Albania: Restoring Growth and Improving Prosperity

April 17, 2017


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The New Bazaar is a vivid space and a hip place in Tirana, the newest traditional bazaar in town.

Genti Shkullaku / World Bank

Over the past two decades, Albania has transformed from one of the poorest countries in Europe to an upper-middle-income country, reducing poverty from 25.4% in 2002 to 14.3% in 2012. The global financial crisis halted growth, slowed poverty reduction, and reduced employment opportunities. Albania is implementing macro-fiscal and structural reforms to revitalize growth and job creation, while advancing the European Union integration agenda. Under the Fiscal Year 2015-19 Country Partnership Framework, World Bank engagement is expected to expand to US$ 1.2 billion in support of Albania’s development agenda.


Challenge

Albania’s key challenges include the need to accelerate growth and create jobs. The high pre-crisis growth rate of 6 percent was fueled largely by domestic consumption driven by the high level of remittances. In the aftermath of the 2008 financial crisis, growth dropped to only 1.7 percent a year in 2013 and 2014; the crisis also exposed the unsustainability of this past growth model and highlighted the need to shift from consumption-fueled to investment- and export-led growth.

There are now early signs of this investment- and export-led recovery, propelled by ongoing reforms in the energy sector, financial sector pensions and fiscal management. Deeper efforts are needed to accelerate inclusive economic growth with the aim of maintaining macro-fiscal and financial sector sustainability, improving the investment climate and unleashing private sector growth, removing barriers to employment for job creation, and improving governance and public service delivery.

Enhancing regional connectivity and access to regional and global markets, coupled with export and market diversification, can help accelerate growth. These aspects are recognized in Albania’s National Strategy for Development Integration, which targets reforms for economic recovery, job creation, and more efficient social service delivery. Maintaining reform momentum through resolute implementation is critical to Albania’s continued economic growth and aspirations for EU integration. Back to top

Approach

In the decades since Albania emerged from communist isolation, the World Bank Group (WBG) has played a major role in supporting reforms, strengthening institutions, and financing investments across a range of sectors.

With prolonged low investment and growth after the global financial crisis, amid reversed poverty reduction and increased macroeconomic and fiscal imbalances, the Government initiated a broad-based reform program with International Monetary Fund (IMF) and WBG support. The Government’s six cross-cutting priorities—macroeconomic and fiscal sustainability, competitiveness, governance and accountability in public services, energy, land, and water—are reflected in its National Strategy for Development and in the Systematic Country Diagnostic (SCD) for Albania.

The WBG’s Country Partnership Framework (CPF) FY15–19 significantly boosted Bank engagement, outlining US$ 1.2 billion in lending support for Albania’s reforms, equitable growth, and integration into the EU. The CPF’s strategic engagement focuses on restoring macroeconomic balances, creating conditions for accelerated private sector growth, and strengthening public sector management and service delivery. Back to top


Results

Results under the current CPF and the previous FY10–14 Country Partnership Strategy (CPS) include:

Country Partnership Framework

  • Public sector arrears, at more than 5 percent of GDP in 2013, were cleared by the Government in 2015.
  • With the energy sector’s improved financial situation, government guarantees were reduced by half in 2015, compared to 2013.
  • Energy sector distribution losses declined to 31 percent in 2015, compared to 49 percent in 2013.
  • The energy sector’s billing collection rate reached 98 percent in 2015, from 78 percent in 2013.
  • Nearly 2,140 previously ineligible Albanians had access to a social pension in 2016.
  • A €200 million Policy-Based Guarantee in 2015 addressed the Government’s funding needs and minimized borrowing costs and also helped save €120 million in interest payments. 

Country Partnership Strategy

  • Rehabilitation works were completed in 11 irrigation dams during 2009–13.
  • An EU-compliant National Metrology Laboratory was established, an EU-compliant regulatory framework for inspections was adopted, and 175 government officials received associated training during 2010–12.
  • A new National Inspectorate was established in 2012, reducing the number of inspectorates from 36 to 15.
  • Of the over 50 countries assessed under the Bank’s Debt Management Performance Assessment (DeMPA) program, Albania is among the few with sound debt management practices in most areas, as defined by DeMPA methodology.
  • 110 kilometers of secondary and local road networks were rehabilitated or constructed, connecting 81 communities by road to services and markets during 2009–12.
  • The triple shifting of classrooms was eliminated and double shifting reduced from 36 to 16 percent in basic education and 6 percent in secondary education during 2005-12.
  • Income generated from improved forestry, agricultural lands and water resources increased by 28 percent and sedimentation was reduced by 200,000 tons in about 250 rural communities in 2012 compared to 2005.
  • One of the first countries to sequester carbon by restoring 5,427 hectares of degraded lands. In July 2013, 128,757 certified emission reductions (CERs) were issued by the United Nations Framework Convention on Climate Change. On this basis, the World BioCarbon Fund transferred US$ 450,000 carbon payments to Albania.
  • 45,000 square meters of hazardous waste have been encapsulated in safe landfill facilities, and human health hazards were cleaned up in 2010 at Porto Romano, revitalizing one of the most contaminated sites in Albania.

