Euro hits new surprise low against Albanian lek

Euro hits new surprise low against Albanian lek

TIRANA, Oct. 2 – Europe’s single currency has been losing ground against the Albanian lek in the past couple of weeks in an unexpected renewed downward trend at a time when Albania’s central bank continues its emergency intervention and the

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State-run Serbian operator considers Telekom Albania purchase

State-run Serbian operator considers Telekom Albania purchase

TIRANA, Oct. 1 – Greece’s OTE Group, where Deutsche Telekom holds a 40 percent stake, is planning to sell its Telekom Albania unit, the country’s second largest mobile operator with a state-run Serbian mobile operator reported as a frontrunner to

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Albanian households consuming less when adjusted for inflation, INSTAT survey shows

Albanian households consuming less when adjusted for inflation, INSTAT survey shows

TIRANA, Oct. 1 – Albanian households practically consumed less in 2017 as spending stagnated and inflation hit a 5-year high, unveiling that the almost decade-high GDP growth that the Albanian economy registered last year did not have any major impact

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Durres dumpsite still pending final solution as emergency situation remains on paper

Durres dumpsite still pending final solution as emergency situation remains on paper

TIRANA, Oct. 1 – The announcement of an environmental emergency at a waste dumpsite just outside Durres, Albania’s second largest city and the traditional top tourist destination, has not changed anything for the better at the Porto Romano hotspot. Video footage

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Moody’s warns of energy, PPP risks to Albania’s credit rating

Moody’s warns of energy, PPP risks to Albania’s credit rating

TIRANA, Sept. 27 – Bond-rating giant Moody’s expects the Albanian economy to grow at around 4 percent over 2018-19, but warns of risks related to the country’s hydro-dependent electricity sector and public private partnerships. In an announcement made this week,

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Albania offers baby bonus hikes to fight sharp decline in birth rates

Albania offers baby bonus hikes to fight sharp decline in birth rates

TIRANA, Sept. 27 – With birth rates having hit a historic low and the population rapidly growing older due to drastic changes in lifestyle and massive migration following the collapse of the hardline communist regime in the early 1990s, the

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Mid-priced Hilton brand hotel opens doors in Tirana

Mid-priced Hilton brand hotel opens doors in Tirana

TIRANA, Sept. 27 – Hilton Garden Inn, a mid-priced brand owned by Hilton Worldwide, has launched its first Albania hotel, an Albanian investment in partnership with the prestigious US-based hospitality chain. Located in downtown Tirana, Hilton Garden Inn, is a

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VAT reform took 13,000 businesses to bankruptcy, association says

VAT reform took 13,000 businesses to bankruptcy, association says

TIRANA, Sept. 26 – Albania business representatives say more than a dozen thousand businesses have gone bankrupt this year following legal changes increasing the tax burden and more are about to close down amid an unaffordable increase in costs, bureaucracy

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Rainfall saves Albania’s GDP growth in year’s first half

Rainfall saves Albania’s GDP growth in year’s first half

TIRANA, Sept. 26 – Hydropower was the key driver of Albania’s economic growth for the second quarter in a row fuelled by heavy rainfall doubling domestic electricity generation at a time when the contribution by main traditional sectors was quite

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Reforms more productive than free trade agreements for Albania, AIIS study finds

Reforms more productive than free trade agreements for Albania, AIIS study finds

TIRANA, Sept. 26 – Albania needs to conduct economic reforms and diversify the products it produces and exports in order to become more competitive in the Western Balkans where a Central European Free Trade Agreement has been in force for

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                    [post_content] => TIRANA, Oct. 2 - Europe's single currency has been losing ground against the Albanian lek in the past couple of weeks in an unexpected renewed downward trend at a time when Albania’s central bank continues its emergency intervention and the end of the tourist season has sharply reduced euro inflows putting pressure on the national currency.

Europe’s single currency hit a 2-month low of 125.91 lek against Albania's national currency this week to continue trading at a 10-year low after stabilizing at about 126 lek since early last June when Albania’s central bank decided to apply its uncommon emergency intervention policy and purchase excess euro from the local currency exchange market in a bid to prevent a further strengthening of the national currency which has a series of negative effects on Albania’s highly euroised economy.

However, under a free floating currency exchange regime determined by market demand and supply, the central bank’s ongoing intervention since early June has been unable to stop the national currency’s controversial strengthening.

Europe’s single currency has lost about 0.85 lek against Albania’s single currency in the past couple of weeks in a modest depreciation, but against expectations of a stronger euro starting September 2018 following the end of the peak tourist season that traditionally weakens the euro against the Albanian lek because of a hike in euro inflows from tourists and Albanian migrants coming home to spend their summer holidays.

The euro dropped to as low as 124.17 lek in early June 2018 before stabilizing to 126 lek in the past four months, but yet continues trading at about 6 percent below its late 2017 rate and is 10 percent below the mid-2015 level when its five-year reign of about 140 lek came to an end.

Euro’s free fall has had a series of negative effects for Albania’s highly euroised economy, mostly Eurozone-destined exports, local producers facing tougher competition from cheaper imports and sizeable Euro-denominated savings and remittances.

On the positive side, repayment of loans has become cheaper for about half of borrowings denominated in euro and the government’s external debt.

Albania's central bank says it purchased about €109 million from commercial banks in the second quarter of this year in a bid to increase its foreign currency reserve and prevent a further depreciation of Europe’s single currency against the Albanian lek.

Emergency operations continue at a time when the key rate has been held at a new historic low of 1 percent since last June amid fears of disinflationary pressure from cheaper imports.

Albania’s inflation rate has been at an average of 2 percent this year, but is yet 1 percent below the 3 percent target estimated to have a positive impact on the economy, by stimulating demand.

A sharp strengthening of Albania’s national currency, lek, against Europe’s single currency is emerging as a new threat to the Albanian economy during this year, in addition to the already high public debt levels, sluggish credit and consumption as well as non-performing loans at declining but still high levels.

The government says its mid-year budget cut was triggered by a weaker euro and US dollar hitting public finances by 5 billion lek (€39.3 mln) for the first eight months of this year, about 2 percent of total government revenue.

The negative effects are mainly related to euro’s free fall against the Albanian lek making imports much cheaper and reducing the amount of the key value added tax that the Albanian government collects from imports, the overwhelming majority of which comes from the Eurozone.

Exporters have also reported a sharp cut in profits from euro depreciating by about 6 percent against the Albanian lek this year.

