The Appreciation of the Albanian Lek (2015–2026)

Abstract

The Albanian Lek has appreciated to its strongest level against the euro in more than a decade. This paper investigates whether that appreciation reflects a temporary market phenomenon or a structural transformation of Albania's economy, drawing on data from the Bank of Albania, Instat, the IMF and the World Bank across exchange rates, tourism, remittances, foreign direct investment, trade, liquidity and the residential property market. The evidence indicates that the appreciation is primarily explained by persistent foreign-currency inflows from record tourism revenues, rising remittances and growing foreign direct investment rather than speculative financial flows — though it has simultaneously weakened export competitiveness and contributed to rapidly rising residential property prices.

Key findings

1. 01Foreign visitor arrivals rose from 4.1 million in 2015 to a record 12.5 million in 2025, with tourism now estimated at 26.4% of GDP and directly or indirectly supporting roughly one in five jobs in the country.
2. 02Public debt fell from approximately 76% of GDP in 2020 to an estimated 53% by the end of 2025, supporting two sovereign rating upgrades (Moody's to Ba3, S&P to BB) and improving Albania's resilience to external shocks.
3. 03The Lek's appreciation has an asymmetric effect on the economy: it has helped compress inflation toward the Bank of Albania's 3% target and boosted household purchasing power, while eroding price competitiveness for export-oriented sectors such as textiles and footwear.
4. 04Remittances (€2.27 billion in 2024) and foreign direct investment (growing from $0.99 billion in 2015 to $1.87 billion in 2025) have increasingly offset Albania's structural merchandise trade deficit, keeping the current account deficit to an estimated 0.5% of GDP in 2025.
5. 05The Bank of Albania's de-euroization strategy — including higher reserve requirements on foreign-currency liabilities and promotion of Lek-denominated government securities — has reinforced the shift of household deposits toward the domestic currency, strengthening monetary policy transmission alongside the currency's fundamentals-driven appreciation.

Discussion

The analysis draws on Bank of Albania, Instat, IMF and World Bank data across ten macroeconomic and financial dimensions — including GDP, inflation, tourism, remittances, FDI, trade, employment, liquidity, external debt and wealth distribution — to distinguish structural drivers of the Lek's appreciation from short-term market fluctuations.

Because the paper adopts a descriptive macroeconomic approach, the relationships it identifies between currency appreciation and its underlying drivers should be read as correlational rather than strictly causal. The report explicitly separates fundamental market forces — tourism, remittances, FDI, growth — from structural policy support such as de-euroization, treating the two as complementary rather than competing explanations.