Albania assigned first sovereign ratings by Moody's

Albania is making the transition from an isolated, administered economy to a market one, according to Moody's Investor's Service. Earlier this summer, the international ratings agency gave the country its first-ever sovereign ratings -- Ba1 for foreign-currency bonds and a B1 for the government's debt obligations.

Albania also received a B2 for foreign currency bank deposits, A3 for local currency and Baa1 for local currency bank deposits. Moody's said the overall ratings assigned to Albania carry a stable outlook. Albania, together with Belarus, were the only countries in the region that did not have a sovereign rating.

"Obtaining a credit rating ... reduces the information gap and firmly places Albania on the world investors' map, creating further incentives for both foreign direct investment and portfolio investments," says Ann Margaret Westin, the IMF's representative in Tirana.

Sovereign ratings are used by governments to raise capital to finance national debt. They allow the government the opportunity to secure additional funds at more competitive prices.

The Albanian government says it now plans to issue Eurobonds in order to finance part of its debt. "We are interested in ranking our country, so that we can benefit from foreign loans at lower interest rates," said Finance Minister Ridvan Bode, during a meeting with Moody's experts in Tirana.

Based on the Albanian government's economic and fiscal plan for the next two years, approximately 100m Eurobonds are likely to be sold into the market. The aim is to gradually substitute domestic debt with foreign debt by 5% to 10% through the use of Eurobonds.

"The risk assessment will release our country out of anonymity and assumed maximum risk," says Milva Ekonomi, the executive director of Agenda, an Albanian think tank.

However, Ekonomi adds, it is crucial that the amount of foreign debt financed by Eurobonds be watched closely.

In an effort to maintain control of foreign debt, the IMF and Central Bank will supervise the borrowing process. As Westin confirms, "within the IMF programme, we do have limits on external borrowing that will put a ceiling on how much the government can issue at this stage."

According to some financial experts, the exchange risk of using Eurobonds is a possible weakness in future transactions. The lek is the Albanian national currency, while the debt would be issued in Euros, they point out.