Albania was declared compliant with the Extractive Industries Transparency Initiative (EITI, the global standard of open and accountable natural resource management) in May 2013, after the successful publishing of four EITI reports between 2009 and 2012. Back to top


IDA Results

Albania has made encouraging strides over the past two decades and is considered an International Development Association (IDA) success story. It was able to lift 200,000 people out of poverty from 2002 to 2008, thereby halving the poverty rate from over 25.4 percent to roughly 12.4 percent. Albania graduated from IDA in 2008 and is now creditworthy for the International Bank for Reconstruction and Development (IBRD). IDA-supported results in Albania include the following:

  • 300 schools were built or reconstructed during 1994–2012, benefiting 100,000 children.
  • 115 health centers were constructed, reconstructed, and/or equipped in the poorest areas of the country during 1994–2000.
  • 335,000 hectares of the irrigation and drainage system were rehabilitated or upgraded, benefiting 100,000 families during 1994–2008.
  • Land erosion was reduced by 220,000 tons during 2000–2008.
  • 1,700 kilometers of national and rural roads were repaired, constructed, and/or maintained during 1994–2008.
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Bank Group Contribution

The WBG’s involvement in Albania began in 1991. Since then, the Bank has been seen as a trusted and highly valued partner that has contributed to Albania’s growth and development. Throughout the past 25 years, the WBG helped the country achieve impressive results supported by more than US$ 2.4 billion in assistance through commitments from the IDA, IBRD, the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA).

The current portfolio consists of nine IBRD-financed loans and one IDA credit, totaling US$ 544 million. IFC’s committed portfolio is about US$ 233 million, and MIGA gross exposure is about US$ 297 million. Back to top

Partners

Foreign assistance continues to be a critical factor in Albania’s development. With around US$ 350–400 million in external annual support, foreign assistance covers 40–50 percent of the capital expenditures in the budget. The Bank and the EU are key strategic partners in Albania and their programs cover multiple sectors. Collaboration and coordination with development partners are strong aspects of the Bank’s engagement, leveraging other partners’ assistance in some of the key sector programs, such as transport, energy, health, social assistance, public sector management, and environment.

Cooperation remains active with multilateral partners, especially the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), and the United Nations, and with a number of bilateral partners, including Austria, Japan, Germany (through the German Development Bank [KfW]), Sweden, and Switzerland. In-country development partner coordination is led by the Government, and coordination between development partners is organized through the EU, including efforts to move toward a sector-wide approach in key areas, led by joint government-donor sector working groups.

In addition, FDI in strategic sectors including services, banking, and energy sector has averaged 7.7 percent of GDP since the global financial crisis and finances around 65 percent of the current account deficit. Back to top

Moving Forward

The WBG program of support is guided by the CPF, which takes the SCD’s direction forward to a new economic growth model for rebalancing the economy toward equitable, inclusive, and export-driven growth. The Albania SCD and CPF were the first in the Europe and Central Asia (ECA) region and were among the early successful pilots of the WBG’s new country engagement model.

The CPF is built around three focus areas: (i) Restoring macroeconomic balances; (ii) Creating conditions for accelerated private sector growth; and (iii) Strengthening public sector management and service delivery. Implementation of the strategy is progressing well and builds on the Bank’s comparative advantages. The CPF includes a mix of lending instruments, with up to 40 percent of the indicative lending in the form of budget support, subject to continued progress on reforms.

Advisory Services and Analytics (ASA) complement the lending program. The ongoing analytic work includes a Jobs and Skills Review, a Country Fiduciary and Project Implementation Assessment, a Subnational Governance and Finance Review, and Land Administration Data Improvement Technical Assistance. IFC investments are expected to be roughly US$ 150–200 million over the course of the CPF period, and MIGA will continue to explore guarantee opportunities. Back to top

Beneficiaries

Albania is renewing environmental and community infrastructure to boost tourism, by upgrading south coastal village conditions and protecting natural and cultural endowments. The Integrated Coastal Zone Management and Clean-up Project has helped upgrade village infrastructure with water supply systems, new roads, and newly paved village squares. “Such improvements are leading former residents to return,” says Qeparo village leader, Stefan Kokedhima. “When people saw that the new water supply was being built, there were many requests to come back to the old village.”

The upgrade of Saranda’s port with Bank financing has boosted the economy through increased tourism. “The number of tourists increased by 20 percent. Last year, it was 500,000. This year it was 600,000, which makes 100,000 more and that was due to the port,” says Ben Çipa, tour operator.

Pension reform in Albania, supported by Bank technical advice, allows thousands of Albanians to receive a social pension designed to help people over 70 who had worked but had not paid into the previous retirement plan. “Getting a pension after years of living without one was a big relief,” says Sose Kamberaj, who is 76 and lives in Vlora. “This pension helps me to take care of myself. I feel happy with it because I didn’t get anything in the past. Before, when we only had my husband’s pension, we couldn’t cope. Now we can.”

As part of a Bank-financed project, thousands of Albanians are using an online service to secure their property rights, which are fundamental to well-functioning real estate markets. “It used to take several trips – and lots of stress – getting the papers needed to help clients buy and sell their property,” says Mimoza Sadushaj, an Albanian notary. But now, Mimoza can finally access land and property registration records online. “With one click we can see information, fill out forms, everything! But before, it was harder, you had to work with hard copy."

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