Before the global financial crisis, Albania was one of the fastest-growing economies in Europe, enjoying average annual real growth rates of 6%, accompanied by rapid reductions in poverty. However, after 2008 average growth halved and macroeconomic imbalances in the public and external sectors emerged. The pace of growth was also mirrored in poverty and unemployment: between 2002 and 2008, poverty in the country fell by half (to about 12.4%) but in 2012 it increased again to 14.3%. Unemployment increased from 12.5% in 2008 to 16.9% in 2013, with youth unemployment reaching 26.9%.
The recovery to growth rates above 3% in 2011 moderated in 2012 and 2013, reflecting the deteriorating situation in the Eurozone and the difficult situation in the energy sector. Real Gross Domestic Product (GDP) growth dipped to a low point of -2.3% in the third quarter of 2013. A rebound is expected in 2014, but growth is also expected to stay below the country’s potential over the medium term.
Albania’s labor market has undergone some dramatic shifts over the last decade, contributing to productivity growth. Formal non-agricultural employment in the private sector more than doubled between 1999 and 2013, 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 represents around 20% of 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.
Supporting economic recovery and growth in a difficult external environment
Broadening and sustaining Albania’s social gains
Reducing vulnerability to climate change, particularly through improved water resource management
The CPS program also supports governance improvements in Albania and the European Union integration agenda. It focuses on accelerating the implementation of the ongoing program, while selectively introducing new International Bank for Reconstruction and Development (IBRD) lending in strategic areas, increasing IFC financing for the private sector to $120–150 million, strengthening partnerships with other IFIs and donors, and expanding its knowledge program through regional and national activities.
As part of its initiative to help several countries in Central, East, and South East Europe mitigate the impacts of the Eurozone crisis, the IBRD has increased the financing envelope available to Albania under its CPS, from $300 million to $575 million - mainly for strengthening financial stability, macroeconomic management, and growth. The CPS Progress Report (2011) reconfirmed the priorities of the CPS, with an increased focus on supporting growth, competitiveness, and energy sector development.
A new government assumed office in mid-September 2013 after elections in June. It has pledged to enhance government transparency and accountability, improve public service delivery, and accelerate reforms to stimulate growth and jobs. The government has embarked on structural reforms (in energy and pensions) to enhance growth and improve public finance management, including implementing an arrears clearance and prevention strategy. The World Bank is supporting these reforms under a programmatic Public Finance Development Policy Loan. In addition, a Financial Sector Modernization Development Policy Loan is also under preparation to support the government’s program for strengthening the financial sector and reducing key vulnerabilities. A new Power Sector Recovery Project is under preparation with a view to supporting further improvements in the distribution sector, financing key investment that will advance security of supply, and facilitating further reform to move the sector on the path toward financial self-sufficiency.
The government has focused its attention on the delivery of development results, and a Delivery Unit has been established in the Prime Minister’s office to provide high-level attention to the achievement of results. The Bank will continue its support, building on and deepening assistance in areas of long-term Bank engagement in Albania. The Bank will work closely with the government and all other stakeholders to prepare the next Country Partnership Framework.
Albania: Commitments by Fiscal Year (in millions of dollars)*
*Amounts include IBRD and IDA commitments
Albania has made great progress with support from the World Bank Group. Priority areas for this partnership include transportation, agriculture, energy, health, education, environment, and public sector management initiatives.
Some of Albania’s development results include:
Education: The Bank has supported three projects in the education sector. These projects have helped to build or reconstruct more than 300 schools in priority areas, in which 100,000 children have benefited from new schools. Major, wide-ranging education reforms were initiated in 2006. These reforms included curriculum reform, improved teacher training, a more equitable distribution of resources across regions, improvement of learning conditions, less-crowded classrooms, an increase in teachers ‘average salaries and the renewal of the content and administration of the Matura examination (the secondary school-leaving examination) to ensure objective results. Reforms continue to be implemented successfully.
The Excellence and Equity Project, jointly financed by the Government, the World Bank, the European Investment Bank (EIB) and the Council of Europe Development Bank (CEDB), has helped to improve the quality of learning conditions for students and to increase enrollment in general secondary education, especially for the poor. All primary schools are using the new curriculum and textbooks. Over 2,000 basic and secondary-level schools have been equipped with computers and Internet access, decreasing the student-per-computer ratio in the general secondary schools from 61 to 16 students per computer. 250 chemistry labs and 250 biology labs were provided to basic education schools, and 100 chemistry labs and 100 biology labs were provided to general secondary education schools.
