S&P Global Ratings upgraded Albania’s long-term foreign and local currency sovereign credit ratings to ‘BB’ from ‘BB-‘, citing the nation’s improved fiscal position and robust economic performance. The stable outlook reflects balanced risks to Albania’s economic, external, and fiscal health.
The upgrade is primarily attributed to Albania’s successful fiscal consolidation, which has seen gross general government debt decline by 10 percentage points of GDP since 2019, reaching approximately 49% of GDP in 2024. This achievement is largely due to prudent fiscal policies and a surge in service exports, particularly tourism, which has more than doubled since 2019. The 2025 budget projects a deficit of 2.6% of GDP, though S&P anticipates a lower actual deficit of 2.2%, given the government’s track record of underspending.
Albania’s economic outlook remains positive, with projected annual GDP growth exceeding 3% between 2025 and 2028. This growth is driven by strong household spending, investment in energy, leisure, and real estate, and sustained foreign direct investment (FDI) inflows. Real GDP is expected to expand by 3.6% in 2024, with an average growth of 3.5% between 2024 and 2027.
However, Albania faces structural challenges, including a declining birth rate and persistent emigration. The 2023 census revealed a 14% population decline since 2011, with approximately 429,000 Albanians leaving the country in the past decade. The fertility rate is critically low at 1.21 births per woman. Labor shortages are already impacting economic output. The government has introduced financial incentives to retain labor, but the effectiveness of these measures remains uncertain.
Albania is leveraging its EU accession process to address these structural challenges. The initiation of negotiations on core areas, such as the rule of law and property rights, marks a significant step. However, the government’s 2030 target for EU accession is ambitious, given the necessary structural reforms and unresolved bilateral disputes, particularly with Greece.
Despite these challenges, Albania’s financial sector remains stable, with low nonperforming loans and strong capital ratios. However, risks include high foreign currency debt exposure, short domestic debt maturities, and potential vulnerabilities from rising property prices.
The Bank of Albania has intervened in the foreign currency market to manage appreciation pressures on the Albanian lek, resulting in increased foreign currency reserves. The current account deficit is expected to widen slightly to 2.6% of GDP in 2025, primarily financed by net FDI inflows.
In summary, Albania’s upgraded credit rating reflects its improved fiscal position and strong economic performance, driven by prudent policies and a booming tourism sector. However, the country must address structural challenges, navigate EU accession, and manage potential financial risks to sustain its positive trajectory, the credit rating agency said.
