Overview

Strategy

The current World Bank Group (WBG) program in Albania is guided by the Country Partnership Framework (CPF) for FY15–19, which provides analysis, advice, and financing in support of equitable growth in Albania and integration into the EU. The CPF has significantly ramped up WBG engagement and laid out an indicative lending program of up to US$1.2 billion, which focuses on three main areas:

• restoring macro-economic balances
• creating conditions for accelerated private sector growth
• strengthening public sector management and service delivery

The Government of Albania asked the World Bank to help identify key reform options for the jobs agenda. A team of experts produced a series of policy notes that looks at five interlinked aspects of the issue: labor market performance; labor market institutions and regulations to facilitate job creation; labor demand and the business environment; and labor supply and workforce skills.  

The policy notes proposed a strategy to strengthen labor market statistics to better monitor progress on Albania’s jobs and growth agenda going forward. To unlock larger productivity and wage gains, the Government can help to create a business environment that enables Albania’s entrepreneurs to explore opportunities higher up the production value chain, including access to markets, finance, foreign know-how, and a stable policy environment. 

Policy reforms are needed to ensure that Albanians acquire the skills necessary to meet the demands of a growing manufacturing and service sector. Given the public good nature of an educated workforce and the constraints that households face when investing in their human capital, the Government of Albania has a key role to play in providing an education system that can prepare Albania’s citizens for the jobs of tomorrow.

To fully activate its existing workforce, Albania can strengthen labor market institutions to encourage workers—particularly women and youth—to fully utilize their potential. By easing labor market regulations and reducing the cost of employment, the Government can make job creation more attractive to employers, with a potentially large and broad-based impact across the economy.

Last Updated: Oct 11, 2018

RECENT ECONOMIC DEVELOPMENTS

GDP growth for 2018 is projected at 4%, supported by energy production and a strong tourism season. Rising employment and wages continue to drive private consumption. Although private investment is losing pace, government infrastructure spending is stepping in to support investment growth. A strong labor market continues to support falling unemployment.  

Albania’s fiscal deficit is forecast to remain at 2% of GDP in 2018. Revenues are expected to increase by 0.3% of GDP in 2018 because of higher social security contributions. In compliance with the fiscal rule, public debt is expected to decline from 71.6% of GDP in 2017 to 69.5% in 2018. 

With inflation expected to average 2.1% in 2018 (below the inflation target of 3%), the Central Bank further lowered the policy rate by 0.25 percentage points to contain the impact of the appreciation on domestic prices. This monetary easing is expected to further stimulate credit growth.  

The current account deficit is expected to reach 6.8% of GDP in 2018, as exports in both goods and services expand and outgrow imports. A stronger economic performance in the EU is sustaining remittances. The current account deficit is fully covered by foreign direct investment (FDI).

ECONOMIC OUTLOOK

Albania’s economic growth is projected to slow to around 3.5% by 2019–20 as the output gap gradually closes. Growth will rely increasingly on private consumption, fueled by labor income gains, and net exports that are supported by growing foreign demand and expanding market access. Investment will also contribute to growth, as the government continues to invest in infrastructure and the business environment improves. 

Given the strong labor market performance, poverty is expected to decline at a faster pace. Under the medium-term fiscal framework, fiscal consolidation is expected to continue until 2022, which should generate savings on the wage bill, goods, and services, as well as current transfers to social insurance beneficiaries and local governments. Capital expenditures are planned at 5% of GDP over the medium term, and contracts for additional investments will be financed through public-private partnerships (PPPs). A gradual fiscal consolidation, combined with continued economic growth, is forecast to lower the debt-to-GDP ratio to 60% of GDP by 2022. 

Progress on fiscal consolidation will depend on broadening the tax base, while fiscal risks from PPPs and state-owned enterprises need to be actively managed. Sustaining inclusive growth requires a commitment to tackle structural challenges, including the business environment, energy security, and human capital. 

Last Updated: Oct 11, 2018

Active Projects

Project Spotlight

Roads rank among the largest public assets in Albania. However, inadequate and intermittent funding has resulted in challenges in maintaining road conditions and user safety standards. The Results-Based Road Maintenance and Safety Project, funded by the Albanian Government and the World Bank, is addressing these challenges. It will cover periodic routine maintenance work in 28 national road sections, equal to about 1,400 kilometers of main corridors carrying about 75% of national traffic. The project is financing several five-year performance-based maintenance contracts.  

Based on the country’s development priorities and in response to the Government’s request, work was started on the roads leading to tourism hubs and border crossing points with Montenegro, FYR Macedonia, and Greece. As of September 2018, the Albania Road Authority, which implements the project, had completed the rehabilitation of several sections along Tirana-Durrës, Lushnje-Fier-Vlore-Orikum-Sarande, and Fier-Gjirokaster corridors, as well as the Pogradec Ring Road. The total length of rehabilitated sections amounts to 140 kilometers. The Tirana-Durrës highway is among those sections and connects the capital city to the largest seaport in Albania, where about 40% of Albania’s businesses and population are concentrated. The section from Patos to Levan in Fier is another important corridor, as it is used by more than 90% of the traffic connecting northern and central Albania with the south. Recent data show that the number of visitors in Albania increased significantly in summer 2018 compared to one year ago.  

In addition to improvements in transporting people and goods in these corridors, the rehabilitation work established benchmarks for the performance-based maintenance contractors. This means that contractors have, among others duties, the obligation to maintain the same pavement and non-pavement conditions of these sections for the remaining years of the contracts, and payments will be made based on the achievement of those performance targets.