This interview was originally published in Albanian in the print edition of Monitor Magazine on January 5, 2026.
Monitor: How do you assess the performance of the Albanian economy in 2025?
Massimiliano Paolucci: As we turn the page to 2026, Albania closes 2025 and stands confident and forward‑looking. This momentum is felt across the economy, in a strong tourist season, businesses expanding their operations, and decisive steps toward EU membership. Beneath this momentum, the data confirm a solid, though gradually moderating, growth path. In the first half of 2025, GDP grew by 3.5% year-on-year, anchored by tourism, construction, and other services, while agriculture contracted. Consumption remained a key driver, supported by a tightening labor market. Private sector wages increased by almost 10% year-on-year, helping lift household incomes. Investment also picked up amid favorable financing conditions and a broadly stable macroeconomic environment.
Inflation remained well contained, averaging 2.2%, allowing the Bank of Albania to ease monetary policy and thereby improve financial conditions. Fiscal policy supported the economy while fiscal rules were respected; the budget recorded a surplus so far, and public debt continued its downward trend, reaching about 53.5% of GDP by September 2025.
Despite this progress, structural challenges persist, including a shrinking working-age population, high informality, and the need to raise productivity and skills. Continued progress on EU-related reforms will be important to sustain growth and convergence.
Monitor: What are your expectations for 2026?
MP: World Bank Group focus during 2026 is delivery with impact and strengthened partnership, working with the government to keep EU-aligned reforms on track, sustaining strong portfolio performance, and accelerating implementation, ensuring that results reach people and communities.
Albania is expected to continue growing at a steady pace, with real GDP projected to rise by around 3.5%, supported by domestic demand and solid activity in construction and services. Tourism will remain an important contributor, but its earlier rapid expansion is likely to moderate as the sector matures. Investment is expected to stay strong, the labour market tight, and inflation is expected to gradually rise toward the Bank of Albania’s target, keeping financial conditions supportive.
Fiscal policy is set to remain prudent and increasingly anchored in EU accession priorities. The government aims to keep the deficit at around 1.8% of GDP and continue reducing public debt gradually. Albania will also continue leveraging EU Growth Plan resources to advance reforms and targeted investments, particularly in digitalization, human capital, and institutional strengthening.
Monitor: What are the main potentials and risks for the economy in the period ahead?
MP: Albania stands at a decisive moment, with solid near-term momentum but rising urgency to lift long-term potential. EU accession represents the country’s largest opportunity. If Albania uses the EU Growth Plan to push ahead with reforms in digital infrastructure, better regulation, government effectiveness, financial development, and female labour participation it can boost productivity, attract investment, and expand the workforce. Done well, these reforms could add up to 3.1 percentage points to GDP per capita growth and accelerate convergence with EU living standards by nearly three decades while also easing demographic drag and emigration pressures.
On the risk side, challenges are real. Growth remains concentrated in a few low value sectors, making the economy vulnerable to shocks, while agriculture and parts of industry have been weakening. More fundamentally, demographic decline and emigration are tightening labor supply, with Albania’s working-age population projected to shrink by about 22% between 2024 and 2050, raising the importance on reforms that expand participation and skills so that growth becomes more resilient and broadly shared.
Monitor: As a long-standing adviser on public finances, how would you assess the country’s fiscal sustainability? How healthy is it in the long term for fiscal performance to rely heavily on revenues from social insurance contributions and personal income tax, driven largely by rising wages?
MP: In November we launched the Public Finance Review (PFR), prepared with the Ministry of Finance. It provides a thorough examination of Albania’s fiscal position and offers key recommendations to strengthen sustainability.
Overall, fiscal sustainability looks sound under current policies. Public debt declined to 53.5% of GDP by the third quarter of 2025, the lowest in over a decade, supported by prudent fiscal management and strong revenue performance. Fiscal rules have supported consolidation, and the fiscal stance is conducive to sustainability in the medium term.