The U.S. dollar, whose weight on the Albanian economy is much lower compared to the euro, has also depreciated by about 9 percent since early 2017 and currently trades at a three-and-a-half year low of 109 lek, compared to a 12-year high of about 130 lek in early 2017.

Albania’s central bank says the stronger national currency reflects a recovering economy, higher euro inflows from major energy-related projects, the tourism sector and market expectations, but the main opposition Democratic Party and some economy experts have linked the national currency’s constant strengthening to alleged illegal euro inflows resulting from the peak 2016 cannabis cultivation and ongoing drug trafficking in the country, considered a major cannabis producer and a key transit route for cocaine and heroin for European markets.

The opposition claims crime proceeds are being laundered into the construction industry, which it says is booming amid sluggish credit recovery.
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                    [post_content] => TIRANA, Oct. 1 – Greece’s OTE Group, where Deutsche Telekom holds a 40 percent stake, is planning to sell its Telekom Albania unit, the country’s second largest mobile operator with a state-run Serbian mobile operator reported as a frontrunner to acquire the key asset, according to international media reports.

“Serbia’s state-run Telekom Srbija has made an offer to acquire Telekom Albania as it looks to expand in the Balkans. Czech PPF Group and Bulgaria’s Vivacom are also vying to acquire it,” Reuters reports, citing Serbian media.

Turkish and Greek companies are also reportedly interested in acquiring the German-Greek operator, according to government sources quoted by local Albanian media.

The entry to Albania of Telekom Srbija, which also operates in Bosnia and Herzegovina and Montenegro, would mark the first major Serbian investment in Albania, where Serbian investment is quite modest, amid tense political relations over Kosovo, the ethnic-Albanian country which declared its independence from Serbia a decade ago.

Albania and Serbia have been closely working in the past few years to overcome historical barriers that have held back closer economic cooperation and investment, but trade and investment ties have slowly progressed.

Foreign direct investment from Serbia, the region’s largest economy, have in the past three years climbed to a modest stock of €20 million while Albanian investment in Serbia is almost non-existent.

Meanwhile, trade exchanges between the two countries hit a record high of about 30 billion lek (€236 million) in 2017, fuelled by an almost 40 percent increase in Albania’s imports from Serbia, leading to a wider trade gap with Serbia.

 

Second largest operator

Former AMC Albania was initially launched as a state-run operator in late 1995 as the country’s first mobile operator before it was acquired in 2000 by Greece’s OTE Group and rebranded Telekom Albania in mid-2015.

Telekom Albania is currently the second largest mobile operator in the country with a 36 percent market share, but posted significant losses in 2017 along with leading mobile operator Vodafone Albania.

Telekom Albania and Vodafone Albania each purchased a 50 percent share in Plus Communication operation at the end of 2017 when the sole Albanian-owned mobile operator ceased its operations after seven years of activity, leaving the market with three foreign-owned operators, including Turkish-owned Albtelcom.

Albania’s mobile phone operators suffered a double-digit decline in revenue in 2017 in an ongoing downward trend since almost a decade, triggered by tougher competition and smartphone apps replacing traditional phone calls and text messages, according to the electronic communications watchdog.

 

Experts worried

Economy experts describe the departure of German giant Deutsche Telekom as a bad signal for the Albanian economy and the country's telecommunications, a key sector also for the country’s national security.

"That is not good news as an international brand which you can take pride in is departing and considering the ones rumored to replace it, that will only be a transaction with no development for the market as the reality will remain unchanged," financial expert Elvin Meka has told a local TV.

The financial expert says the government should reconsider acquiring a minority stake in the telecommunication market also on national security grounds.

"That is an alarm bell that should also serve the Albanian government to reconsider the opportunity of reacquiring even a minority stake in such asset," Meka has told local Top Channel TV.

The Albanian government sold its minority 12.6 percent stake in former AMC for about €48 million in 2009 and currently has a 24 percent stake in Albtelecom landline, mobile and internet provider.

Economy expert Zef Preçi is even more skeptical of Telekom Albania’s possible acquisition by non-EU investors.

"The increase in the Chinese and Turkish capital and extra pressure on capital of Russian origin or similar countries is in essence testimony to the fatigue that serious EU companies have with the business climate in Albania either with its slow improvement or its deterioration," says Preçi.

"The company owners are compensated for the company's present market value. But the arrival of a new company means tougher business and lower infrastructure investment which punishes consumers," says Preçi.

The Albanian government says it has not been officially informally of sale negotiations which will also have to receive its okay and regulators such as the electronic communications and competition watchdogs.

Several major EU and North American investors have left Albania in the past few years with key assets in the air transport, oil, banking and health sector changing hands.

 
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                    [post_content] => TIRANA, Oct. 1 - Albanian households practically consumed less in 2017 as spending stagnated and inflation hit a 5-year high, unveiling that the almost decade-high GDP growth that the Albanian economy registered last year did not have any major impact on the overwhelming majority of Albanians.

The Albanian economy hit a 9-year high of 3.8 percent in 2017, but much of the growth was attributed to TAP and the Devoll Hydropower, the two major energy-related investments that are due to complete by early 2019, as well as a recovery in the long-ailing construction sector, triggering concern by experts over non-inclusive growth benefiting only a small part of the population.

A nationwide survey conducted by INSTAT, the state-run statistical institute, shows average spending for an Albanian household rose by a mere 0.4 percent in 2017 at a time when consumer prices hit a 5-year high of 2 percent, in a situation that unveils real expenditure growth was down by 1.6 percent when adjusted for inflation rate.

An average Albanian household of 3.7 persons spend a total of 73,400 lek (€580) a month in 2017, with the per capita spending at 19,660 lek (€155) and almost half of the monthly budget still going on food items.

Back in 2016, average spending for an Albanian household grew by 4.2 percent at a time when consumer prices hit a 16-year low of 1.3 percent and the economy grew by 3.4 percent, indicating moderate growth of 2.9 percent in household spending when adjusted for inflation, according to INSTAT.

The survey shows Albanians increased their spending on transport, health, hotels and restaurants by 12 to 15 percent in 2017 fuelled by a hike in oil prices, more patients addressing the private health sector and spending more on medicines and a rise in foreign tourist numbers triggering a spike in local prices.

Meanwhile, spending on garment and footwear as well as education dropped by around 11 percent amid tougher competition and lower demand reducing prices.

 

Sizeable food spending

A sizeable 44 percent of monthly spending for an Albanian household still goes to fund "food and non-alcoholic beverages," the key item in the consumer basket consisting of basic products such as milk, eggs, bread, meat, vegetables and fruit.

