TIRANA, Nov. 29 – Albania’s national currency has gained ground both against Europe’s single currency and the U.S. dollar over the past year, with mixed effects on the Albanian economy which suffers high euroisation rates.
After hitting an 8-year low of about 132 lek last June, the euro has slightly appreciated against the Albanian national currency trading at 133.69 lek in late November, but yet down 3.3 percent compared to the average rate a year ago and considerably below the average exchange rate of 140 lek for about five years until mid-2015.
The situation has considerably affected Albania’s poorly diversified exports, two-thirds of which are destined to Eurozone countries making them vulnerable to Euro fluctuations in addition to already suffering because of slowly recovering oil and mineral prices following the mid-2014 slump in commodity prices.
Albania’s Euro-denominated deposits of about 2 billion euros, accounting for 40 percent of total savings, have also lost about 5 percent of their value since late 2015 when the euro was trading at about 140 lek.
On the positive side, the depreciation of the Euro against the national currency is good news for borrowers in Euro who have their income in lek, the government’s external debt payments as well as imports whose cost has slightly dropped.
At Euro 1.9 billion, Euro-denominated loans in Albania’s banking system dropped to 47 percent of the total credit at the end of 2016, down 2.3 percentage points year-on-year, according to the European Central Bank.
Albania’s central bank attributes the strengthening of the national currency against the Euro to higher GDP growth fuelled by an increase in FDI and tourism revenue, but some experts say the euro inflows from rising cannabis cultivation and trafficking in the past couple of years has also had an impact.
However, when compared to the outbreak of the global financial crisis almost decade ago, the Albanian lek has lost ground against Europe’s single currency which traded at an average of 123.3 in November 2008.
The U.S. dollar, whose weight on the Albanian economy is considerably lower, has also lost considerable ground against the Albanian national currency in the past seven months, reflecting the EUR/USD pair performance.
The U.S. dollar, which major commodities are traded at, fell to 112.76 lek in late November, down 8.3 percent compared to the average rate of 124 lek in October 2016, according to the central bank’s fixed exchange rate.
U.S. dollar-denominated loans in Albania account for around 10 percent of the total loans to businesses and a negligible 1.2 in loans to households.
The U.S. dollar hit a 12-year high of about 130 lek in early 2015, reflecting a slump in oil prices and making several key imports in Albania much more expensive.
