The World Bank in Albania

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. 

After weathering the consequences of the 2019 earthquake, COVID-19 pandemic, and cost-of-living crisis, the Government’s focus is now on full recovery with special focus on tourism, agriculture, and digitization as well as increased attention to climate change and the environment.

In 2023, growth reached 3.3% as private consumption, exports, and investment increased despite rising energy and food prices. Despite another year of exceptional growth in tourism, growth is likely to remain at similar levels in 2024. Poverty is expected to continue to decline as employment and wages rise. The country’s medium-term prospects hinge on global recovery, structural reforms, and fiscal consolidation.

The World Bank and other partners are cooperating to support the government in overcoming these challenges and implementing the country’s longer-term vision. 

Last Updated: Apr 18, 2024

Strategy

The World Bank 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 European Union as a long-term goal.   

The World Bank Group’s portfolio was recently extended with one project, CARE for Blue Sea ($80 million) that was approved by the Board of Directors in December with a special focus on the environment and solid waste management along the Vjosa River. Another project under preparation is the Second Resilience and Green Development DPO ($80 million).

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: Apr 18, 2024

RECENT ECONOMIC DEVELOPMENTS

In 2023, GDP growth is estimated at 3.3%. Trade, tourism and real estate led growth on the supply side. Private domestic demand and net exports drove growth on the demand side. Employment grew by 1.2%YoY in Q3 2023 notably in services, while declining in agriculture and manufacturing. Increasing wages and employment incentivized labor force participation (ages 15+), which peaked at 76.1%.  Average private sector wages grew by 14.5% in Q3 2023. Unemployment decreased to 10.5% in Q3 2023 marking a further decline in annual terms. Given strong GDP per capita growth in 2023, poverty is projected to have declined by 1.8 percentage points to 21.7%.

The annual inflation rate dropped to 3.9% in December 2023, as a result of downward pressures from lower food and energy import prices, domestic currency appreciation and monetary policy normalization. The banking system remains resilient, despite increasing interest rates.

The Government recorded an improved fiscal position in 2023, on account of both stronger revenue collection and lower spending.  

ECONOMIC OUTLOOK

Growth is expected to remain robust at 3.3% in 2024, in the context of limited economic growth in Europe. Increased tourism and construction are expected to drive exports, consumption and investment growth. The inflation rate is projected to start converging toward the 3% target by early 2025.

Albania’s primary balance is projected to reach 0.2% of GDP in 2024 and stay at similar levels in observance of the fiscal rule. Fiscal consolidation is expected both revenue and spending side. On revenues, the Government plans to continue improvement of tax administration, as envisioned in the Medium-Term Revenue Strategy. Public debt is expected to decline further to 58.2% of GDP in 2024 and decline over the medium term as a result of higher nominal growth and the achievement of a positive primary balance.

Given Albania’s growing reliance on external financing, risks related to the exchange rate, interest rate, and refinancing remain elevated. Further increases in food and energy prices are a key risk to growth, as they could affect real disposable income, slow poverty reduction and potentially constrain the fiscal space. 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 beyond the current year.

Last Updated: Apr 18, 2024