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. The Government’s focus has been on recovery from the pandemic and the devastating earthquake of November 2019. Sustaining the pace of reforms under these circumstances has been challenging.  

A robust recovery took place in Albania in 2021 thanks to policy stimulus and resurgence of travel, construction, and extractive activity. 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: Oct 12, 2022

Strategy

The World Bank Group program in Albania is guided by the Country Partnership Framework (CPF), which provides analysis, advice, and financing in support of equitable growth in Albania and integration into the European Union (EU). 

Due to the pandemic crisis, as well as general elections in 2021, the CPF for FY15-20 was extended for two more years. The strategy focuses on three main areas: restoring macroeconomic balances; creating conditions for accelerated private sector growth; and strengthening public sector management and service delivery.  

More than 85 percent of the program has been delivered to date. The ongoing portfolio is supporting the Government’s main priorities including addressing the needs emerging from the 2019 earthquake, as well as COVID-19.  

A new Country Partnership Framework for FY23-27 is expected to be approved by the Board. The World Bank Group will build on its productive partnership with Albania through an ambitious program supporting rapid recovery and transformation towards a more robust, equitable, resilient, and greener economy, and healthier and more productive lives for the Albanian people.  

A very solid pipeline of projects is being prepared to respond to the Government’s requests, including projects in the area of digitalization, environment, transport, and agriculture.   

Last Updated: Oct 12, 2022

RECENT ECONOMIC DEVELOPMENTS

GDP grew by 6 percent in Q1 2022. Private consumption, exports and investment expanded, as business and consumer confidence remained strong, despite increasing prices. Household consumption rose by 8.6 percent year-on-year. Net foreign demand contributed positively to GDP growth as exports increased by 25.3 percent year-on-year, while imports rose by 17.6 percent. 

Gross fixed capital formation slowed (15.5 percent year-on-year vs 16.9 percent in Q4 2021) while government spending declined significantly with the earthquake reconstruction winding down. Labor markets improved during Q1 2022 as employment grew by 3.4 percent. Given the strong growth in GDP per capita in 2021, poverty is estimated to have dropped from 34.4 percent in 2020 to 28.1 percent in 2021.  

The annual inflation rate rose to 7.4 percent in June 2022, the highest since March 2020. The Central Bank raised its key policy rate by 50 basis points to 1.75 percent in August. Fiscal revenues increased by 19.2 percent year-on-year in H1 2022 on account of increased inflation, formalization efforts and higher profit tax. 

In response to higher food prices, the government increased support to vulnerable groups and increased the subsidies to the energy SOEs, while keeping the tariffs for households and SMEs unchanged.   

ECONOMIC OUTLOOK

Economic activity is projected to expand at an average of 2.7 percent through 2024, following global conditions and persistent supply side shocks. Enduring geopolitical tensions could further increase inflation, disrupt supply chains, and disturb financial markets, all of which could further dim Albania’s growth prospects. In turn, a sluggish job market combined with diminished purchasing power could dampen progress on poverty reduction.  

Public debt is expected to decline to 68.9 percent of GDP in 2022, and more significantly over the medium term. This is based on the assumption that the primary balance turns positive in 2024 in line with the fiscal rule. However, the fiscal balance could further deteriorate in a worsening international context, which may force the government to cut public spending to prevent a hike in the debt-to-GDP ratio. Given Albania’s growing reliance on external financing, interest rate and refinancing-related risks remain elevated.  

In the medium term, private consumption is projected to return as a key driver of GDP growth. Private investment could provide further support to growth if business climate reforms are implemented. After a significant reduction in 2021, poverty is expected to continue declining in 2022, but persistent inflationary pressures could hamper further poverty reduction. 

Last Updated: Oct 12, 2022