Strengthening the lek, the government saves over 107 million euros from debt service in 9 months

2025-10-24 14:06:00, Ekonomi CNA

Strengthening the lek, the government saves over 107 million euros from debt

The continued strengthening of the lek against the euro, despite putting difficulties on exports and the domestic manufacturing sector, has served the government well by reducing the costs of external debt.

According to the latest data from the Ministry of Finance, external debt repayments have decreased by around 9.37 billion lek, mainly due to the positive effect of the exchange rate.

This factor has also contributed to the reduction of long-term borrowing through Eurobonds by about 1.35 billion lek, reflecting the improvement in the value of the lek against the foreign currencies in which the debt is expressed. The direct effects of the exchange rate on external debt service are 10.7 billion lek in savings or over 107 million euros.

As a result of these improvements, borrowing in the form of budget support from international institutions has decreased by about 4.35 billion lek, based on new expectations for the realization of disbursements by the end of the year, as well as a reduction of 2.97 billion lek in project financing and sub-loans for local government.

Another element that has improved fiscal balances is the savings in debt interest expenses, which amounts to 6.93 billion lek – respectively 4.62 billion lek in external interests and 2.31 billion lek in internal ones.

This saving is related not only to the exchange rate effect, but also to the decline in interest rates in financial markets, compared to assumptions in the planning phase.

Overall, these developments have reduced the budget deficit to 61.6 billion lek, or 2.4% of GDP, from 2.6% projected in the initial budget for 2025.

The average euro-lek exchange rate in 2024 was 100.7 lek, a decrease of about 7.4% compared to 2023. The decline has continued this year, as one euro is currently exchanged for 96.8 lek.

When the government issues Eurobonds or borrows long-term euros, exchange rate fluctuations can affect the lek value of the loan. In this case, the government spends less lek when it buys euros to repay the debt, and this translates into savings in public finances.

The exchange rate performance has reduced public debt spending in lek, reducing the budget deficit and leaving more funds for other budget expenditures.

But the IMF has warned that, while the strengthening of the lek improves public finances and reduces interest and repayment costs, it could also pose challenges for exporters operating with euro contracts and for their competitiveness./ Monitor