Albania

Albania is a middle-income country that has made enormous strides in establishing a credible multi-party democracy and market economy over the last two decades. Following graduation from the International Development Association (IDA) to the International Bank for Reconstruction and Development (IBRD) in 2008, Albania has generally been able to maintain positive growth rates and financial stability, despite the ongoing economic crisis. 

Over the past decade, Albania has been one of the fastest-growing economies in Europe, enjoying average annual real growth rates of 6 percent, accompanied by rapid reductions in poverty. Between 2002 and 2008, poverty in the country fell by half (to about 12.4 percent) and extreme poverty now affects less than 2 percent of the population. From 2007 to 2012, the Albanian economy grew by 22%, while exports doubled from 2009 to 2011.

Although Albania has been weathering the impact of the global financial crisis rather well, the recovery to above 3 percent growth rates during 2011 moderated in 2012, reflecting the deteriorating situation in the Eurozone, and the difficult situation in the energy sector. Real GDP growth turned negative in the first quarter of 2012 for the first time since the 2009 crisis. Growth picked up in the second quarter but expectations remain weak for the second half of the year.

Albania’s labor market has undergone dramatic shifts over the last decade, contributing to productivity growth. Formal non-agricultural employment in the private sector more than doubled between 1999 and 2011, fuelled largely by foreign investment. Emigration and urbanization brought a structural shift away from agriculture and toward industry and service, allowing the economy to begin producing a variety of services, ranging from banking to telecommunications and tourism.

Despite this shift, agriculture remains one of the largest and most important sectors in Albania. Agriculture is a main source of employment and income – especially in the country’s rural areas – and contributes around 20 percent to GDP while accounting for about half of total employment. Albania’s agricultural sector continues to face a number of challenges, however, including small farm size and land fragmentation, poor infrastructure, market limitations, limited access to credit and grants and inadequate rural institutions.

Looking toward the future, Albania is focused on supporting economic recovery and growth in a difficult external environment, broadening and sustaining the country’s social gains and reducing vulnerability to climate change – particularly through improved water resource management. Key challenges for Albania going forward include early resumption of fiscal consolidation and strengthened public expenditure management, regulatory and institutional reform, reduction of infrastructure deficits, and improvement in the effectiveness of social protection systems and key health services. 

The World Bank and International Finance Corporation (IFC) continue to help to reduce the infrastructure deficit in a fiscally sustainable way, namely by increasing private investment and fostering public-private partnerships. Improving the effectiveness of social protection systems and health services in order to make economic growth inclusive to everyone continues to be a priority during a time of weaker economic outlook.

The World Bank Group began work with Albania in 1991. It has supported a number of projects aimed at delivering an immediate alleviation of poverty and at providing sustainable tools and long-lasting development to foster further growth. In the two decades of engagement with Albania, the World Bank Group has provided more than $1.4 billion in assistance through commitments from the International Development Association (IDA), the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA). 

The World Bank's Country Partnership Strategy (CPS) for Albania for 2011-2014 aims to further advance the implementation of the National Strategy for Development and Integration through three strategic pillars:

1. Supporting economic recovery and growth in a difficult external environment
2. Broadening and sustaining Albania’s social gains
3. Reducing vulnerability to climate change, particularly through improved water resource management

A Mid-term review of the CPS, while affirming the priorities that had been agreed upon, recognized the need for an increased emphasis on the first pillar. As part of its initiative to help several countries in Central and South-Eastern Europe mitigate the impacts of the on-going Eurozone crisis, the World Bank has also increased the financing envelope available to Albania, primarily for strengthening financial stability, growth, and macro-economic management.

The current portfolio consists of eight projects totaling US$218.5 million IDA credits and IBRD loans, and about US$25 million in Trust Funds. The portfolio has been consolidating significantly during the last few years, from 18 projects at the end of fiscal year 2009 to eight projects by end-FY12.

The three main priority sectors from 2007 to 2012 have been health and social services, energy, and governance and public sector management. In addition to the ongoing lending operations, Albania is currently implementing a $78 million Privatization of the Power Distribution System Operator (OSSH) Partial Risk Guarantee project.

Albania has made great progress with support from the World Bank Group. Priority areas for this partnership include transportation, agriculture, energy, and governance and public sector management initiatives.

