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Strengthening the Government Bond Market and Management of Related Public Debt in Albania

Project Development Objective (PDO)

The objective of this project is to strengthen, broaden, deepen, and increase the efficiency of capital markets in Albania by (a) improving public debt management (PDM) and (b) enhancing the development of the government bond market (GBM).

Background

The 2013 Financial Sector Assessment Program (FSAP) in Albania highlighted how the Albanian financial sector not only operates in a highly uncertain macroeconomic environment, but also faces several external and domestic risks. To mitigate these risks, the Albanian Ministry of Finance set out to (a) develop a more effective debt management strategy, (b) diversify the investor base in Albania, and (c) reduce the share of short-term domestic debt, all in an effort to improve both the yield curve and the liquidity of secondary markets. 

Activities

Component 1: Strengthening public debt management
The project team is conducting a comprehensive review of current institutional arrangements, internal organization, and staff resources. This review will allow the team to (a) make recommendations for ensuring efficient PDM and (b) support the actual implementation of these recommendations. In addition, the project team is providing recommendations for improving the existing medium-term debt management strategy as well as the internal primary issuance plan. 
Component 2: Government securities market development
The project includes an analysis of the primary and secondary markets of public debt, with recommendations on a desirable set of benchmarks. The project also includes development of a strategy to issue bonds and implementation support to establish benchmarks, reduce fragmentation, improve transparency in primary markets, and stimulate liquidity of secondary markets.
The team is preparing a strategy to implement improvements in auction procedures in an effort to increase transparency and improve price formation. It is also designing a systematic liability management program and proposing changes to the regulatory framework. Lastly, the team is identifying and providing implementation support for measures to foster both liquidity of secondary markets and diversification of the investor base, as well as analyzing the market readiness of a primary dealer program. 

Expected Outcomes

The main expected outcomes of the project are as follows:
Outcomes at the enabling environment level:
     1.  Improving PDM by leveraging institutional arrangements, resources, and skills to design, 
          develop,and implement a PDM strategy and annual issuance plan
     2.  Strengthening the government securities market through improvements in the regulatory 
          framework, making the bond issuance process more transparent, and increasing efficiency 
          and liquidity of secondary markets
Outcomes at the financial system level:
     1.  Reducing fragmentation, improving transparency and predictability in primary markets, 
          increasing liquidity of secondary markets, and diversifying the investor base