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 well the consequences of the earthquake, pandemic, and price crisis, the Government’s focus is now on full recovery with special attention on tourism, agriculture, and digitization. It is encouraging to see that there is an increased attention to climate change and environment–friendly interventions in economic sectors.  

During 2021-2022 the economy experienced a strong rebound with growth fully recovering to pre-pandemic levels, and resurge of travel, construction, and extractive industry.  Private investment, consumption, and public spending drove growth, while public debt remained high. Growing inflation and the war in Ukraine threaten economic and poverty prospects in 2022.

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 07, 2023

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 Albanian people. It builds on a productive partnership with Albania, focuses on the priorities that are set out in the National Strategy for Development and European Integration, and findings of the World Bank Group analytical works. The main directions of the CPF are more and better jobs, stronger human capital, and enhanced resilience to shocks. Initiatives to use digitization and improve inclusivity will cross these directions, retaining accession to European Union as a long-term goal.   

The CPF anticipates an estimated program of $900 million, out of which $365 million was approved for four new projects on the same day as the CPF approval. 

The four projects include: 

• Building Resilient Bridges ($100M) which will aim to enhance resilience to climate change and natural hazards of Albania’s critical bridge infrastructure, and to improve road and bridge asset management,
  
• Climate Resilience and Agriculture Development ($70M) which aims to increase competitiveness and resilience of priority agri-food value chains,
• Improving Equitable Access to High Standard Public Services ($65M) which aims to improve service delivery quality and significantly increase the use of new technologies in hte public sector, and
  
• First Resilience and Green Development ($120M).

This brings the total amount of the active portfolio to $485 million. This portfolio is expected to be complemented with 2-3 projects in the coming 12 months. The focus of the projects under preparation is on the environment through CARE for Blue Sea, and human development through Developing Opportunities and Resilience operation that will focus on upskilling people to re-enter the job market after they have been under social protection.  

Last Updated: Apr 07, 2023

RECENT ECONOMIC DEVELOPMENTS

Growth in 2022 is estimated at 3.5 percent, as private consumption, exports, and investment expanded, despite increasing energy and food prices. On the supply side, trade and construction led growth. Lower energy production from hydropower subtracted from growth, given an exceptionally dry year.

Annual employment growth accelerated to an average of 3.9 percent in the first three quarters of 2022. Job creation was broad based, while the number of vacancies increased, putting upward pressure on wages. Unemployment fell to a record low of 10.6 percent in Q3 2022, while labor force participation increased. Given strong growth in GDP per capita in 2022, poverty is estimated to have declined from 27.5 percent in 2021 to 25.2 percent in 2022.

The annual inflation rate rose to 8.3 percent in October 2022, the highest since March 2020, driven by food and transport prices, adversely impacting the poorest citizens. The central bank raised its policy rate to 2.75 percent in November.  

ECONOMIC OUTLOOK

Growth is expected to remain subdued in 2023, in the context of tighter global financial conditions, expected economic slowdown in Europe, and the withdrawal of policy support for the post-earthquake reconstruction. Real exports, consumption and investment are expected to grow at rates below those in the pre-pandemic period. The inflation rate is projected to start converging toward the 3 percent target by 2025. The central bank is expected to further increase the policy rate by an additional 2–2.5 percentage points in 2023.  

The primary balance is projected to reach 0.7 percent of GDP only after 2023, in observance of the fiscal rule. Fiscal consolidation will largely come from the spending side. On the revenue side, the Government plans to introduce a number of tax policy measures, envisioned in the MTRS. The revenue gains of these measures in the short term are expected to be netted off by slower growth and partially by the increase in the minimum taxable wage introduced at the end of 2022. 

Further increases in food and energy prices are a key risk to growth, as they could affect real disposable income, slow poverty reduction, and constrain fiscal space. As a small, open economy, Albania is highly exposed to external shocks, such as recession in Europe or further tightening of financing conditions in international capital markets beyond the current year. Domestic risks emanate from natural disasters, public-private partnerships, and SOEs, in addition to fiscal risks stemming from the energy sector. 

Last Updated: Apr 07, 2023