Denada Jushi
Albania is facing a rare economic paradox; a national currency that is strengthening beyond expectations and a Euro that is losing ground day by day.
The exchange rate has fallen below 98 Lekë per Euro, the lowest level in a decade, when a few years ago, one Euro cost 140 Lekë, a difference that has sparked strong debates among economists, exporters and the Bank of Albania.
Behind these figures lies a complex reality, where high foreign exchange inflows, the informal economy, and the lack of a clear fiscal policy are building a dangerous balance for the Albanian economy.
And the biggest question is how far will this devaluation of the Euro go? Does it risk damaging the country's economy?
Economic expert Selami Xhepa describes the situation as "an imbalance created between demand and supply in the monetary market, fueled by strong foreign exchange inflows into the Euro."
According to him, the improvement of the domestic economy, the increase in exports of goods and Services, especially tourism, and foreign investments have had a strong impact.
But, Xhepa adds, the story doesn't end here:
"I think that Euro inflows from the informal economy, trafficking, corruption, etc. have also played an important role in the behavior of the exchange rate."
For years, it has been discussed informally, to what extent is dirty money entering our country affecting the economy?
Does the economic reality influenced by this money harm the normal citizen of this country?
Instead of a currency shortage, as is usually the case in a small economy like ours, today there are more Euros circulating in Albania than ever before. They come from tourists, immigrants, but also from channels that no one fully controls. And this “flood of Euros” is itself lowering the value of the European currency against the Lek.
ACQJ addressed the Bank of Albania to understand more about this speculation, about the causes and reasons that this institution notes regarding the depreciation of the Euro and whether the Bank of Albania itself has intervened as an actor in this situation.
The latter has refused to answer specific questions, so far, regarding the official request, but its public stance has been repeated, the exchange rate is not a monetary policy objective, but inflation is.
So what does this mean?
In Selami Xhepa's interpretation, this means that the interventions that the bank has made in the market "have only aimed to avoid strong fluctuations, without having the aim of maintaining a certain level that is considered harmful to the real sector."
In practice, this means that the Euro has been left to "freely depreciate", despite the fact that this has produced a domino effect on several pillars of the economy such as exports, production, credit and remittances.
Devaluation losers and winners
Economic journalist Neritan Gjerko describes this situation with a strong metaphor.
"If we look at the performance of the Euro in the region, Albania is like a plane landing on the runway, while its neighbors remain in stable flight."
According to Gjerko, the biggest losers are exporters, mainly manufacturing companies which "have declared losses exceeding 200 million Euros, have laid off staff and some have closed or moved abroad."
These businesses, which sell in Euros but pay costs in Lekë, are seeing profits melt away due to the exchange rate. Other losers are families living on remittances.
In 2020, 100 Euros were worth 12,500 Lekë. Today, they are worth only 9,700 Lekë, 2,800 Lekë less for the same amount.
Similarly, those who have taken out loans in Euros, but have their income in Lek, are facing higher installments and interest rates that have increased after the inflationary crisis of 2022.
But not everyone loses!
The government and importers are on the other side of the coin. As usual when it comes to profits!
The government, which collects revenues in Lek and repays debts in Euros, benefits from the devaluation. It needs 25% less Lek to pay the same external debt, says Gjerko.
Meanwhile, importers of oil and other goods have increased profits, "by over 100 million Euros per year from the exchange rate alone," as prices for consumers have not decreased.
When it comes to comparing Albania to the region, of course the picture is different. In Kosovo and Montenegro, where the Euro is the official currency, the effect does not exist.
But what does the observation in North Macedonia and Serbia show? The euro has fluctuated within normal limits, without dramatic declines. Albania is the exception! Where the fall in the exchange rate is not only related to economic factors, but also to a lack of transparency over the source of the currency.
"There is an unknown presence in the market," warns Arben Shkodra, a fiscal expert.
"We are not seeing a study by the Bank of Albania that shows that we are wrong. Today we have a decrease in exports due to the appreciation of the Lek. We suspect that the presence of the Euro is occultly affecting the exchange rate."
Shkodra raises the alarm about the lack of a sustainable economic model:
"We are in 82nd place in the World Bank ranking because we are without a compass. We have no strategy that shows what the Albanian economy will be."
He adds that the construction boom and cash flows from post-earthquake reconstruction have fueled the market with Euros of no clear origin, without reflecting in increased production or exports.
Of course, this landscape is not without consequences! If the Euro continues to depreciate, warns Xhepa, "we risk a severe monetary crisis with irreparable consequences."
Domestic and export production would be seriously disrupted, and the competitiveness of tourism would also be significantly affected, he says. Meanwhile, the Bank of Albania lists several other factors that have had an impact, according to them.
Regarding the impact of the strengthening of the Lek on exports, the analysis is more complex and depends on a number of factors, including the type of exposure to international markets and the ability to pass on costs to the prices of products or Services offered.
Meanwhile, citizens are adapting. As Gjerko notes, “today the exchange rate is becoming more readable and predictable.”
A portion of the population has begun to save in Lek and seek loans in the local currency, recognizing that "every penny saved in Lek today will have more value in foreign currency tomorrow."
Albania is currently standing in a "delicate" balance between short-term gains and long-term risks that could explode at any moment. If the Euro continues to fall, what looks like a monetary victory today could turn into a crisis tomorrow that we will all pay for. /acqj.al
