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In Albania, the strengthening of the local currency against the euro has brought a wave of concern among businesses, especially in the export sector, which is affected by the weakening of the euro. Official authorities see the strengthening of the lek as linked to some positive indicators in the economy, such as the increase in exports or foreign investment. However, some researchers of economic developments in the country see the strengthening of the local currency as having an informal impact on the economy and black money. They argue that these developments in the economy, which bring more euros to the market, do not justify its devaluation to the historical minimum.
The Albanian economy has made progress over the past two years, growing by 4.8% in 2022. Inflation, after last year's record figure of 8.3%, has currently dropped to 5.7%.
But beyond these developments, the country is facing a phenomenon that experts consider a concern, the sensitive valuation of the local currency against the euro. The lek has strengthened by 3.4% compared to January and by 7.1% compared to April of last year.
Officials from the Central Bank, in an interview with Voice of America, see the two-year trend of strengthening the local currency against the euro as a sign of confidence in the economy.
"The speed of export growth has been, we can confidently say and covered by statistics, much higher than the speed of import growth, which has produced an additional supply of currency in the local market. As for foreign direct investment, during 2022, these have had a double-digit growth rate, so we have sufficient sources of currency inflows to cover the country's needs for imports and to generate this additional currency flow in the Albanian market," said Erald Themeli, Director of the Monetary Policy Department at the Bank of Albania, for Voice of America.
Exports in 2022 increased by 41%, or about 2 billion euros, narrowing the ratio with imports, while foreign direct investment increased by 33%, or about 340 million euros. Remittances also increased by 9.6%, or about 72 million euros, while public debt decreased from 74.5 to 64.6%.
"Export is only the first scale that takes the blow. Exports take it immediately because they receive income in euros and within a month, they have to pay in lek. They have to pay salaries in lek, they have to pay taxes in lek, they have to pay electricity in lek and every other product they buy within the country. Throughout the past year, in all the bills, I received less than at the moment when I invoiced, because throughout the year, we have a decline in the euro," said Alban Zusi, President of the Center for Exports, to Voice of America.
Experts in the field of economics say that the consequences of strengthening the local currency in the export sector may reflect in the lack of liquidity and inability to invest, and the other businesses around them are also at risk of being affected.
But many experts in the economy see a direct impact on informality and black money in the economy in the strengthening of the local currency.
"I think the factors are as macroeconomic, or let's say those fundamental forces that determine the channels of foreign exchange inflows, export growth, tourism, services in general, foreign investments, and income from remittances, which have been at record levels even during this year. So we have quite additional inflows in formal channels, but without a doubt, in Albania, an important part is occupied by informal channels, which maintain such a market state that in my judgment, make our internal currency so strong unjustified," argued Selami Xhepa, President of the European University of Tirana, for Voice of America.
Arben Malaj, former Minister of Finance, sees the non-performing assets sector as problematic.
"In the non-performing assets sector, or in some other businesses, we see that there is always an increasing demand, which is not natural from the sources that Albanians themselves have, whether it is the middle class, which is more aggressive for better living conditions, or even businesses, and the problem is not that this money distorts the construction and rental market. The problem is that Albania will become more expensive, and Albanians are at risk of becoming poorer," said Arben Malaj, former Minister of Finance, to Voice of America.
According to INSTAT data, the construction sector, with a decrease from a negative growth rate up to 6% in the years 2010-2020, grew by 18% and 10.7% in the last two years. Also, the non-performing assets sector grew by 5.8% and 11.2% during these years. In 2022, it was the highest growth in the last decade.
Approved building areas in the last five years have increased three times, and in 2022 they were 2 million 667 thousand square meters. The main weight of the areas for housing is held by 76% of the Tirana prefecture. But the rapid development of the construction and real estate sector, according to experts, shows some deformations that go against the rules of the market.
"The population is falling because people are emigrating, even the middle class is emigrating, and these are the people who buy mostly the new houses. On the other hand, construction is increasing and with them, the price of housing is increasing. It's economic madness. Housing prices should have dropped significantly. We talk about money laundering in construction, but the most important part of money laundering in construction is money laundering through acquisition, not just construction," said Neritan Sejamini, an economic expert.
But officials insist that the strengthening of the local currency is related to the positive performance of some sectors in the economy and not to the penetration of informal money.
However, experts on the other hand have expressed constant concern over the high level of money circulation outside the banking system, about 3.4 billion euros, or 20% of GDP, the highest level in the region.
Officials of the Central Bank told the Voice of America that the reasons for this high level of money outside the banks are related to the functioning of the economy, which is based on the circulation of cash during the transition, as well as the financial culture and the low extent of the banking system throughout the territory of the country.
Representatives of some associations of exporters have requested the intervention of the authorities in the face of the situation created by the devaluation of the euro. Asked by the Voice of America if an analysis has been carried out and if there is a forecast on the blows received by some sectors, especially exporters, the Minister of Finance Delina Ibrahimaj announced a meeting with representatives of this sector soon on this issue, and emphasized that the exchange market foreign exchange is free and operates on the basis of supply and demand. But experts warn that the consequences of the continuous devaluation of the euro against the lek will have a negative impact on some sectors of the economy, especially exports. According to them, it is likely that this sector, which had significant growth last year, with an impact on economic growth in the country, will suffer severe damage in the future.