt decreased to 58.93% of the GDP, while according to the preliminary estimates of the Ministry of Finance in the middle of this year, the public debt was 55.7% of the GDP./Monitor