Spending on basic products has only slightly dropped from 45 percent in 2016 and 48.7 percent in 2015 in the past couple of years, but yet remains the highest among EU aspirant households.

The situation reflects rather expensive consumer prices for the average Albanian income, triggered by heavy reliance on imports and the application of standard 20 percent VAT even on basic products.

Albania’s food and non-alcoholic beverage prices were estimated at 75 percent of the EU 28 average in 2017, higher compared to EU member Bulgaria and lower only compared to Montenegro among regional EU aspirants despite Albania's GDP per capita remaining among Europe's lowest, at only about third of the EU average, according to Eurostat, the EU’s statistical office.

 

Inequality gap slightly narrows

The INSTAT survey shows Albania’s inequality gap slightly narrowed in 2017 as the richest 10 percent of households spent 2.4 times more than the overwhelming 90 percent of Albanians, a modest 0.1 percent drop compared to the 2016 findings.

A person belonging to the richest 10 percent spent an average of 62,330 lek (€492) a month in 2017, slightly less compared to a year before, but 3.4 times more compared to the 90 percent of households in the bottom income decile spending an average of 18,311 lek (€144) a month.

The survey shows spending for households in the top 10 percent income decile, accounting for a fifth of total consumption, dropped by 4.3 percent and increased by 1.7 percent for the bottom income group, reducing inequality gap by 0.1 percent to 2.4.

A household in the richest 10 percent is composed of an average of 2.6 persons compared to an average of 3.9 persons for the remaining 90 percent and an average of 3.7 nationwide.

Some 7,500 households nationwide were interviewed for the 2017 survey conducted by INSTAT.

The central Albanian regions of Tirana and Durres, the key drivers of the Albanian economy producing more than half of the country's GDP, have the highest household spending at an average of 20 percent above the country's nationwide average.

The northeastern region of Diber, where mining and agriculture are the two main industries, has the lowest spending at about a third below the country's average.

 

Non-inclusive growth

The Albanian economy hit a 9-year high of about 3.8 percent in 2017, but economists say the country’s GDP needs to grow by at least twice higher in order to produce tangible welfare for the overwhelming majority of Albanians.

“Despite some positive changes during the past decade, Albania is still part of those countries with exclusive growth, meaning that the number of economic stakeholders who contribute to GDP growth is still low compared to the total economic stakeholders and as a result even the ‘lion’s share’ of economic growth goes almost entirely in favor of these stakeholders, triggering huge gaps in income and economic and financial benefits,” economist Adrian Civici has said earlier this year.

Civici, who earlier served as a member of the central bank’s supervisory board, says about 80 to 85 percent of economic growth in Albania originates from less than 20 percent of economic stakeholders and as a result 80 to 85 percent of its benefits go in favor of this small group.

“In countries with all-inclusive growth there are much fairer ratios in the contribution of economic stakeholders to the growth structure and benefits from it. This is one of the major challenges facing Albania’s future economic and development policies,” says Civici.

Growth in annual household consumption ranged from 0.13 percent in 2012 to 2.86 percent in 2017 at a time when the country’s GDP growth recovered from 1.4 to 3.8 percent during the same period, considerably below the average 6 percent GDP growth estimated to bring tangible welfare to Albanian households, according to GDP growth data published by INSTAT.

 
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                    [post_content] => TIRANA, Oct. 1 - The announcement of an environmental emergency at a waste dumpsite just outside Durres, Albania’s second largest city and the traditional top tourist destination, has not changed anything for the better at the Porto Romano hotspot.

Video footage shows that almost three months after Durres Municipality declared an emergency situation at the hotspot situated only few kilometers outside Durres at a populated area and just next to a public university, waste continues to burn in broad daylight with a series of negative effects on humans, the environment and local fauna and flora.

The announcement of the emergency situation came following a June 2018 visit to the site by Prime Minister Edi Rama who promised to close down and rehabilitate the hotspot, and turn it into a giant park by autumn 2019.

"What we target is transforming that area from an environmental hotspot into a park for the Durres and Albania that we want… and by autumn 2019 we will either have completed it or we will be under way. We hope this will be a fast intervention which can benefit the whole community but also numerous tourists," Rama said during his visit to the site last June, offering a new waste-to-energy plant that is being built outside Tirana as a solution to the Durres waste disposal and treatment issue.

The current Porto Romano dumpsite, the sole waste disposal area for the whole Durres, a region of some 200,000 residents, has been often dubbed an environmental time bomb for Durres, a city that has traditionally relied on tourism, but whose reputation in the past few years has waned also due to ongoing pollution and failure to find a permanent solution to the rehabilitation of the Porto Romano hotspot.

Dozens of trucks throw unseparated waste at the Porto Romano dumpsite every day, a considerable part of which is burned, triggering clouds of smoke.

The hotspot is also an employment opportunity for scrap and plastic collectors, including minors, who defy contamination threat to help their families make ends meet.

Cows, sheep, pigs also often feed there, increasing the risk of contamination through milk or meat products.

 

An environmental time bomb

Local residents have often staged protests about closing down the dump site, but no action has been taken due to Durres having no other alternative to dispose of its waste and no budget to build a new landfill on its own modest income.

Durres residents, especially those living in Porto Romano and ish-Keneta (former swamp area), describe the situation as alarming.

“One can easily spot how smoke spreads into the whole city. Such a situation is really critical and is silently killing all Durres residents, but especially those living in the Spitalle and ish-Keneta (suburban areas) which are very close to the waste disposal site,” Nikolle Prenga, a representative of the local community has earlier said.

The situation is also critical for dozens of thousands of students of the public University of Durres who will be attending the new academic year in mid-October 2018.

Hundreds of metric tons of waste is disposed of each day at an improvised landfill just few kilometers out of the city of Durres and only hundreds of meters away from the local “Aleksander Moisiu” public university, with constant waste burning being an imminent threat to some 18,000 university students.

The unstoppable fumes emitted from waste burning are also a constant threat to local flora and fauna in a nearby wetland, not to mention tourism, the key driver of the economy in the country’s largest coastal city boasting more than two thousand years of civilization.

Damage to the tourism industry in Durres, featuring the country’s largest port, a coastline of 62 km of sandy beaches along the Adriatic and ancient sites and monuments dating back to ancient Roman times is even bigger unless immediate action is undertaken.

The hotspot currently spreads over an 80,000 m2 area, just 3 km outside Durres and close to a wetland and beach area.

The Porto Romano dump site is not the sole concern local residents and farmers face with pollution.

Local farmers often complain local plants, especially involved in battery recycling and not using protective filters, pose a damage both to human health and their field crops.

