The Albanian lek is considered a weak/soft currency in the world today as it is a nation for the most part that produces very little in goods & services that is demand by the rest of the world. With a small population of 3.5 million, Albania is considered one of Europe's poorest countries along with Moldova where upwards of 30 percent of Albania's population live below the poverty line. Since the collapse of the Soviet Union in 1990-91, Albania has endured a successful but painful transition from socialist command control economy to toward a free market open economy. Since 1995, Albania has experienced high economic growth rates and implementation of IMF economic reforms, privatization and stabilization policies most notably with a large reduction in the public work force. However the economy is held hostage to political instability and regional risks. In 1997, Albania reached anarchy with social unrest and violence after a fraudulent pyramid investment scheme collapsed and zapped the wealth of many in the nation. Then, the world again heard about Albania with its generosity during the Kosovo conflict in 1999 by taking in thousands of Kosovar Albanian refugees. Below, is further information regarding the story of Albania.
POLITICS: emerging democracy as the 1990's were plagued by gansters, high
unemployment and corrupt governments. Resignation of Prime Minister Majko on October 25, 1999 resulted in transfering of power to two competing opposition groups vying for power of Albania. Since July 31, 2002, Prime Minister Fatos Nano is in power. Both political instability and potential ethnic conflict within Albania is a deep concern. By year 1990, forty-four years of communist rule ended and a multiparty democarcy began. Political risk includes the fear of Albanian nationalism in the future.
ECONOMY: confidence has finally returned after the collapse of financial pyramids schemes in 1997 which resulted in a 7 percent drop in real GDP growth in 1997 where one in seven Albanians were involved. Economic growth for 1999 rebounded smartly from the Kosovo conflict with GDP growth of 7.25 percent. The Kosovo conflict resulted in an economic boom with an influx of foreign exchange monies where an estimated 460,000 ethnic Kosovar Albanians migrated into Albania although most did return back to Kosova after the war. International donors have pledged to finance refugee related expenses from the Kosovo war. A major area of economic deficiency for Albania includes a weak infrastructure coupled with monies required for updating including inadequate energy grid, outdated financial system, corruption and organized crime are prevalent. Severe energy shortages have hampered economic growth where many small businesses have gone bankrupt. This is a result due to inadequate energy grid rather than energy resources as Albania is self-sufficient in domestic energy from supplies in hydropower, coal and natural gas. Huge potential in chromium mining where capital is required to exploit large deeep underground deposits. In addition, Albania's tourism industry is yet to be tapped with many wonderful camping areas, pristine lakes and coastline. The agricultural & farm industries require modern technology. Industries include textiles, lumber, mining, chemicals and hydropower/coal.
Economic Statistics
GDP as measured by purchasing power parity is at $13.2 billion USD equivalent to GDP/Capita at $3,800 USD (2001). GDP market expenditure based in nominal USD is measured at $4.6 billion USD for 2002. GDP growth for 2002 down modestly to 4.7 percent from 2001 at 6.5 percent, year 2000 at 7.8 percent. The inflation rate has successfully been contained down to 2 percent in early 1999 from in excess of 40 percent during 1997. Inflation for 1999 was negative 1 percent (deflation), 2000 at 0.4 percent and inflation for 2001 came in at 3.5 percent. The fiscal deficit is high at 8.5 percent of GDP and is forecasted to fall to 5 percent by 2005. Unemployment is in the 20 percent range and has been falling over the last 2 years. Looking at the current account, it is in deficit with year 2001 recording a high figure of 7.4 percent of GDP slightly down from year 2000 at 8.25 percent. This shortfall is correlated to Albania's need for investment capital in reconstruction needs and the deficit is expected to decline. To help offset the current account deficit, economic aid is worth $300 million USD/year while remittances are valued at $600 million USD/year. Overall debt to GDP is measured at 64 percent and is declining. The twin deficits should decline as much monies are required for infrastructure development. Agriculture accounts for 50 percent of GDP. External debt is measured at $1 billion USD (2000).
POSITIVES: high literacy rate. CONCERN: 1990's brain drain where many of the educated left, worst telecommunication service in Europe with only 120,000 phones plus 250,000 mobile cell phones - major upgrade is required.
BANKING SYSTEM: improving and regaining credibility as it is strengthening with the introduction of deposit insurance. Money supply growth is down 50 percent since 1996 with 2002 at a very modest 7.6 percent growth. Year 2002 gross international reserves are healthy at 4.9 months of import coverage representing $810 million USD. Increase dollarization of the Albanian economy and foreign currency growth. Interest rates are at 8 percent. Unfounded rumours about solvency of Albanian banks have dissipated with confidence returning with an increase in deposits. Albanian banks enjoy a very healthy ratio of capital adequacy assesed at 28.7 percent. Non performing loans for year 2002 fell to 2.8 percent from 4 percent in 2001. Albania's central bank has a goal for inflation in the 2 to 4 percent range.
REGIONAL: Serbia and Montenegro, Macedonia, Kosovo, Italy, Greece
Regional risk is high as political instability and destabilization is a concern with a history of conflict with ethnic violence, drug trade, people smuggling to Italy, guerilla movements along with weapons procurement easy to obtain. Recently, Serbia has had great political risk with the assassination of its Prime Minister, Zoran Djindjic taking place at time of currency review coupled with a difficulty in garnering an outright election victory due to voter disenchantment reflecting in low voter turnout. Moreover, Macedonia itself has had difficulties with conflict and political instability. Kosovar War in March 1999 has now resulted in the region under United Nations control 'KFOR'. An Italian led peacekeeping force restored regional order. Major trade partners include Greece and Italy.
KNOWLEDGE: long history of conflict in the region and political domestic instability may take hold. Divided ethnic clashes in the Balkans are well documented, but this problem remains true within Albania itself for its power struggle. Political risk is high as Albania is divided. Within Albania, the north is mountainous and rural but politically dominated by the 'Northern Ghegs' who represent ethnic Albanians & Kosovar Albanians. The populated south favours the 'Southern Tosks' who lean towards the socialists and former communists. A possible solution to heal the political divide in Albania would be for Albania's King Leka I Zogu, age 62 to return from exile in South Africa and rule Albania. King Leka has shown an interest plus favours expansion of Albania's borders to include neighbouring regions home to high ethnic Albanian populations.
CURRENCY: ISO symbol 'ALL', Albanian lek, leks (plural). At time of review on March 15, 2003 the Albanian lek had an exchange value of 139.11 to the US-dollar ('USD'). Floating exchange rate regime.
CURRENCY HISTORY: during 1999, the lek experienced a sharp appreciation to the
USD primarily due to the influx of Alabanian Kosovar refugees and their money. Historical exchange valuations for the lek include year 2001 average at 175.22 ALL to the USD, year 1999 at 137.7, January 1998 at 152.2, 1997 at 148.9, 1996 at 104.5, 1995 at 92.7, 1994 at 94.6, 1993 at 102.
CURRENCY FORECAST: surprisingly, the lek has performed quite well given its regional political instability and the fallout from the Kosovo conflict, BI.C suggests the lek will remain steady in the 140 ALL to the USD over the next 12 months as the United States enters into a prolonged economic slowdown.
UPDATED: March 15, 2003
