Å·ÃÀÈÕb´óƬ

Country Context

Albania is implementing important structural reforms that will support equitable growth, raise productivity and competitiveness in the economy, create more jobs, and improve governance and public service delivery. Enhanced regional connectivity and access to regional and global markets, coupled with export and market diversification, can also help promote faster growth.

The government¡¯s focus is now on sustainable growth with special focus on tourism, agriculture, and digitization as well as increased attention to climate change and the environment. Sustaining the pace of reforms is a priority. Albania opened accession talks with the European Union in mid-October 2024. The first chapter of negotiation covers judiciary and fundamental rights, freedom and security, and procurements and financial control.

Albania¡¯s economic growth in 2024 is expected to stay strong at 3.3%, driven by private consumption, tourism, and construction. Growth is expected to moderately accelerate to 3.4% in 2025. Poverty is expected to continue to decline as employment and wages rise. The country¡¯s medium-term prospects hinge on global recovery, and structural reforms.

Å·ÃÀÈÕb´óƬ and other partners are working together to support the government in overcoming these challenges and implementing the country¡¯s longer-term vision.

Last Updated: Oct 24, 2024

Strategy

Å·ÃÀÈÕb´óƬ Group program in Albania is guided by the Country Partnership Framework (CPF), which was approved on March 16, 2023. This strategy supports greener and more resilient and inclusive growth for the Albanian people. The CPF builds on a productive partnership with Albania and the findings of the World Bank Group¡¯s analytical works and focuses on the priorities that are set out in the National Strategy for Development and European Integration. The priorities of the CPF are (1) creating more and better jobs, (2) strengthening human capital, and (3) enhancing Albania¡¯s resilience to shocks. Initiatives to use digitization and improve inclusivity will support efforts across these three priorities, retaining accession to the European Union (EU) as a long-term goal.  

Substantial progress has been made in the Program for Results (PforR) "Improving Equitable Access to High Standard Public Services Through GovTech." During this period, we have reached key milestones, including the successful re-engineering plan of the e-Albania 2.0 portal to enhance user experience and accessibility. Additionally, the Government of Albania has made significant strides in data governance by working towards advanced data protection measures aligned with EU GDPR standards. At the request of the government, an Additional Financing to this project is being prepared, with a special focus on the e-procurement. Building on the results of the Trade and Transport Facilitation Project, TTFP 2.0 is being designed, scaling up from the first project and introducing new activities with a focus on trade, transport, and digitization.

Last Updated: Oct 24, 2024

RECENT ECONOMIC DEVELOPMENTS

Following a 3.4% real growth rate in 2023, Albania¡¯s economy grew at a higher pace of 3.6% in Q1 2024. On the supply side, growth was primarily driven by services and construction. Private consumption and investment were the main drivers on the demand side. Employment was 66.7% at end-2023, with poverty declining to 21.7%. Based on administrative data for Q1 2024, employment grew by 1.1% year-on-year, driven by the private sector. The average private sector wage increased by 12.7%, reflecting growth across all economic activities. Overall credit increased by 13% year-on-year through July 2024.

The current account deficit widened in the first half of the year (H1) due to rapid import growth and the decreased goods exports. Net Foreign Direct Investment (FDI) continued to perform strongly, increasing by 8.5%, and foreign currency reserves hit 5.7 billion Euros in July 2024.

The annual inflation rate continued its declining trend, averaging around 2.7% in Q1 of 2024, because of downward pressures from lower import prices, domestic currency appreciation and monetary policy normalization. In the subsequent months up to July 2024, inflation has remained stable at around 2.1%.

As of July 2024, the government reported a fiscal surplus, on account of robust revenue collection and sluggish execution of capital investment.   

ECONOMIC OUTLOOK

Growth is expected to remain robust at 3.3% in 2024, with increased tourism and construction expected to drive exports, and consumption and investment growth at rates similar to the pre-pandemic period. The inflation rate is projected to remain below the 3% target in the medium term, despite the increase in wages, which has partially been offset by the appreciation of the Albanian lek.

The current account deficit is expected to hover at 3.8% of GDP in the medium term. With higher growth expected, poverty is also projected to decrease. A tighter labor market could further boost wages.

Albania¡¯s primary balance is projected to improve and reach 0% of GDP from 2024 onwards. The government plans to continue improving tax administration, as envisioned in the Medium-Term Revenue Strategy. Public debt is expected to decline further in the medium term.

Given Albania¡¯s growing reliance on external financing, risks related to the exchange rate, interest rate, and refinancing remain elevated. As a small, open economy, Albania is highly exposed to external shocks, such as a recession in the EU or further tightening of financing conditions in international capital markets. Risks to growth emanate from natural disasters and unfavorable global conditions, including geopolitical developments. 

Last Updated: Oct 24, 2024