 

Expert worried

Environmental expert Magdalena Cara describes the situation in Durres alarming, saying emergency intervention is needed to prevent a possible catastrophe.

"Waste management in Durres is in a critical condition. There is waste burning all the time and the smoke cloud covers various parts of the city depending on the wind direction. There is mixed waste, including plastic, and burning emission is toxic and cancerous,” she has told a local environmental newspaper.

“There is no management at all, there is no surrounding of the dump site, restricted area or guards and everything has been neglected. There is huge pollution there and the smell is even more terrible,” she says.

Commenting on the health consequences, the environmental expert say the pollution first of all affects lungs and blood because of the toxic fumes but also causes allergies.

“The Durres Municipality says the situation at Porto Romano is beyond its powers because of the huge investment needed" she says, adding that Prime Minister Rama's visit to the site last summer has not changed anything yet.

 

No final solution yet

Durres local government sources say they are still waiting for a solution by the Integrated Waste Management Committee, a government inter-ministerial body chaired by the country's deputy environment minister, to find an alternative solution before putting an end to waste disposal at the Porto Romano area.

Few years ago, the Albanian government failed to conclude contract negotiations over the construction of a new landfill that would have solved the waste issue for the next three decades.

A 30-year concession awarded to an Albanian-Italian joint venture to build and operate a landfill in Manez, some 20 km outside Durres, failed to materialize into a contract in 2015 after the concessionaire was seeking what were described as unaffordable waste disposal fees of about €25 per metric ton.

The local municipality says it has no money to fund a new landfill, whose cost is estimated at about €20 million, and cannot even financially afford to intervene to rehabilitate the Porto Romano waste disposal site where about €3 million is needed.

Ironically, the central government has recently funded a luxury €6 million veil-like promenade in downtown Durres, which heritage experts say risks burying ancient ruins in concrete next to the landmark Durres castle and Venetian tower.

The new Tirana waste-to-energy plant that is being built under a 30-year public private partnership with the Albanian government, has been offered as a solution that will also serve Durres, although costs will significantly increase compared to current dumping and even the proposed landfill whose plans were dropped.

The Tirana waste plant winning concessionaire is expected to secure its income by collecting a €29 fee for every metric ton of waste it processes, €4 more than the rejected project outside Durres.

The environment ministry says the construction of the modern plant by 2019, when it is also expected to produce electricity from waste burning, will put an end to the waste management issue in Tirana, closing down and rehabilitating the current Sharra landfill. The new plant is expected to have a capacity of 550 to 800 metric tons of waste a day in its urban waste, wastewater, ash landfills as well as its incinerator.

Albania has already built its first waste-to-energy plant in Elbasan, central Albania and has signed concession contracts backed by the central government to build two new such plants in Fier and Tirana, despite environmental concerns by local residents and environmentalists worried over the new plants and their incinerators increasing dangerous pollution in the country.

The European Commission has warned the waste-to-energy plants pose concerns “in terms of compliance with EU principles since disposal and incineration are the least preferred waste management options.”

Waste management is one of the most pressing issues facing Albania and the emerging tourism industry after five wastewater treatment plants that Albania has made operational in recent years have considerably improved the quality of the country’s bathing waters.

Only about 70 percent of the country’s 2.8 million resident population has access to public waste treatment and disposal services, making waste management one of the key issues of concern for local communities and hundreds of thousands of tourists visiting Albania.

Three quarters of Albania’s municipal waste is landfilled, about 17 percent is recycled, about 2 percent is incinerated to produce electricity, and 3 percent is burned or dumped outside landfills, according to 2017 data by state statistical institute, INSTAT.

 
                    [post_title] => Durres dumpsite still pending final solution as emergency situation remains on paper
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                    [post_date] => 2018-09-27 15:18:43
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                    [post_content] => TIRANA, Sept. 27 - Bond-rating giant Moody's expects the Albanian economy to grow at around 4 percent over 2018-19, but warns of risks related to the country's hydro-dependent electricity sector and public private partnerships.

In an announcement made this week, Moody’s, one of the top three credit rating which has kept Albania’s rating unchanged at B1 in the past few years, warns failure to continue with the debt reduction agenda and other reforms as well as a decline in foreign direct investment could lead to a downgrade in Albania's credit rating.

"The main fiscal risks relate to weather-related electricity imports, and contingent liabilities arising from the energy sector and public private partnerships," says Moody's.

The warning comes as this year’s domestic electricity generation in Albania has been at one of its best, but last year’s prolonged drought, one of the worst in decades, put Albania’s hydro-dependent sector in crisis, triggering costly imports of €200 million that put state-run electricity operators in trouble.

In addition, an ambitious €1 billion PPP program that the government is implementing in the road, health and education infrastructure has come under fire by international financial institutions as lacking transparency and possibly creating new accumulated unpaid bills that could put the debt reduction agenda at risk.

"Negative pressure would stem from a reversal of the fiscal adjustment and failure to stabilize the public debt-to-GDP ratio, or from reduced political commitment to the institutional and economic reform agenda. Emerging challenges in funding the current-account deficit due to a significant decline in foreign direct investment would also be credit negative," says Moody's.

The Albanian government targets bringing public debt to 60 percent of the GDP by 2021, down from a current 70 percent of the GDP. Meanwhile, foreign direct investment is at risk as two major energy-related investment such as the Trans Adriatic Pipeline and the Devoll Hydropower are due to complete their investment stage by early 2019 and no other major projects replace them yet.

Moody's says that a material decline in public sector debt and further advances in institutional building that improve the business environment and competitiveness would be positive for Albania’s credit profile.

"Albania has made notable progress in strengthening the quality of its institutions, while judicial reforms are positive for potential future EU accession talks," Daniela Re Fraschini, a Moody's assistant vice president is quoted as saying.

Moody’s says Albania’s real GDP growth is forecast at around 4 percent over 2018-19, supported by healthy private consumption and robust investment on the back of major infrastructure projects.

Over the longer term, Moody's says it expects real GDP growth of around 4 percent and for it to remain broad-based, assuming that the reform momentum continues to support major economic sectors like energy, agriculture and tourism.

Moody’s forecasts are almost in line with the government’s expectations of growth ranging from 4.2 percent to 4.5 percent from 2018 to 2021.

