Albania Public Finance Review 2025

The Albania Public Finance Review (PFR) examines how fiscal policy can accelerate inclusive growth and safeguard macroeconomic stability as the country advances toward European Union membership. This comprehensive report analyzes Albania’s fiscal landscape, covering macro-fiscal trends, revenue mobilization, and public expenditure efficiency, and provides sector-specific insights on pensions and early childhood education and care.

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Key Findings and Recommendations

• Convergence with the EU requires bold reforms. Albania’s economy is stronger, poverty has declined, and EU alignment is within reach. Yet progress takes time. At the current pace, it could take nearly a generation to reach half the EU average income. Demographic shifts, climate risks, and persistent structural challenges mean fiscal policy must play a central role in driving long-term growth, macroeconomic stability, and equitable resource distribution.
• Accelerating progress requires unlocking more resources. Despite improvements, revenue collection remains low due to high informality, broad exemptions, and enforcement gaps. Under the Medium-Term Revenue Strategy (2024–2027), measures such as formalizing short-term rentals in tourism, introducing a market-value-based property tax, implementing the legislated carbon tax on coal, and increasing tobacco excises could raise revenues by up to 0.9% of GDP—supporting sustainable financing and a healthier, greener future. Additional gains will come from reviewing tax exemptions and strengthening tax administration.
• Spending smarter is essential to maximize impact. While overall spending is stable, pensions and transfers absorb more than one-third of the budget, leaving limited room for human capital development. The potential for impact is high: efficiency gains in education could improve learning outcomes by 34%, and better infrastructure spending could raise the overall index by 18.6%, enhancing electricity and road quality. Health reforms, integrated social protection, stronger institutions, and regular spending reviews will ensure resources deliver maximum benefits for people.
• Demographic change adds urgency. Only 46% of the working-age population contributes to pensions, and the average pension equals just 32% of the contributory wage. By 2060, up to 34% of Albanians could be over retirement age, putting the system under strain. Comprehensive reforms are needed to expand coverage, improve adequacy, and incentivize longer working lives to keep the pension system sustainable for future generations.
• The foundation for long-term growth lies in investing in Albania’s youngest citizens. Spending on early childhood education is just 0.08% of GDP—ten times less than the OECD average—and only 10% of children under three are enrolled in public crèches. Expanding access and improving local government financing are critical to building Albania’s future.