International credit rating agency Standard & Poor’s (S&P) has upgraded its outlook for Albania from “stable” to “positive”. Concurrently, S&P has reaffirmed Albania’s credit rating at “B+”.
The shift to a “positive outlook” reflects S&P’s confidence that Albania’s fiscal indicators will continue to improve beyond the agency’s earlier projections. This positive trend is attributed to the Albanian Government’s determined efforts to bolster public finances. Additionally, despite a slowdown in Albania’s primary trade partner, the European Union, S&P foresees the country’s external position improving more than initially anticipated, supported by global economic recovery and the ongoing expansion of Albania’s tourism sector.
S&P predicts that following a growth deceleration of 3% for the current year, primarily due to reduced foreign demand from Europe, economic growth is poised to regain momentum beyond 2023. This resurgence will be underpinned by relaxed financial conditions and an upturn in global economic activity.
The rating agency acknowledges that Albania has weathered several challenges in recent years, including a significant earthquake in 2019. Nevertheless, the Albanian Government’s vigorous efforts to consolidate public finances have borne fruit. S&P expects the budget deficit to converge to approximately 2% of the GDP by 2026, accompanied by a reduction in public debt from 64.5% in 2022 to 58.3% in 2026. These estimates align with fiscal balance and public debt reduction criteria outlined in the Organic Budget Law (OBL). However, S&P emphasizes that the success of fiscal consolidation will also hinge on sustained economic growth and the continuity of structural reforms.
The agency also points out that inflation has receded, reaching 4% in August, a significant drop from the 7.2% recorded in January. S&P anticipates that inflation will average 4.7% for the year 2023 and gradually decrease to the targeted 3%, partly due to the strengthening of the Albanian lek.
Given Albania’s absence of bilateral and geopolitical conflicts, robust domestic support for EU integration, and the governing parliamentary majority that facilitates reform implementation, S&P believes that Albania is well-positioned to advance its bid for EU membership without significant external obstacles.