U.S.-based Standard and Poor’s has also recently reconfirmed Albania’s ‘B+/B’ long- and short-term sovereign credit ratings with a stable outlook in a rating that remains unchanged for the fourth consecutive year with not much impact on Albania’s upcoming attempt to tap international markets for a new Eurobond of up to €500 million.
                    [post_title] => Moody’s warns of energy, PPP risks to Albania’s credit rating
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                    [post_content] => TIRANA, Sept. 27 – With birth rates having hit a historic low and the population rapidly growing older due to drastic changes in lifestyle and massive migration following the collapse of the hardline communist regime in the early 1990s, the Albanian government has unveiled a social reform encouraging Albanian parents to have more children through a sharp hike in baby bonuses.

Prime Minister Edi Rama says parents will receive up to 120,000 lek (€945) in cash bonuses for their newborns starting next year in hikes of up to 24-fold as part of incentives promoting higher birth rates and increasing child support.

Albanian parents currently receive only a modest 5,000 lek (€40) in one-off bonuses for their newborns, an amount that has remained unchanged since the early 2000s when it was introduced by Edi Rama, then serving in his first term as Tirana Mayor before it expanded nationwide in 2008 as a welcome cash gift.

However, getting the modest cash gift often takes Albanian parents up two years due to late and complicated disbursement of funds.

The newly proposed cash bonuses, which the government is planning to disburse in instalments until children become one year old, are set to increase 8-fold to 40,000 lek (€315) for the first child, double to 80,000 lek (€630) for the second child and treble to 120,000 lek (€945) for the third or more children.

"That is a measure which in our calculations will promote higher birth rates, but the most important thing is that it is an incentive for everybody with no difference for all families having children in Albania," Prime Minister Edi Rama said.

"That is a nationwide bonus that will be awarded in real time in the course of one year to families under a new mechanism that is going to be set up. The next challenge will be extending the reward in more than one year, but that is another topic," Rama added.

The incentive comes as birth rates in the country have seen a drastic cut in the past 28 years and the country’s resident population has been declining and getting older, posing a threat to the country’s emerging economy and public finances.

Albania’s natural population growth registered negative growth in the first quarter of this year as the number of deaths slightly exceeded births in a dramatic but warned situation that takes place for the first time in nine decades since Albania established a civil registry in the late 1920s, according to official figures.

The number of newborns dropped to around 31,000 in 2017, down from 82,000 in 1990 just before the collapse of the communist regime when Albania had one of Europe's highest fertility rates, according to Albania's state statistical institute, INSTAT.

Experts say the decline in Albania’s birth rate is a result of cultural changes in the typical Albanian household during the past quarter of a century of the country’s transition to democracy and a market economy, lower marriages and fertility rates and high migration rates which in the past few years transformed into asylum-seeking in wealthy EU member states.

Once the country with the highest fertility rate under communism, Albania has seen its average number of children per woman drop to 1.78, down from 3 in 1990 just before the transition to a multi-party system and a record 6 in the early 1960s, which has contributed to the population shrink and ageing.

Massive migration in the past quarter of century, mainly to Italy and Greece, the hosts of around 1 million Albanian migrants, has also contributed to lower birth rates in the country.

Albania has around 1.2 million migrants abroad, almost 40 percent of its 2.8 million resident population, making it one of the countries with the highest per capita migration around the world.

Experts says Albanians are mostly leaving the country because of economic reasons, looking to escape poverty in their homes but also to integrate into leading European economies and take advantage of better education, health and social protection infrastructure for their families.

International financial institutions have also warned shrinking populations, such as in Albania’s case, pose a formidable fiscal challenge, placing public finances under pressure on increased spending on pensions and health, reduce economic growth and make it more difficult to reduce public debt as a share of GDP.

 

Wage hike

Prime Minister Edi Rama also announced a wage hike for employees in the public education and health sector as well as in the military for next year following a freeze in this year's wage hike after a mid-year budget cut.

In addition to revising downward central government spending and revenue targets, the mid-year changes to the 2018 budget also cut dozens of public administration jobs and canceled funds that were initially intended for public administration salary hikes.

A 1 billion lek (€7.9 mln: $9.2 mln) fund initially intended for salary hikes was cancelled, but year-end rewards to pensioners provided under a 3 billion lek (€23.7 mln; $27.7 mln) solidarity package turned into law in early September.

The wage hike initiative comes as the ruling Socialist Party comfortably governs alone in its second consecutive term of office and public finances have recovered following a series of rather tough reforms in the electricity, water supply and fighting tax evasion in the past five years, often criticized for targeting the poorest and leading to massive departures from the country, especially on ungrounded asylum-seeking.

The initiatives also come as the country will be heading to local elections in mid-2019 and the ruling Socialists target to continue running the country’s largest municipalities.

 
                    [post_title] => Albania offers baby bonus hikes to fight sharp decline in birth rates
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                    [post_content] => TIRANA, Sept. 27 – Hilton Garden Inn, a mid-priced brand owned by Hilton Worldwide, has launched its first Albania hotel, an Albanian investment in partnership with the prestigious US-based hospitality chain.

Located in downtown Tirana, Hilton Garden Inn, is a €19 million investment by Albanian investors that was officially launched this week following a 2014 franchise deal with Hilton Garden Inn.

The 150-room hotel is now one of the best accommodation units in Tirana and an international brand targeting the mid-priced hotel segment with a product that offers upscale, first-class accommodation and entertainment along the capital city’s ‘Gjergj Fishta’ boulevard, just 2 km off the city center.

The Albania investment is the first Hilton Garden Inn in the Western Balkans where the Hilton brand is already present with two luxury hotels in Serbia and Montenegro.

Hilton Garden Inn’s opening in Tirana comes after Sheraton Tirana, a Starwood brand which in late 2016 was acquired by U.S.-based Marriott International, left Albania in January 2018 following 15 years of operation in the country under a deal with Mak Albania, a subsidiary of Kuwait-based Kharafi Group Investments.

The high-end Sheraton hotel was purchased by an Albanian investor for €30 million and rebranded Mak Albania Hotel in early 2018.

Sheraton, which competed with two main rivals in the past 15 years, Austrian-owned Rogner Hotel and Albanian-owned Tirana International Hotel, had seen tougher competition in the past couple of years after the opening of the Albanian-owned Plaza Hotel, a 24-storey tower in downtown Tirana. Competition in the luxury segment is expected to get even tougher in the next few years as a new hotel tower is being built next to the under construction National Arena stadium and the Tirana International Hotel has obtained a license to build a new giant hotel next to its landmark 15-storey building in the city center.

Speaking at Hilton Garden Inn’s launch ceremony, Prime Minister Edi Rama said legal changes on elite tourism investment would pave the way for more 5-star hotels in Tirana and along the country's Adriatic and Ionian coastline.