Health: The public sector contribution to health sector is relatively low and well below the SEE average. As a result of low public sector spending, out of-pocket expenditures at the point of service account for about 60% of sectoral funding. The poor population faces an economic barrier when it comes to accessing quality healthcare services. The government is committed to making improvements and is currently working to develop a heath-financing policy that will address these problems. The Bank has supported the healthcare sector in Albania through three projects (Health Service Rehabilitation Project, 1994, Health Recovery Project, 1998, Health System Modernization Project, 2008). By financing the construction, reconstruction, and equipping of 115 centers in the poorest areas of the country, the Bank funds have contributed to improving the quality of basic preventive and curative health services. With the assistance of the Bank and other donors, the government has established new hospital services in three major cities, and has completed the general master plan for the future of development of the single tertiary hospital in the capital. Support has been given to advance reforms in key policy areas such as decentralization, health insurance, and transparency in sector expenditures. The Health System Modernization Project assisted the government in improving physical and financial access to high quality primary health care services, as well as strengthening institutions. All regional hospitals as well as primary health care centers have been supported with main medical equipment. The Health Insurance Institute has been supplied with required IT equipment for the central and regional offices. A comprehensive range of reforms have been supported through the project.
Transportation: The World Bank concentrated significant financing and expertise on assisting Albania’s transport system by establishing a modern infrastructure network. Since the beginning of the Bank’s intervention in the sector, nine projects have been implemented and brought positive changes in access to education, healthcare, postal and banking services, and in connecting the major urban centers with the international market. Old roads were paved, extended, or upgraded; and new roads were built through various projects that targeted national and rural networks. The National Road Project (1996) helped rehabilitate and construct of about 90 km national roads, in the East-West and Northern corridors connecting port of Durrës with neighboring countries such as Macedonia and Greece. The Rural Roads Project (1995) improved around 975 km of rural roads, while The Road Maintenance Project (2007) contributed to the repair and maintenance of 500 km of roads. The Albania Transport Project (2007) supported improvement of access for hinterland population and construction of 26 kilometers of Durres - Morine Corridor. The Secondary and Local Roads Project (2008) completed about 110 km of secondary and local roads. Through this project, the Bank prepared an overall program for the entire secondary and local roads network, which in addition to its own financing ($20 million) leveraged about $350 million from other donors and International Financial Institutions (IFIs). The project provided an all-weather connection to many communities, improving access to essential services and economic markets for the resident population in the hinterland of the project roads.
Urban Infrastructure: Albania is endowed with a variety of fascinating and distinctive places to visit, including a range of seacoast towns along the Adriatic, historic cities, and cultural heritage destinations featured on UNESCO’s World Heritage List. Years of under-financing of city and town infrastructure, however, has left a backlog of critical investment needs in water and sanitation systems, solid-waste management, inner-city road rehabilitation, and urban amenities. The World Bank’s Urban Infrastructure Portfolio is helping to address these deficiencies. The Land Administration and Management Project (LAMP) is assisting to survey and register an estimated 400,000 properties in urban areas, providing residents and businesses with secure property rights. The digitization of property records at some Immovable Property Registration Offices (IPRO), has reduced property registration time from 47 days to less than 10 days. Full automated property registration system is operational in Tirana, with an on-line connection to notaries. Eight cities and towns in Albania will now be guided by Comprehensive Territorial Plans that were completed under the Project, based on extensive community consultations. Municipal investment programs to upgrade and rehabilitate essential urban infrastructure services have supported four cities. The investments helped provide retail market space for small-scale businesses previously operating under make-shift structures on sidewalks on the main street of the town of Berat; paved streets to improve commuter and pedestrian mobility and access in the city of Shkodra and Kamza; and improved and restored building facades and downtown amenities in the town of Elbasan. A comprehensive street addressing system was installed in 13 towns, improving the ability to provide municipal serves and to enhance tax collection. In response to the emergent needs of flooded areas of Shkoder and Lezhe, the Bank has been helping to restore damaged facilities and services, such as construction of storm-water collectors and rehabilitation protection of Water Supply Pumping Stations and Drainage Pumping Stations, serving to more than 150,000 residents, as well as numerous homes and business of the area. The Disaster Risk Mitigation and Adaptation Project supported the establishment of a national Emergency Command and Control Center in Tirana. With grant resources from the Global Facility for Disaster Reduction and Recovery (GFDRR ) the government is assisted in the development of the medium- and long-term flood risk mitigation options for Drini-Buna river basin.
Water Supply and Sanitation: Albania is endowed with water resources of 8,600 m3 per capita, of which only 6% is withdrawn annually. This generous allowance helps the country to provide high coverage of water supply and sewerage services. But the relatively high coverage is negated by the poor quality of service. Despite Albania’s abundant water resources, water supply in urban areas is intermittent, and less than half of the rural population has access to piped water. Alongside other donors, the Bank has provided a steady stream of investments to help improve water and sanitation services, while contributing to institution building measures. The Bank is taking the lead in helping the government carry out policy reforms, focus on cost recovery, and to foster private sector and community involvement. The Municipal Water and Wastewater Project (2003) supported investments in improving water supply and sanitation services in four participating cities (Durres, Fier, Lezha and Saranda), and tried to assist water utilities to introduce a new incentive-based multi-city management contract approach, with the objective of increasing their financial viability. In parallel, The Integrated Water & Ecosystems Management Project (2004) built wastewater treatment plants in the coastal cities of Durrës, Lezha and Saranda. The recently approved Water Sector Investment Project (WSIP) is supporting priority investments to improve the quality of water utility performance and services, for both local residents and prospective tourists in the Durres region, as well as key institutional reform and activities orienting utility towards operational cost recovery, improvement of sector governance and regulation, etc.
