The Albanian lek is maintaining strong positions in the foreign exchange rate in the early weeks of 2024.
According to the official exchange rate of the Bank of Albania, the euro was traded at 104.11 lek on Wednesday, declining for the third consecutive day from the levels it closed the previous week.
The exchange rate of the European currency experienced a short-lived increase in the early days of this year, reaching up to 104.71 lek, but this increase did not last long. The rate is again declining, and the Euro is dropping back to the levels where it closed in 2023.
The exchange rates of the US dollar and the British pound are also showing a downward trend during this week, although they remain slightly higher compared to the end of December.
On the last day of the past year, the euro was exchanged at 103.88 lek, marking a decrease of 9.1% compared to the last day of 2022.
The strengthening of the lek during 2023 was mainly the result of record inflows from tourism and significant improvements in the country’s balance of payments. In the third quarter of 2023, the current account balance was positive at 354 million euros, and for the entire 9-month period, the result was positive at 28 million euros. The Albanian economy recorded, for the first time in its history, a positive current account balance.
The strengthening of the lek was also supported in part by the rather restrictive fiscal policy of the Albanian Government. During 2023, the budget balance recorded record surplus values.
According to current data, the budget was in surplus until the end of November, and it is believed that the deficit was spent entirely in December. The increase in budget expenditures is considered to have contributed to a slight depreciation of the lek in December, but nevertheless, this effect is believed to have been partially balanced by the seasonal revenues related to emigrants and foreign tourists in the last two weeks of the year.
Analysts predict a more stable exchange rate situation in the first months of this year. However, especially starting from the second quarter, baseline projections are mainly in the direction of strengthening the lek.
Based on the trend of reservations and expectations of tour operators, it is expected that the number of foreign tourists will continue to increase in 2024, which is expected to bring revenue growth and a positive effect on the balance of payments.
The potential impact of monetary policy movements may also favor further appreciation of the lek. In November, the Supervisory Council of the Bank of Albania warned that returning inflation to the target might require further increases in interest rates, which in Albania are at the lowest levels in Europe.
On the other hand, the potential impact of the fiscal policy of the Albanian Government in general is expected to be similar to 2023.
The Government has budgeted a deficit of 2.5% of the GDP, at levels similar to the previous year. Furthermore, considering the historical tendency of the budget to concentrate deficit spending in the last months of the year, it is expected that in most of 2024, the budget balance will have a tightening effect on the lek supply.