However, local experts say demand for accommodation in Tirana, which has seen a significant rise in the past few years, is mostly for medium-priced 3 or 4-star hotels and see the new luxury investments with skepticism.

In a bid to promote elite tourism investment, Albania has been offering tax incentives for a 10-year period  on luxury accommodation units for investments ranging from €8 million to €15 million for four and five-star units that will have to be carried out by internationally renowned chained-brand hotels or local companies under management or franchise contracts with them.

Current investment in the tourism industry in the country are being mainly carried out by Albanian investors at a time when the long-standing unclear property titles remains the main concern for foreign investors, especially at coastal areas.
                    [post_title] => Mid-priced Hilton brand hotel opens doors in Tirana
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                    [post_content] => TIRANA, Sept. 26 – Albania business representatives say more than a dozen thousand businesses have gone bankrupt this year following legal changes increasing the tax burden and more are about to close down amid an unaffordable increase in costs, bureaucracy and alleged corruption.

The warning is issued by Albert Nasto, the head of the small and medium-sized business association that strongly opposed an increase in the tax burden for some 11,000 small businesses which were automatically included in the 20 percent VAT system earlier this year after the annual turnover threshold was lowered, unsuccessfully staging a series of nationwide protests by downing shutters.

"Some 13,000 businesses have closed down from January to July 30, around 2,500 more compared to the same period in 2017. We had strongly warned that the VAT system would increase costs for businesses and that has already happened. Some 90 percent of businesses hire accountants to handle VAT filing and that costs them 8,000 lek (€63) to 30,000 lek (€236) a month,” Albert Nasto, the association’s head, told reporters this week.

The annual turnover threshold for a business to be included in the 20 percent VAT system was more than halved to 2 million lek (about €15,700) last April, triggering protests by some 10,000 business owners who warned of bankruptcy over a hike in tax burden and tougher competition from shopping chains and supermarkets already in the VAT chain as well as a decline in the purchasing power.

The small and medium-sized business association also warns the new VAT system has led to a hike in tax evasion and failed to produce higher government revenue and that more newly included VAT businesses will close down by early 2019 after their fourth quarterly reports with tax authorities in April 2019.

"The state budget has suffered a 9 percent decline in revenue and that means this reform is a complete failure. Prices have also increased from 4 percent to 32 percent," said Nasto, attributing the situation to a hike in tax evasion as both big and small businesses commonly avoid issuing tax receipts.

Earlier this month, business representatives warned the lower value added tax threshold that the Albanian government introduced this year in a bid to formalize the market has increased tax evasion among small businesses and created problems for big companies amid growing refusal by vendors to accept VAT receipts for their supplies.

Local milk processors, egg and beer producers say small businesses commonly refuse supplies accompanied by tax receipts in order to avoid switching to the VAT system, something which has damaged them and favored competitor suppliers trading products informally.

VAT, which is levied at a fixed 20 percent rate on almost all products and services, accounts for about a third of total tax revenue, but only about 1 percent of it is collected from small business transactions with many economists and even international financial institutions questioning the government’s latest reform affecting family-run small businesses.

Official finance ministry data shows the legal changes lowering the VAT threshold were not reflected on higher government revenue during the first seven months of this year after small businesses filed their first quarterly VAT statements last July.

Data published by Albania’s tax administration also shows the number of businesses shifting to passive status in the first nine months of this year rose to about 11,200, a 60 percent hike compared to the same period last year.

As a rule, businesses switch to the passive register in case of not operating or not submitting tax statements for 12 months or declaring the suspension of commercial operation with the National Business Center for a period of more than 1 year or indefinitely.

A new real time e-system that Albania’s tax administration is planning to apply on cash registers has also worried Albania’s business community over potential extra costs despite assurances by authorities that the upgrade of the billing system will have no costs for them.

 

 New tax incentives

While the Albanian government has not unveiled its 2019 fiscal package yet, local media have unveiled the government is considering a cut in the dividend tax, currently at 15 percent, following requests by foreign business associations.

Earlier this year, representatives of the American Chamber of Commerce in Albania, asked authorities to revise down the dividend tax as a measure that would provide a positive effect on boosting investment and create more favorable treatment for employees.

Since 2014 after Albania abandoned its 10 percent flat tax, the corporate income tax and the withholding tax on dividends, rents and capital gains have increased by 5 percent to 15 percent, making the tax burden in country one of the region’s highest and a key concern for the business community in the country.

In a U-turn, last June the Albanian government approved lower corporate income tax and incentives on agribusinesses as part of a mid-year fiscal package in changes that are not expected to become effective before next January ahead of the upcoming mid-2019 local elections.

Some 10,000 businesses currently paying a 15 percent profit rate are expected to pay a reduced 5 percent corporate income tax as the turnover threshold for the new 5 percent profit rate increases to an annual 14 million lek (€110,000), up from a previous 8 million lek (€ 63,000).

The emerging agritourism sector is also set to benefit from several tax incentives, including a 5 percent corporate income tax, a reduced 6 percent VAT and exemption from the infrastructure tax on investment.

Higher taxes compared to regional competitors, corruption, high levels of informality and unfair competition as well as an inefficient judiciary are the main concerns for foreign and Albanian investors in the country, according to surveys.

 

 

 
                    [post_title] => VAT reform took 13,000 businesses to bankruptcy, association says
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                    [post_content] => TIRANA, Sept. 26 – Hydropower was the key driver of Albania’s economic growth for the second quarter in a row fuelled by heavy rainfall doubling domestic electricity generation at a time when the contribution by main traditional sectors was quite modest.

A report by Albania’s state-run statistical institute, INSTAT, shows the Albanian economy grew by 4.32 percent in the second quarter of 2018 and an average of about 4.4 percent in the year’s first half fuelled by rainfall lifting the state-run electricity sector out of crisis. The strong recovery comes following a prolonged drought that almost paralyzed domestic electricity generation in the second half of 2017, triggering costly electricity imports of around €200 million and placing public finances in trouble.

The GDP growth for the first half of this year even exceeds government expectations for a 4.2 percent growth rate this year following a 9-year high of 3.8 percent in 2017 and is considerably above forecasts by international financial institutions such as the World Bank and the IMF which expect the country’s economy to grow between 3.5 to 3.7 percent this year amid a slowdown in foreign investment as two major energy-related projects approach their final investment stage.

The majority state-run hydropower sector alone contributed by 1.76 percentage points in the second quarter of 2018 as domestic electricity generation almost doubled, allowing the country to secure electricity needs and export part the excess production.

