Flash News

FIFA decision shocks England, Quansah ruled out for two matches

Property alienation, 12 security measures issued for managers and officials of the Durrës Mortgage

The match between England and Norway risks being postponed, this is the reason

Domestic crime/ Wife killed with shotgun, perpetrator and victim identified

Gunfire in Shkodra, one victim suspected

OPINEWS

Has the lek strengthened or overvalued?

Politiko 2026-07-09 17:58:05

Has the lek strengthened or overvalued?

Irena Beqiraj 

“The euro has depreciated because the lek has strengthened,” says the socialist MP, whose existence caught my eye because in the debate opposite her was a journalist of the caliber of Lutfi Dervishi.
The question that a woman or man who understands economics as much as a second-year student of the Faculty of Economics asks is: Does the depreciation of the euro, or the strengthening of the lek, as the MP wants to call it, even though they are exactly the same thing, indicate a fair valuation or an overvaluation of the lek in relation to foreign currencies?
In the economy, there are not one, but two exchange rate equilibria.
The first is the “current” exchange rate equilibrium, which balances the supply and demand for foreign currency in the financial markets, and the second is the “industrial competitive” exchange rate equilibrium, which is the rate that ensures the competitiveness of domestic production in national and international markets. In the case of the lek/euro exchange rate, it is determined by comparing the productivity of the Albanian economy with the productivity of the European economy.
While strengthening refers only to the change in the current exchange rate, appreciation or overvaluation is determined by comparing the exchange rate set in financial markets with the competitive industrial exchange rate. The domestic currency is valued correctly when the current exchange rate tends to be at the levels of the exchange rate achieved in the competitive industrial equilibrium.
Whereas, when the current exchange rate is lower than the accepted values ​​of the competitive industrial exchange rate, the currency is called overvalued.
From the econometric analysis of productivity data, the competitive industrial lek/euro exchange rate should be at the level of 1 euro = 128–134 lek. While today one euro costs 93 lek. This shows that the lek is overvalued. This is also not good news for our economy.
But why is the lek overvalued?
Many years of practice have shown that the exchange rate in financial markets, in developing countries, depends less and less on trade flows and more and more on the nature of foreign capital flows.
For example, in 2025, the total flow of foreign direct investment reached 1.64 billion euros, with an increase of 3.5% compared to 2024.
The structure of foreign direct investment is presented as follows:
* 51% of the total consists of profits made by existing companies and reinvested. In other words, 51% comes as a result of the expansion of existing companies through profits made in the country.
* 31% consists of investments by foreigners in real estate.
* The remaining part, about 18%, is invested in other sectors, such as financial intermediation, banking and energy.
Although this high level was presented by socialists as a great economic achievement, the nature of these investments shows that they are very little related to increased productivity, causing long-term damage.
To simplify the explanation a little, I am comparing them for a moment with the investment that each of us makes in our child. Investing in the education and development of the child's skills creates the opportunity for the formation of a stable, productive and independent individual. Also, in an economy, when foreign direct investments flow into productive sectors, such as manufacturing, industry and information technology, they affect the increase in the productive capacity of the economy, as they create jobs and transfer technology and knowledge, thus promoting sustainable economic growth.
Whereas, when we invest more in expensive clothes, phones, headphones or toys for the child, undoubtedly, in the short term, both the parent and the child will feel good, but the result in the long term may be “a spoiled lazy person at home”.
Likewise, investments in construction, tourism or real estate purchases by foreign individuals do not increase the productivity of the economy and do not transfer technology or knowledge. So, when foreign investments are made in sectors where jobs have low productivity and wages, or where the government offers public property and fiscal incentives, they leave the country almost empty-handed.
Can your child develop his skills faster and better than his peers, when only 18% of your investment goes to increasing his skills and 82% to appearance and entertainment? Regardless of the amount invested, when the division is such, the result is known.
So, does the Albanian economy need more construction, which, to beautify and sell as development, we dress in a tourist costume, while, to make it more profitable for the investor, we add casinos as “jewels”?
The more the domestic currency is overvalued, the lower the foreign debt seems, the higher the gross domestic product expressed in euros seems; likewise, salaries expressed in euros seem higher, so even though we live in Albania as the MP reminded the journalist, the ministers present everything in euros. EVEN though inflation is kept under control. But not neutralizing this overvaluation has undesirable effects on the production structure and, consequently, on the sustainability of long-term growth.
An overvalued domestic currency stimulates imports of intermediate and final goods, creating problems related not only to the profitability of investments, but also to the competitiveness of domestic production, and the increase in living costs for the ordinary citizen.
There is a saying from my side: “The river does not always bring logs.” The moment the inflows of capital, from formal or even informal channels (which are now accepted in SPAK files), will decrease and the “appearance” that caused the overvaluation, which you enjoy as a strengthening, will no longer exist, then you will understand what irreparable damage you have done to the country's economy.
But then it will be too late!

Latest news