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VOA analysis: Concerns over the devaluation of the euro and the consequences for the Albanian economy

2023-04-30 19:15:14Biznes SHKRUAR NGA MIMOZA PICARI

 

VOA analysis: Concerns over the devaluation of the euro and the consequences for
Concerns over devaluation of the euro

In Albania, the strengthening of the local currency against the euro has brought a wave of concern among businesses, which are affected by the weakening of the European currency, especially in the export sector. The official authorities see the strengthening of the lek as related to some positive indicators in the economy, such as the increase in exports or foreign investments. However, some researchers of economic developments in the country see the strengthening of the local currency as an influence of informality in 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 during the last two years, increasing in 2022 by 4.8%. Inflation, after last year's record figure of 8.3%, is currently down to 5.7%.

But beyond these developments, the country is facing a phenomenon that worries experts, the significant appreciation of the local currency against the euro. The lek has strengthened by 3.4% compared to January and by 7.1% compared to April last year.

Officials of the Central Bank, in an interview for the 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 growth of exports has been, we can say this with conviction and covered by statistics, much higher than the speed of growth of imports, which has produced an additional offer of currency in the local market. As for direct foreign investments, during 2022, these have had a growth rate in double-digit terms, so we definitely have sufficient resources, foreign currency inflows to cover the country's needs for imports and to generate this plus flow currency 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 by about 2 billion euros, narrowing the ratio with imports, foreign direct investments increased by 33%, or by about 340 million euros. Remittances also increased by 9.6%, or by around 72 million euros, while the public debt decreased from 74.5 to 64.6%.

But all this positive situation in the economy comes with some risks according to experts, since the strengthening of the local currency against the euro brings damage to some sectors with an impact on the economy, especially exports.

"Export is only the first scallion that takes the hit. Exports receive it immediately, because they receive the income in euros and within the 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 that they buy in the country. During the past year, in all invoices, I have received less than when I invoiced, because throughout the year we have a drop in the euro", said Alban Zusi, President of the Export Center, for the Voice of America.

Experts in the field of economy say that the consequences of the strengthening of the local currency in the export sector can be reflected in the lack of liquidity and the inability to invest, while other businesses around them also risk being affected.

But a good number of economic experts see the strengthening of the local currency as a direct impact of informality and black money in the economy.

"I think the factors are, let's say macroeconomic, or let's say those fundamental forces that determine the channels of foreign exchange flows, increases in exports, tourism, services in general, foreign investments and income from remittances that have been at record levels even during this year. So we have quite increased flows in formal channels as well, but without any doubt in Albania an important part is occupied by informal channels, which maintain such a state of the market, which in my opinion makes this our internal currency unjustifiable in fact so strong ", Selami Xhepa, President of the European University of Tirana, argued for the Voice of America.

For his part, Arben Malaj, former Minister of Finance, sees the real estate sector as problematic.

"In the real estate sector, or in some other businesses, we see that more and more there is an increase in demand, which is not natural from the resources that the Albanians themselves have, whether it is the middle class that is more aggressive for conditions better living conditions, 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 risk remaining poorer", said Arben Malaj, former Minister of Finance, for the Voice of America.

According to INSTAT data, the construction sector, with a fluctuation from negative growth to 6% in the years 2010-2020, grew in the last two years by 18 and 10.7%. Also, the real estate sector, during these years, grew by 5.8 and 11.2%. In 2022 it was the highest growth in the last decade.

The areas approved for buildings in the last 5 years have increased by 3 times, and in 2022 they were 2 million 667 thousand square meters. The main weight of the surfaces for housing with 76% is held by the prefecture of Tirana. 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, which buys new houses. On the other hand, constructions are increasing and with them the price of housing is increasing. It's economic madness. Housing prices should have fallen significantly. We talk about money laundering in construction, but the most important part of money laundering in construction is laundering through acquisition, not just construction," Neritan Sejamini, an economics expert, told VOA.

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 an 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, suffer severe damage in the future. /VOA


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