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 the consequences of the 2019 earthquake, COVID-19 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 increased attention to climate change and the environmentally-friendly interventions across economic sectors.   

In 2022, growth reached 4.8% as private consumption, exports, and investment increased despite rising energy and food prices. And in spite of another year of exceptional growth in tourism,  economic activity is likely to moderate in 2023. Poverty is expected to continue to decline as employment and wages rise. The medium-term prospects hinges on global recovery, structural reforms, and fiscal consolidation. 

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 10, 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 the 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 the findings of the World Bank Group’s analytical work. 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 the European Union (EU) 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’s approval.  

These four projects include: 

• Building Resilient Bridges ($100 million), 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 ($70 million), which aims to increase competitiveness and resilience of priority agri-food value chains

• Improving Equitable Access to High Standard Public Services ($65 million), which aims to improve service delivery quality and significantly increase the use of new technologies in the public sector 

• First Resilience and Green Development ($120 million).

This brings the total amount of the active portfolio to $490 million. This portfolio is expected to be complemented with an additional two to three 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 the Developing Opportunities and Resilience operation that will focus on upskilling people to re-enter the job market after they have been enrolled in social protection programs.   

Last Updated: Oct 10, 2023

RECENT ECONOMIC DEVELOPMENTS

Albania’s GDP increased by 2.7% in the first quarter of 2023. Services led supply-side growth, followed by construction and manufacturing. Consumption and investment were the main growth drivers on the demand side. Increased income from employment, credit growth, and high tax revenues all point to a greater contribution to GDP from consumption, investment, and net exports in the second and third quarters.  

Employment increased by 4.4% year on year in the first quarter of 2023. Increasing salaries and employment encouraged labor force participation (ages 15+), which reached 64% in the first quarter of 2023, the highest level since 2019.  Unemployment fell to 10.9% in the first quarter of 2023, slightly higher than the end-2022 rate. Poverty is expected to fall by 1.9 percentage points, to reach 22.2%. 

Annual inflation dropped to 4.2% in July 2023, from a high of 8.3% in October 2022, due to downward pressures from lower import prices, domestic currency appreciation, and monetary policy normalization, while upward pressures on inflation included wage increases and high-capacity utilization.  

ECONOMIC OUTLOOK

Growth is expected to moderate to 3.6% in 2023, in the context of tight global financial conditions, limited economic growth in Europe, and the completion of post-earthquake reconstruction programs. Tourism and construction are expected to drive exports, consumption, and investment growth at rates similar to pre-pandemic levels. The inflation rate is projected to start converging toward the 3% target by 2024.  

Albania's primary balance is projected to reach 0.1% of GDP in 2023 and remain positive in observance of the country’s fiscal rule. Fiscal consolidation is expected on the spending side. On revenues, the government plans to introduce further tax policy measures, as envisioned in the Medium-Term Revenue Strategy.  Public debt is expected to decline slightly to 63.5% of GDP in 2023, and more significantly over the medium term as a result of higher nominal growth and a gradual reduction in the fiscal deficit.  

Further increases in food and energy prices are a key risk to growth, as they could affect real disposable income, slow poverty reduction and potentially constrain the fiscal space. As a small, open economy, Albania is highly exposed to external shocks, such as a 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 state-owned enterprises, in addition to fiscal risks stemming from the country’s hydropower-based energy sector that are mainly due to variation in hydrology. 

Last Updated: Oct 10, 2023