Some of Albania’s development results include:

Transportation: The expansion, improvement, safety and management of the road network are among the top priorities of the Government of Albania. With support from the World Bank Group and other development partners, the condition of the road network has been improving. As part of these efforts, the Government has requested assistance from the World Bank Group to help (i) improve the management, financing, and condition of secondary and local roads in Albania; (ii) support the introduction of the private sector in road maintenance on the secondary and local road network; and (iii) act as a catalyst for other donors in the sector and play a leading role both in program preparation and attracting other international financing institutions to contribute. The Secondary and Local Roads Project is part of this partnership.

Agriculture: Agriculture is a main source of employment and income in the rural areas of Albania, contributing 21 percent to GDP and accounting for 58 percent of employment in the country. The main challenge for the country is to transform agriculture from subsistence-oriented production into a modern, commercial sector which is competitive on the global market, while fostering alternative income opportunities for rural residents exiting the sector.

The World Bank has supported agriculture in Albania through investments in irrigation and exposure to new technologies and practices, and through piloting a small grant program that was subsequently scaled-up by the Government. A new Water Resources and Irrigation Project (WRIP) has been appraised which will (i) strengthen the Government’s capacity to manage water resources at both the national level and in the Drini-Buna and Semani river basins and (ii) sustainably improve the performance of irrigation systems in the project area.

Energy: Energy has emerged as a major priority for Albania, with significant efforts being undertaken over the last several years to improve the country’s electricity supply. Key challenges after the privatization of the distribution arm are to establish the viability of the new structure, restore the sector’s financial viability, and diversify the sources of energy supply while reducing the sector’s vulnerability to changes in rainfall and climate.

The main objectives of the Bank program are to improve the domestic energy supply, the operation of the transmissions system, the safety and operational efficiency of hydropower dams, and the distribution system cost recovery. The Bank works in close collaboration with its private sector arm—the International Finance Corporation (IFC)—as well as with other multilateral and bilateral development partners to support small hydro development, new renewable energy, and residential energy efficiency.  The World Bank’s current support to the energy sector includes the Energy Community of South East Europe APL5 Dam Safety Project and the Partial Risk Guarantee for the Privatization of the Power Distribution System Operator project. 

Environment:  The Government of Albania is implementing a wide range of policies in the field of environment protection and natural resources management. Albania is moving towards a gradual approximation of its respective laws to EU environmental legislation, but challenges remain, including limited enforcement due to the weak capacity of the environmental authorities at both the central and regional levels, and a lack of resources for monitoring and ensuring full compliance with environmental standards.

The Bank has helped to preserve the important natural and environmental assets of Albania and foster local economic growth through a number of projects, in partnership with the Global Environment Facility (GEF) and other development partners. Projects include the Integrated Coastal Zone Management and Cleanup Program and the Albania and Montenegro Lake Skadar-Shkoder Integrated Ecosystem Management Project.

Governance and Public Sector Management:  Institution building has been a key priority for Albania, especially during the first years of transition, but some challenges remain today. Improving governance and strengthening institutions have been permanent objectives in all Country Assistance Strategies (CAS) for Albania. Public sector performance is crucial to the country’s ambition to gain EU membership and Albania has made significant progress on improving its budget framework and financial management system.

The World Bank, in close coordination with other development partners, has focused on building critical central capacities, including public administration and the civil service, public expenditure management, and legal and judicial institutions. As part of this partnership the World Bank Group, in partnership with several donors, is supporting the Integrated Planning System (IPS), a multidonor trust fund in its second phase which aims to ensure that Albania’s core policy and financial processes function in a coherent, efficient, and integrated manner.

Support to selected issues and sectors has also been provided through the Governance Partnership Facility (GPF), including the successful piloting—the first in the Europe and Central Asia region—of a country e-procurement system in one of the World Bank Group’s projects.

Education:  Albania places great importance on the education sector and, as a result, initiated major and wide-ranging education reforms throughout the country in 2006. The World Bank Group supports a comprehensive range of reforms in the education sector in Albania through the Education Excellence and Equity Project that is also financed by the European Investment Bank (EIB), the Council of Europe Development Bank (CEDB), and a substantial contribution from the Government.