Energy: The World Bank Group took a leading role in supporting power sector development in Albania through several projects that helped increase energy supply and security, while also reforming and restructuring the sector as to operate in a market-based environment. This support played a key role in improving the overall standard, reliability, and efficiency of the electric power supply, and enhancing the efficiency of electricity interchanges with neighboring countries. The World Bank’s current support for the energy sector includes the Energy Community of South East Europe Dam Safety Project (2008) that is helping Albania to rehabilitate and improve operations of its main hydropower plants in the Drin River, thus increasing the efficiency of water resources and production. The World Bank Group, including its private sector arm, the International Finance Corporation, supported distribution privatization, through advice from IFC and Partial Risk Guarantee (PRG) from IBRD. The IFC program also supports private sector engagement in small hydro-development projects, new renewable energy projects, and residential energy efficiency initiatives. While major progress has been made, the remaining challenges are plentiful: to complete the reform agenda, further improve security of supply to meet growing demand while strengthening demand-side management, clarify and better enforce market rules, maintain the network, and continue strengthening the institutions in the sector.
Agriculture is a main source of employment and income in the rural areas, contributing around 20% of Gross Domestic Product (GDP) and accounting for about half of total employment. Albania’s agricultural sector continues to face a number of challenges, including small farm size and land fragmentation, poor infrastructure, market limitations, limited access to credit and grants and inadequate rural institutions. The Bank has supported agriculture in Albania through several projects. They had a positive impact in poverty reduction by increasing the income of small private farmers and creating employment opportunities for dependent farm labor in rural areas. These projects also contributed to sustainability of irrigation and drainage investments through farmer participation in operation and maintenance, efficient system management and greater cost recovery. More than 335,000 hectares of Albania’s irrigation and drainage system was rehabilitated or upgraded. This represents two-thirds of irrigated land. Thirty-three dams were rehabilitated. More than 100,000 families have benefited from the irrigation schemes. The microfinance program provided over 47,000 loans for income-generation activities in 380 villages and 8 districts. Support to farmers in production and trade contributed to rural income growth. Through a World Bank financed project four wholesale markets built in Korca, Lushnja, Vlora and Shkodra facilitated the marketing of local agriculture products. A total of 145 grants were awarded to farmers with an impact on more than 20,000 farmers who were exposed to new technologies. Now the challenge is to transform agriculture from subsistence-oriented production into a modern, commercial, and competitive sector, while fostering alternative income opportunities for rural residents exiting the sector. A new Water Resources and Irrigation Project (WRIP) has been approved recently aiming to strengthen the Government’s capacity to manage water resources at the both national, river basin and local levels, to improve the performance and sustainability of irrigation systems in the Drin-Buna and Semani river basins, and to pilot public-private partnerships for operating and maintaining the irrigation systems in the three areas.
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 toward gradual approximation of its laws with the environmental legislation of the EU. The completed Natural Resources and Development Project helped reduce erosion by improving the management of Albania’s wetlands, forest, and pasture resources, as well as creating water catchments. This project enhanced productivity and incomes by improving community-based natural resource management in 251 communes in mountainous areas prone to erosion. Land erosion has fallen by 220,000 tons. The implementation of the plans created some 6000 jobs, including 1900 women and 1900 beneficiary families. A follow-up project is being prepared to improve and promote the value of ecosystem services, in partnership with SIDA. Through biomass regeneration, forest-dependent communities successfully participated in the global BioCarbon Fund program, which supports, on a pilot basis, reducing GHG emissions though improved biodiversity and natural resource management improvements and provides additional resources to local communities. The on-going Integrated Coastal Zone Management Project supports the improvement of critical public environmental infrastructure and municipal services of the southern coast.
Public Sector: With the prospect of a country potentially to receive the candidate status in the very near future, Albania faces even a bigger challenge of having a sound financial management framework, a meritocratic public administration and efficient monitoring and evaluation systems in place. The public sector performance is crucial to the country's ambition to gain EU membership and Albania has made good progress in some of the above areas.
The World Bank, in close cooperation with other development partners, through a Multi Donor Trust Fund is supporting the Integrated Planning Process in Albania. The focus of the Trust Fund is the modernization of the Public Financial Management through a modernized Treasury and integration of other budget implementation and monitoring functions.
The new Government's approach towards "Delivering for Results" has called for Bank's expertise and since September 2013, the Bank is providing guidance and technical assistance to establish and strengthen the Delivery Unit, strengthen the capacities at high decision making levels as well as technical level. The Bank will expand its support including for this short-term expertise, mid-term technical assistance through the Trust Fund and long- term investment through a more citizen centric project.