Possible Weakening of the Lek and its Implications for the Albanian Economy (2026–2028)

In recent years, the Albanian economy has experienced an unusual and persistent strengthening of the Lek against the euro and the US dollar, despite a chronic high trade deficit (approximately 5–7% of GDP) and the absence of deep structural transformation towards high-productivity sectors.

This phenomenon, which has driven the EUR/ALL rate to record lows (~96 ALL/EUR in March 2026, according to the Bank of Albania: official average ~96.05, bid–ask 95.8–96.5), has not been driven by sustained growth in industrial exports or improvements in global competitiveness, but primarily by record foreign currency inflows that have created a temporary surplus of euro supply in the domestic market.

The principal sources of these inflows include:

• International tourism, which reached a historic record in 2025 with over 12.4 million foreign visitors (INSTAT and Ministry of Tourism data: 12.466–12.5 million, growth of +6.6–7% compared to 2024), generating foreign currency earnings of approximately 2.6 billion euros net (after deducting outbound expenditure) and contributing up to 20–25% of GDP.
• Emigrant remittances, which remain a significant pillar (approximately 1.5–2 billion euros per year, or 6–7% of GDP according to the Bank of Albania and World Bank, e.g. 817 million euros in the first nine months of 2025, +5.8%). These flows are partly formal, but a considerable portion (approximately 30–40% according to World Bank Migration Survey 2024 estimates) enters through informal channels, adding volatility to the balance of payments.
• Real estate investments from the diaspora and foreign investors, which have driven property price increases of up to 15–20% annually in tourist and urban areas. These flows are linked to record FDI (approximately 1.7 billion euros in 2024, with real estate accounting for 23–31% of the total; in Q3 2025, real estate absorbed 31% of FDI).

These inflows have created a temporary surplus of euro supply in the domestic market, lowering import costs in nominal terms, but exerting strong pressure on export sectors and overvaluing the Lek.

A considerable portion of these flows (especially remittances and some property investments) is informal (cash or outside banking channels), adding volatility and complicating balance-of-payments monitoring, with informal flows estimated at up to 4–5 billion USD (approximately 15–25% of GDP in some years).

The most likely scenario remains fragile stability or gradual correction (together above 85–90% probability), with the Lek currently at ~96 ALL/EUR. The primary risk for the Albanian economy is not the depreciation of the Lek itself, but structural dependence on cyclical sectors such as tourism and construction, which render the country vulnerable to external shocks.

High informality (29.8–32.8% of GDP) adds instability and impedes fiscal reform and sustainable growth. This paper urgently recommends diversification towards high-value-added exports and deep reforms to reduce informality (below 25% by 2028), leveraging EU Growth Plan funds and advanced accession negotiations.