What is meant by the S&P assessment for Albania in September 2023?

The sovereign credit rating is a measure of the government’s ability to repay its debts. Like personal credit scores, a high credit score indicates a financial situation with low credit risk and a low score indicates a government that may struggle to repay its debts[1].

The S&P Global Ratings Public Debt Repayment Rating is a forward-looking opinion regarding the creditworthiness of a government with respect to a specific financial obligation, a specific group of financial obligations or a specific financial program. S&P takes into account the creditworthiness of the state budget and this applies as a function of the increase in credit over the obligation taking into account the currency in which the obligation is expressed. The opinion reflects S&P Global Ratings’ view of the obligor’s capacity (and willingness) to meet its financial commitments when due, and may assess conditions, such as collateral, security and subordination, which may affect the final payment in case of default.

What about the rating categories from the Moody’s and S&P agencies?

There are a total of 11 rating categories in the entire rating scale (AAA. AA, A, BBB, BB+B+CCC+CC+C, BB, B, CCC, CC, C, D)

At Moody’s, the A1 rating comes after the Aaa, Aa1, Aa2 and Aa3 ratings. The A rating itself indicates that the bond (or whatever situation is being rated) is “high-medium grade and subject to low credit risk. A rater with this rating indicates that “the bond ranks at the highest level of its credit rating category”.

At Standard & Poor’s, the A rating follows the AAA, AA+, AA and AA- ratings. The A rating itself indicates a “strong capacity to meet financial commitments, but somewhat sensitive to adverse economic conditions and changes in circumstances.” An obligation rated ‘AAA’ has the highest rating assigned by S&P Global Ratings and indicates the debtor’s sufficiently high capacity to financially meet the commitment to the obligation S&P further adjusts the rating by adding a + or – to the letter.

Both A+ and A1 are six ratings above the cutoff that separates investment-grade debt from high-yield debt, which carries ratings of Baa1/BBB+, Baa2/BBB, Baa3/BBB-, or even lower.

The A+/A1 rating means that the issuer has stable financial support and ample cash reserves. The risk of default for investors or policyholders is very low.

Credit ratings assigned by various rating agencies are primarily based on the creditworthiness of the insurer or issuer; in a sense, they are a quantitative assessment of a borrower’s creditworthiness. A+ and A1, like all ratings, can be interpreted as a direct measure of the probability of default. However, credit stability and priority of payment are also factored into the rating[2].

What is understood from this new assessment for Albania?

The S&P assessment in September 2023 shows an improved debt repayment capacity that Albania has, based on tax revenue indicators, lower expenses during the first 6 months of 2023, as well as an opportunity for the economy to create confidence that it will has a positive perspective to grow based precisely on the indicators above and the expectation for greater improvement in consumption and exports.

S&P assigns a rating of BB+ or lower to countries it considers investment-grade, but the lower the rating, the less certainty and environment it means in the medium term.

However, at this moment it should be mentioned that in relation to the interest of foreign investments in our region, given that Serbia and North Macedonia have a higher evaluation rate (BB+) which is based on the advancement in rank, which they have in the report with Albania is a greater guarantee in the financial market and the security they present to investors.

The all-country rating is ultimately a rating used by sovereign wealth funds, pension funds and other investors to assess the creditworthiness of Serbia, Albania, North Macedonia and all other regional countries (Kosovo does not have a assessment yet) and with a significant impact on each country’s borrowing costs.

The “positive outlook” according to the agency reflects its view that the country’s fiscal parameters will continue to improve beyond the agency’s expectations, through the government’s efforts to consolidate public finances. Moreover, despite a slowdown in the country’s main trading partners, S&P predicts that the parameters of Albania’s external position may improve more than expected, as the economy is recovering and the Albanian tourism sector continues to expand.

[1] https://www.investopedia.com/terms/s/sovereign-credit-rating.asp

[2] https://www.maalot.co.il/Publications/GMT20160823145849.pdf