Albania to Sell First International Bonds in 2008

Albania, Europe's poorest country, will sell foreign currency bonds for the first time next year to raise money for new roads and power plants, central bank Governor Ardian Fullani said.

The government of the former communist nation, where a quarter of the population lives in poverty, will discuss the size, currency and timing of the sale with the International Monetary Fund in the coming months, Fullani said in an interview in Athens on July 6.

``Albania relies on international markets to finance its development,'' Fullani said on the sidelines of a conference. ``Many investors have shown interest in Albanian bonds. Our country is making a big step forward by moving from a country in transition to an emerging economy.''

The Adriatic state of 3.6 million people was ruled for 40 years until 1985 by dictator Enver Hoxha, supported by communist China. It ditched totalitarianism in 1990, though is lagging behind its neighbors in the transition to an open-market economy, hindered by the activities of organized crime gangs smuggling drugs, people and arms from Asia and South America, the CIA Factbook shows.

Moody's Investors Service on June 29 assigned Albania a B1 rating, four steps below investment grade, ranking it with Ukraine, Indonesia and Jamaica. Other Balkan nations such as Croatia and Bulgaria have a Baa3 rating, the lowest investment grade.

Global Markets

The government plans to raise 300 million euros ($409 million) on global markets, said Grid Rroji, the director of information and public relations for the office of the prime minister, in an e-mail on July 2, without giving a timetable.

Albania has an external borrowing limit under its agreement with the IMF, which allows it to borrow a total of 680 million euros by January 2009, when the program ends, said Ann-Margaret Westin, IMF's resident representative in Tirana, in a phone interview today.

The IMF has imposed annual borrowing ceilings of 70 million euros for 2006, 380 million euros for 2007 and 580 million for 2008, she said.

The government plans to acquire a syndicated loan of 230 million euros this year from a group of Greek banks operating in Albania, to fund road construction, Westin said. The loan would reduce Albania's borrowing limit for 2007.

GDP Growth

The $9 billion economy may grow 6 percent this year after a 5 percent expansion in 2006, ``spurred mostly by an increase in domestic demand, strong credit growth and macroeconomic stability,'' Fullani said. Annual inflation was 2.6 percent in May and has hovered around 3 percent in the past five years, he said.

An agreement with the European Union that started in December boosted trade, lending and consumption.

About 40 percent of Albanians have no running water, while decrepit facilities, power cuts and corruption hamper investment, according to the IMF. Gross domestic product per capita was $2,750 in 2006, compared with $10,700 in Bulgaria and $31,900 in Germany, World Bank figures show. The nation has a reform and poverty reduction program with the IMF that expires in 2009, Fullani said.

Situated on the Adriatic coast between Serbia and Greece, Albania wants to develop its tourist industry, so ``modern infrastructure is crucial,'' Fullani said. The government has taken measures to curb violent crime and reduce the size of the unregulated economy, according to the CIA Factbook.

Capital Flow

Annual remittances from Albanians residing in Greece and Italy amount to as much as $800 million, helping cover about 50 percent of the trade deficit. The first-quarter trade shortfall widened by an annual 21 percent to 448 million euros. Remittances from abroad totaled 233 million euros in the period, Fullani said.

The mountainous state, about the size of Maryland, attracted $300 million of foreign direct investment in 2006 and expects a similar amount this year, Fullani said. The biggest investment last year was the $157 million acquisition of 80 percent of Tirana-based American Bank of Albania by Intesa Sanpaolo SpA, Italy's second-largest bank, he said.

This year's biggest investment is by Turk Telekomunikasyon AS, Turkey's main fixed-line telephone company, and Calik Holding AS, which bought 76 percent of Albania's state phone company Albtelecom ShA for 120 million euros on June 19.

Societe Generale SA will complete this year its acquisition of 75 percent of Tirana's Banka Popullore for an undisclosed amount.

``Albania is making a lot of efforts to improve the economy,'' Fullani said. ``The government is working on a package of incentives to attract more investment.''

Bank Lending

These incentives include the introduction of a flat corporate tax, possibly from next year, he said. The government plans a budget deficit of between 4 percent and 4.5 percent of gross domestic product, Fullani said.

Almost 100 percent of Albania's 16 banks are in private hands, owned mostly by banks based in the EU, Fullani said.

Lending by banks rose 50 percent in 2006 and will rise by a further 50 percent this year to reach 30 percent of GDP, Fullani said. The central bank is not taking measures to curb lending, he said. The central bank imposed new supervision requirements from July 1 ``pushing banks to improve governance, internal control and transparency,'' Fullani said.

External debt is 20 percent of gross domestic product, while the overall debt-to-gross domestic product ratio is 55 percent, according to the Finance Ministry.

Albania has two series of bonds outstanding, known as the par bonds and the income notes, which were created from a restructuring of its debt in 1995.

source:bloomberg.com