bne IntelliNews – Pandemic pushes public debt to almost 80% of GDP in Albania and Montenegro
Albania has become the country in the Western Balkans region with the highest public debt-to-GDP ratio in the third quarter of 2020, even surpassing Montenegro, whose high debt ratio has long been a concern.
Debt has increased in the region – and indeed in many countries of the world – as the coronavirus pandemic (COVID-19) has forced governments to increase public spending while experiencing declining tax revenues.
GDP continued to decline well from 2019 levels in the third quarter, according to data compiled on candidate countries for EU membership by the European Commission, although the situation has improved by compared to the second quarter, with regional GDP down only 4.5% over the year.
âLarge-scale fiscal support to households and businesses to combat the adverse effects of the crisis, combined with a significant drop in income, resulted in a sharp increase in budget deficits in the first eleven months. Along with a decline in GDP, this has led to substantial increases in the public debt-to-GDP ratio in all countries compared to the end of 2019, âhe added.
âThe negative impact of the COVID-19 crisis on budget balances intensified in the third quarter and into the fall. In all the countries of the Western Balkans region, the public deficit has widened sharply, while expenditure linked to the crisis has increased and tax revenues have fallen further, âhe added.
In Albania, the public debt-to-GDP ratio rose to 79.9% of GDP, higher than in Montenegro (78.1%) and Serbia (57.1%), according to the report. Before the crisis, Albania’s public debt was only 66.2% in 3Q19. The rate was on a steady downward trajectory between 2016 and 2019.
However, the first 10 months of 2020 saw revenues drop 9.5% and expenses increase 5.8% compared to the same period of 2019.
Earlier in January, Finance Minister Anila Denaj defended the increase in the country’s debt during the pandemic year, saying the country would continue on the path of fiscal consolidation. Denaj pointed out in a press conference that Albania was facing not only coronacrisis, which had forced countries around the world into debt, but also a severe earthquake at the end of 2019 that had caused considerable damage.
The Minister of Finance also underlined that Albania will reverse its path of fiscal consolidation after the crisis.
Like many other countries in central and south-eastern Europe, Albania successfully issued ‘corona bonds’ in 2020, selling in June a seven-year Eurobond valued at 650 million euros, with a coupon rate of 3.65%. The issue was aimed at refinancing past debts and meeting the government’s financial needs.
In Montenegro, the public debt-to-GDP ratio had risen before COVID, despite government efforts to curb public spending after concerns were expressed about the high level of indebtedness to China, which funds the dear Bar- Boljare. highway.
Montenegro’s debt rose in the last month of 2020, when the government used a eurobond of 750 million euros – equivalent to 16% of GDP – what Finance Minister Milojko Spajic said Montenegro âsaved from bankruptcyâ.
In Serbia, too, the crisis has weighed heavily on public finances, sharply deteriorating the budget balance due to revenue deficits and increased spending, âthe report says. âThus, while partially recovering the ground lost in the second half of the year, total turnover was still down by 1.8% over one year from January to November 2020, particularly impacted by the drop in non-tax revenue ( -6.8%) social contributions (-2.2%) and corporation tax (-4.0%). “