State-run KESH power utility, which produces two-thirds of domestic electricity from three large HPPs on the northern Albania Drin River cascade, says it managed to secure about €60 million from electricity exports in the first half of this year.

However, stripped of the rainfall effect that lifted Albania’s wholly hydro-dependent electricity sector out of crisis GDP growth in the second quarter of 2018 would have been at a mere 2.5 percent, a moderate growth rate for Albania’s developing EU aspirant economy, which experts say needs to grow by at least 6 percent annually in order to produce tangible welfare for the country’s households and bridge the huge gaps with EU member countries.

Albania's electricity sector is currently wholly reliant on hydropower, something which puts it at risk of adverse weather conditions such as last year’s prolonged drought, one of the worst in decades.

Albania also has more than a hundred smaller private and concession HPPs, including the under construction major Devoll Hydropower by Norway’s Statkraft, producing a total of about a third of domestic electricity.

In a bid to diversify electricity generation, the country’s authorities have offered tax incentives on solar and wind plants as well as natural gas fired plants at a time when the major Trans Adriatic Pipeline, also crossing through Albania, is scheduled to bring first Caspian gas to Europe by 2020.

Calculating growth through the ‘expenditure method,’ INSAT reports Albania’s household spending grew by about 3.35 percent year-on-year in the second quarter of 2018, compared to a 3.43 percent growth in government spending.

Household consumption grew by 2.7 percent in 2017, significantly below the country's GDP growth of about 3.8 percent fuelled by some major energy-related projects and the emerging travel and tourism sector.

 

Key contributors

The ‘industry, energy and water’ group had a 2.37 percentage point contribution to the second quarter growth. Within this group, the processing industry, represented by the major garment and footwear industry producing the country's top exports, grew by an annual 11 percent.

Meanwhile, the extractive industries continued contracting despite international oil and mineral prices gradually picking up following the mid-2014 slump and improving prospects for the country’s key oil and mining industries.

‘Trade, transport, accommodation and food services’ had a 0.82 percentage point contribution to the second quarter growth mainly boosted by a hike in the number of tourists visiting the country.

The professional activities and administrative services group, mainly represented by the call center industry, had a positive 0.44 percentage point effect on the second quarter growth.

Agriculture, a sector that employs about half of the country's population but produces only a fifth of the GDP, contributed by 0.3 percentage points to the second quarter growth, once again unveiling the poor efficiency of a sector hampered by high land fragmentation, poor access to financing and subsidies as well as insufficient irrigation infrastructure.

The information and communication group represented by the telecommunication sector contracted for the third quarter in a row as mobile operators continue posting lower profits due to mobile app communication gaining ground over traditional phone calls and text messages.

 

Construction turns negative

The construction sector which in the past couple of years turned into a key driver of growth following a long-ailing post crisis period, had a negative contribution of about 0.2 percent in the second quarter of 2018 as it contracted by 2.16 percent following three years of consecutive positive growth.

The construction sector returned to one of the key contributors to growth in 2016 and 2017 after years of recession following a pre-crisis boom, fuelled by some major foreign investment such as the Trans Adriatic Pipeline and some big hydropower plants, now in their final construction stage.

A new boom in apartment block constructions in Tirana, a new stadium and several public investment was also contributed to the sector’s recovery.

However, the main opposition Democratic Party and some experts allege the construction sector has also revived due to drug and other criminal proceeds being laundered into the industry amid sluggish recovery of credit, in a phenomenon they also link to the sharp depreciation of Europe’s single currency against the Albanian lek this year due to a sharp hike in euro inflows.

The construction sector now accounts for about 10 percent of Albania’ GDP compared to a record 18 percent of the GDP in 2008 just before the onset of the global financial crisis.

 

Euro depreciation threat

A sharp strengthening of Albania’s national currency, lek, against Europe’s single currency is emerging as a new threat to the Albanian economy during this year, in addition to the already high public debt levels, sluggish credit and consumption as well as non-performing loans at declining but still high levels.

Having stabilized at about 126 lek in the past four months following ongoing emergency intervention, Europe's single currency continues to trade at about 6 percent below its late 2017 rate and is 10 percent below the mid-2015 level when its five-year reign of about 140 lek came to an end.

Euro's free fall against the Albanian lek has had a series of negative effects for Albania’s highly euroised economy, mostly Eurozone-destined exports, local producers facing tougher competition from cheaper imports and sizeable Euro-denominated savings and remittances.
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                    [post_content] => TIRANA, Sept. 26 – Albania needs to conduct economic reforms and diversify the products it produces and exports in order to become more competitive in the Western Balkans where a Central European Free Trade Agreement has been in force for a decade now.

The comments came this week at round table held by the Albanian Institute for International Studies, AIIS, one of the country top think tanks, as part of a German-funded project with the European Movement in Serbia (EMinS), AIIS’s Serbia partner for the Joint Center for Albania-Serbia Relations, an initiative that has been contributing to the normalization of relations between the two key regional players for stability and peace in the Western Balkans since late 2015.

Introducing the findings of the study focused on Albania’s trade exchanges with EU and CEFTA member countries following the 2006 signing of the Stabilization and Association Agreement with EU and the CEFTA regional free trade agreement, AIIS researchers said that Albania needs more economic reforms rather than free trade agreements.

“Albania faces structural problems. The local economy is unable to produce and export beyond basic products such as oil, minerals and garment and footwear products,” shows the AIIS study.

While Albania’s trade exchanges with CEFTA countries that now include six Western Balkan countries plus Moldova, have registered a strong boost during the past decade, they still account for a modest 12.4 percent of the country's exports and 7.3 percent of imports, up from only 2.4 percent of the country’s trade exchanges before the liberalization process in 2007, according to state statistical institute, INSTAT.

AIIS researchers say that Albania’s close links with its main trading partners, Italy and Greece, and the structure of its poorly diversified exports relying on basic products such as garment and footwear, oil and minerals does not allow for a considerable boost in trade exchanges with regional countries.

“Albania is more economically linked to Italy and Greece, while Serbia, the region's largest economy, to former Yugoslavia and Central European countries and such connections are not easy to change under free trade agreements,” the study shows.

In addition, non-tariff barriers, protectionist policies and political relations among CEFTA member countries often play a key role.

CEFTA and SAA did not change the structure of Albania's trade with the country maintaining the same trading partners, Italy accounting for about half of trade exchanges and exports continuing to remain poorly diversified and focused on basic products, says the AIIS research.

