What ‘sunk’ the euro? Informality, tourism, remittances or…

The devaluation of the euro to a previously unknown point (1€=100.31 L) brought attention back to the exchange rate. From tourism to sovereign debt, the Altax center’s analysis of all the factors that have the power to weaken the euro confirms that it is not the formal economy that is causing this.

From the end of 2023 to the beginning of 2024, the euro has depreciated by 3.8% (when it was around 103 ALL), confirming the presence of an unusual amount of European currency illegally introduced into the Albanian market.

Early start of the tourist season

In the first months of the year and on the eve of the tourist season, 1.54 foreigners visited Albania, 43.3% more than a year ago. In the absence of data from the Bank of Albania for the first quarter of 2024 on the value generated by these tourists, on a comparative basis with regard to the increased number of visitors of 43.3% more, the calculation arrives at an entry of the major currencies up to 900 million euros.

In the first quarter of 2023, 435 million euros came from Albania and following the same logic as above to find the amount raised in the first quarter of 2024, an amount of 550 million euros emerges.

The difference in value between 2023 and 2024 amounts to 350 million euros. These figures show that the devaluation of the euro was stronger this year than in 2023.

Trade balance

The trade balance for the first quarter of 2024 results in a deficit of ALL 113.7 billion (EUR 1.09 billion), while the deficit a year ago was ALL 85.7 billion (EUR 790 million). The difference of 300 million euros shows that these euros have remained in the countries where Albania has imported products.

The effect of the outflow of currency from the country for imports has an impact on the evaluation of exchange rates.

TRANSFERS

In the first three months of 2023, remittances reached a value of 214 million euros. Altax also predicts the same figure for 2024, in the absence of figures from BSH.

The effect of the currency inflow from senders outside Albania has an impact on the devaluation of the foreign currency exchange rate.

Foreign investments

Due to the withdrawal of SHELL investments and the stability of the real estate market in 2024, Altax predicts that foreign investments will be at the same level as in the first quarter of 2023, 308 million euros. The effect of foreign currency inflows from foreign investments has an impact on the devaluation of the foreign currency exchange rate.

Public debt

At the end of the third quarter of 2024, Albania’s public debt was ALL 5.65 billion lower than in the same period of 2023. Not receiving new debt from foreign markets is a positive indicator of the weakening of the leak and its appreciation of the exchange rate of foreign currencies.

government

General government expenditure (mainly current) increased by 49 million euros between 2023 and 2024. The higher the government spending, the stronger the currency and the weaker the lek.

Interest rates

The interest rate on lending to the economy remained at the 2023 level in the first quarter of 2024, namely 3.25%. Compared to Tr.1 in 2023, there appears to be little change in the direction of the interest rate on lending to the economy, while this increase in interest rates in 2023 has obviously shrunk lending to the economy and individuals. The effect of the decrease in credit from the financial system has an impact on the evaluation of the foreign currency exchange rate as the supply of Lek becomes stronger.

The net effect of tourism therefore affects the devaluation of the euro and other currencies, but is largely tempered by the effect of the negative trade balance. The effect of government expenditure has an impact on the weakening of the leak, completely writing off this impact from the tourism factor. The effect of remittances and foreign investment does not affect the devaluation of the euro, as its effect is written off by not receiving new debt, so no new inflows of euros occur.

The price volatility caused by informal money in the financial system affects the credibility of the economy, where entrepreneurs mainly invest in the country’s real estate, which accounts for a quarter of foreign investment, after taking into account the risks of country in sector investments. . / newspaper “SI”.