Eurobond brings foreign exchange reserves close to 7 billion euros

2025-03-31 18:06:00, Ekonomi CNA

The Eurobond issued by the Albanian government in February has further increased the country's foreign exchange reserves, bringing them close to the 7 billion euro mark.

According to data from the Bank of Albania, the value of reserve assets at the end of February reached 6.9 billion euros, up 10% since the beginning of the year and 23.8% compared to the same period a year earlier.

In February, the Albanian government issued its next Eurobond on the London Stock Exchange. At the end of the process, 650 million euros of Eurobonds with a maturity of 10 years were issued and the funds obtained from them were transferred to the Albanian government's accounts with the Bank of Albania. This has given a further impetus to the growth of the foreign exchange reserve.

At the end of February, debt securities accounted for 67% of reserve assets, while cash deposits accounted for 25%. The remainder of the reserve is invested in gold and special drawing rights (SDRs) with the International Monetary Fund.

Last year, the increase in foreign exchange reserves was influenced by large purchases of foreign exchange by the Bank of Albania in the domestic foreign exchange market.

According to official information published at the end of March, the Bank of Albania purchased approximately 933 million euros in the domestic foreign exchange market in 2024. The amount of foreign exchange purchased increased by 249% compared to the previous year.

Seeing the continuation of strong appreciation pressures on the domestic currency during 2024, the Central Bank decided to intervene in the foreign exchange market, withdrawing part of the large supply of euros and increasing the money supply of the lek. This intervention was motivated mainly in function of the inflation target.

The Bank of Albania's direct purchases continued until the last days of 2024. But, despite these purchases, the exchange rate between the Euro and the Lek continued to decline during the past year, touching new historical records, near the level of 98 Lek.

The Bank of Albania has planned a further increase in foreign exchange purchases in 2025, at least in the part related to the foreign exchange reserve, although, as data so far last year have shown, the largest purchases have been direct ones, with the objective of controlling the exchange rate.

The Bank of Albania aims to purchase 270-350 million euros through auctions this year, or 20 million euros more compared to the 2024 target, both in the lower and upper ranges.

Foreign exchange reserves are an important instrument to cushion potential shocks, related both to the current account deficit and to the high level of euroization of the financial sector in the country. Being an economy with a negative trade position in goods, the lack of foreign exchange at specific moments can create problems for economic activity in the country.

On the other hand, the reserve may also be important for guaranteeing exchange rate and financial system stability./Monitor