Albania’s trade within the EU is focused on few countries such as Italy, Greece and Germany with the dependency on those few top trading problems often creating problems for the Albanian economy such as recessions in Italy and Greece.

AIIS researchers say CEFTA countries face political problems among them and it's only the improvement of the political relations that can pave the way for economic relations.

“In the case of Albania-Serbia relations, the amelioration of political relations since 2014 has had a good influence in the economic relations between the two countries. Usually in the case of the Western Balkans, good political relations open the road to good economic relations and not vice versa,” says Ledion Krisafi, a senior AIIS researcher.

Albania faces huge trade gaps with CEFTA member countries, except for Kosovo where exports exceed imports by almost three times.

Meanwhile, foreign direct investment in Albania from CEFTA members countries remains quite modest given the developing regional economies and a small market of about 20 million consumers.

FDI in Albania which is dominated by EU and North-American countries is concentrated in few sectors such as energy, communication and the financial sector with specific sectors such as agriculture receiving little to nothing FDI.

Deputy Foreign Minister Artemis Malo, researchers and students attended the AIIS round table held this week.

 

Non-tariff barriers

A decade after joining the CEFTA regional trade agreement, non-tariff barriers continue to hamper trade exchanges among EU aspirant Western Balkan countries where intra-regional trade has failed to expand and continues to be concentrated on goods with low value added, a recent European Commission report has shown.

Examining untapped potential in the Western Balkans intra-regional trade, a European Commission  paper says burdensome import and export procedures is one of the main reasons behind the relatively low trade among the six Western Balkan countries.

Poor connectivity within the region is described as a major obstacle to economic development, trade and investment, with EU experts noting that for some Western Balkan capitals it is actually faster to reach Vienna than another capital in the region.

Differently from EU-dominated garment and footwear exports, Albania’s exports to the region are dominated by base metals, minerals and vegetables which comprised nearly three quarters of its regional exports in 2016 and were close to 70 percent of them a decade ago in 2007.

Albania’s exports of goods and services as a share of the GDP stand at 29 percent, being one of the region’s lowest. The low levels of exports indicates the country’s poor diversification of exports, three quarters of which rely on low value added ‘garment and footwear,’ ‘minerals, fuels and electricity’ and ‘construction materials and metals,’ exposing the country’s economy to industry-specific shocks such as the mid-2014 slump in commodity prices significantly reducing the country’s key oil and mineral exports.

Back in mid-2017, Western Balkan leaders agreed to develop an EU-backed regional economic area of 20 million consumers where goods, services, investments and skilled workers can move without obstacles in a test before their apparent eventual European Union integration which the EU has indicated could see some candidate countries join by 2025.

An EU candidate since mid-2014, Albania is hoping to launch accession talks next year pending further progress on rule of law reforms following positive recommendation by the European Commission this year.
                    [post_title] => Reforms more productive than free trade agreements for Albania, AIIS study finds
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            [post_content] => TIRANA, Oct. 2 - Europe's single currency has been losing ground against the Albanian lek in the past couple of weeks in an unexpected renewed downward trend at a time when Albania’s central bank continues its emergency intervention and the end of the tourist season has sharply reduced euro inflows putting pressure on the national currency.

Europe’s single currency hit a 2-month low of 125.91 lek against Albania's national currency this week to continue trading at a 10-year low after stabilizing at about 126 lek since early last June when Albania’s central bank decided to apply its uncommon emergency intervention policy and purchase excess euro from the local currency exchange market in a bid to prevent a further strengthening of the national currency which has a series of negative effects on Albania’s highly euroised economy.

However, under a free floating currency exchange regime determined by market demand and supply, the central bank’s ongoing intervention since early June has been unable to stop the national currency’s controversial strengthening.

Europe’s single currency has lost about 0.85 lek against Albania’s single currency in the past couple of weeks in a modest depreciation, but against expectations of a stronger euro starting September 2018 following the end of the peak tourist season that traditionally weakens the euro against the Albanian lek because of a hike in euro inflows from tourists and Albanian migrants coming home to spend their summer holidays.

The euro dropped to as low as 124.17 lek in early June 2018 before stabilizing to 126 lek in the past four months, but yet continues trading at about 6 percent below its late 2017 rate and is 10 percent below the mid-2015 level when its five-year reign of about 140 lek came to an end.

Euro’s free fall has had a series of negative effects for Albania’s highly euroised economy, mostly Eurozone-destined exports, local producers facing tougher competition from cheaper imports and sizeable Euro-denominated savings and remittances.

On the positive side, repayment of loans has become cheaper for about half of borrowings denominated in euro and the government’s external debt.

Albania's central bank says it purchased about €109 million from commercial banks in the second quarter of this year in a bid to increase its foreign currency reserve and prevent a further depreciation of Europe’s single currency against the Albanian lek.

Emergency operations continue at a time when the key rate has been held at a new historic low of 1 percent since last June amid fears of disinflationary pressure from cheaper imports.

Albania’s inflation rate has been at an average of 2 percent this year, but is yet 1 percent below the 3 percent target estimated to have a positive impact on the economy, by stimulating demand.

A sharp strengthening of Albania’s national currency, lek, against Europe’s single currency is emerging as a new threat to the Albanian economy during this year, in addition to the already high public debt levels, sluggish credit and consumption as well as non-performing loans at declining but still high levels.

The government says its mid-year budget cut was triggered by a weaker euro and US dollar hitting public finances by 5 billion lek (€39.3 mln) for the first eight months of this year, about 2 percent of total government revenue.

The negative effects are mainly related to euro’s free fall against the Albanian lek making imports much cheaper and reducing the amount of the key value added tax that the Albanian government collects from imports, the overwhelming majority of which comes from the Eurozone.

Exporters have also reported a sharp cut in profits from euro depreciating by about 6 percent against the Albanian lek this year.

The U.S. dollar, whose weight on the Albanian economy is much lower compared to the euro, has also depreciated by about 9 percent since early 2017 and currently trades at a three-and-a-half year low of 109 lek, compared to a 12-year high of about 130 lek in early 2017.

Albania’s central bank says the stronger national currency reflects a recovering economy, higher euro inflows from major energy-related projects, the tourism sector and market expectations, but the main opposition Democratic Party and some economy experts have linked the national currency’s constant strengthening to alleged illegal euro inflows resulting from the peak 2016 cannabis cultivation and ongoing drug trafficking in the country, considered a major cannabis producer and a key transit route for cocaine and heroin for European markets.

The opposition claims crime proceeds are being laundered into the construction industry, which it says is booming amid sluggish credit recovery.
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