Albania’s sovereign credit rating affirmed at ’BB/B’ by S&P

Investing.com -- S&P Global Ratings affirmed Albania’s ’BB’ long-term and ’B’ short-term sovereign credit ratings on Friday, maintaining a stable outlook.

The rating agency cited Albania’s moderate growth prospects, fiscal discipline, and sizeable foreign exchange reserve buffers as key factors supporting the ratings, which provide important protection against external shocks.

S&P expects Albania’s real GDP to expand by 3.4% in 2025, driven by resilient household spending supported by a tight labor market and rising real wages. Tourism remains a key growth pillar, though its contribution may moderate as the sector matures.

The agency forecasts GDP growth to average 3.4% annually from 2026-2028, though downside risks exist due to Albania’s dependence on tourism and exposure to potentially weaker demand from key EU partners like Germany.

Albania’s EU accession process has accelerated in recent months, with 24 of 33 negotiation chapters now open. The European Commission has approved €920 million in funding under the €6 billion Western Balkans Growth Plan for strategic projects including the Durrës-Rrogozhinë railway.

However, demographic challenges loom large. The 2023 census revealed a 14% population drop since 2011, with nearly 15% of the population emigrating over the past decade. Albania’s fertility rate of 1.21 births per woman is among the lowest globally, pointing to an accelerating contraction of the working-age population.

S&P noted that Albania’s public finances remained in surplus during the first seven months of 2025, with a fiscal surplus of Albanian lek 32.6 billion (about €330 million; 1.2% of GDP), though this was down 41% year-on-year as expenditure growth outpaced revenue.

The 2025 budget allows for a fiscal deficit of 2.6% of GDP, up from 0.7% in 2024, but S&P anticipates the actual deficit will be lower at about 2.3% given the government’s fiscal prudence and tendency to underspend on capital expenditure.

Looking ahead, S&P forecasts general government deficits to average about 2% of GDP through 2028, keeping net debt broadly stable at around 47% of GDP.

Inflation has risen in recent months, with headline inflation reaching 2.5% in July from 2.0% a year earlier, driven mainly by higher food and housing costs. Core inflation accelerated to 2.9% in July 2025, suggesting broadening price pressures.

S&P expects inflation to average about 2.4% in 2025 and peak in the first half of 2026. In response, the Bank of Albania is expected to hold rates steady in the near term.

The country’s foreign exchange reserves have strengthened significantly, rising 27% to $7.84 billion by July 2025, bolstered by central bank interventions and a €650 million Eurobond issuance in February.

S&P could lower its ratings if fiscal performance markedly deteriorates or if pressures on Albania’s balance of payments arise. Conversely, ratings could be raised if institutional capacity strengthens through EU-aligned reforms or if improvements in the monetary policy framework reduce euroization and enhance policy effectiveness.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.