COVID hits services exports, 378 million euros outside Albania in the second quarter; Current account deficit at the highest level since 2009

Current account balance in Albanian from 2008 to 2020; source: monitor

 The pandemic crisis has hit the export of services and has significantly deepened the country's current account deficit.

Data from the Bank of Albania show that for the second quarter this deficit reached 378 million euros, an increase of almost 28% compared to the same period a year ago.

The second quarter also brought an expansion of the progressive annual deficit, bringing it to 612 million euros, 8% more compared to the first half of last year. This is the highest current account deficit for the first 6 months since 2009.

The current account deficit essentially represents the difference between the inflows and outflows of foreign currency in the economy.

Historically, Albania is an economy with a negative balance of trade in goods, but this deficit is partially compensated by a surplus in the services account, as well as by income from work and secondary income, mainly from remittances. The positive result of the services is related to the significant weight that the sectors that use the free labor force, mainly tailoring or call center services, have in the balance of payments, but also to the net income from tourism.

Following the outbreak of the Covid-19 crisis, the ratios defining the current account deficit have changed: the goods deficit has declined, while the services deficit has widened.

Although the deficit in goods remains quite large, at over 1.3 billion euros, it has fallen by 11% compared to a year ago. In absolute terms, the closure of the economy has affected the imports more than exports, reducing the deficit in goods.

Meanwhile, Bank of Albania data show that net income in the economy from services for the first six months fell to 408 million euros, 25% less compared to the first half of last year. The hardest hit was the second quarter, where services exports fell to 46%.

Exports of services are affected in all segments, where tourism is certainly the most visible part. In the second quarter, the net balance of revenues from tourism was negative by two million euros, while a year ago this sector had brought net revenues in the amount of 81 million euros. For the first 6 months, net income from tourism was 91 million euros, 42% less compared to the same period of 2019.

The paralysis of cross-border movements after the closure caused by the pandemic has reduced to a minimum both the movements of Albanians abroad and the visits of foreigners to Albania. But, since Albania usually has a net balance from positive tourism, the closure has negatively affected the services account.

Meanwhile, the shock has been more moderate in the tailoring sector, despite initial problems with raw material supply, declining demand, and difficulties in continuing with a normal working regime in pandemic conditions. Revenues from the input processing service for the second quarter resulted in the same value as last year, while for the 6-month period resulted in a decrease of 10%, a decrease determined mainly by the first quarter.

While the tailoring sector has passed the peak of the crisis with limited consequences, its negative effects have been felt on other current income accounts, those from work and from emigrants. Balance of Payments statistics show that income from work abroad for the first six months of 2020 decreased by 37.5%, while remittances by 18.5%. Income from work includes payments for seasonal employment abroad, or from distance work for non-resident companies in Albania.