That said, relying on revenues from personal income tax and social insurance—largely driven by rising wages comes with risks. Wage-led revenues can be volatile in downturns; if wages outpace productivity, competitiveness and formalization can stall. Demographic pressures from aging and emigration will narrow the contributor base without reforms.
Looking ahead, the priorities are clear. Albania can strengthen fiscal resilience by broadening and balancing the tax mix, limiting exemptions, strengthening property and environmental taxes, and reviewing VAT exemptions. Greater transparency on fiscal risks from state‑owned enterprises and public‑private partnerships, alongside better long‑term reporting on pensions and liabilities, will help decision‑makers plan with confidence. Keeping debt on a downward path through steady, rules‑based consolidation and stronger fiscal oversight remains essential. And to protect sustainability, pension reforms should adjust retirement parameters, improve adequacy sustainably, and ensure that contributions translate into fair benefits.
We will continue to work closely with the Government to put these recommendations into practice and keep the system resilient, fair, and focused on results.
Monitor: How prepared is Albania for integration into the European Union—both in terms of business competitiveness and financial discipline? How do you assess the country’s budgeting processes, its ability to absorb EU funds, and what should be done to minimise the potential negative impacts of adopting EU standards, both for businesses and for public finances?
MP: Albania has made real progress toward EU integration. Laws and institutions are increasingly aligned with EU requirements, and fiscal discipline has improved. From our perspective, the bigger gap is on the economic side. As noted in the European Commission’s 2025 Report, competitiveness remains assessed as “moderately prepared.” This means that while Albania’s economy is growing, it is not yet competitive enough to withstand the pressures of the EU single market. The country needs to invest more in technology, research, and support for businesses to innovate and scale up.
Absorption of EU funds is improving, but success depends on stronger project preparation, transparent procurement, and robust monitoring. Many SMEs will also need help to meet EU product, environmental, and safety standards, and to adopt digital trade practices.
To minimize transition risks, Albania should phase in standards to give firms time to adapt, provide targeted SME support and access to finance for compliance investments, and align customs and digital systems with EU norms. On the public finance side, produce full and consolidated financial statements, upgrade integrated financial management systems, and continue the PFM reform roadmap to meet EU fiscal governance standards.
Monitor: How would you evaluate the progress of your projects in Albania? Which sectors do you consider the most promising for future financing and support?
MP: The World Bank Group’s portfolio in Albania has shown steady progress, with most projects achieving their development objectives and disbursement rates improving. Our engagement has focuses on resilience, green transition, human capital, and governance reforms across key sectors. Recent operations have supported fiscal risk management, energy market reforms, and environmental protection, and are on track with implementation milestones.
Since my arrival in July, having traveled across Albania and met with partners, businesses, and communities, I have seen firsthand the country’s vitality and its strong commitment to reform. What stands out most is the central role that tourism already plays and will increasingly play as a strategic pillar of Albania’s economic transformation. Tourism is not only a high‑growth sector on its own; it is a sector that pulls multiple sectors forward: infrastructure, energy, agriculture, urban development, skills, and services. Every investment in roads, water systems, heritage sites, digital services, or environmental protection ultimately strengthens Albania’s competitiveness as a destination. Looking ahead, tourism stands out as one of the most promising areas for future financing and support.
The energy transition remains central, with strong demand for renewables, energy efficiency, grid modernization, and climate resilience. Connectivity investments in roads, airports, ports, and digital infrastructure are equally critical, improving access to emerging destinations and extending economic opportunities to lagging regions.
Urban services including water supply, wastewater treatment, and flood protection require resilient, modern systems, creating opportunities to blend public and private finance. Meanwhile, strengthening human capital in health, education, and social protection will boost employability, especially for youth and women, and support the service‑oriented economy that tourism and related sectors rely on. Cross‑cutting efforts in digitalization and governance reforms will further enhance transparency, efficiency, and service delivery.
Albania can also leverage the World Bank, together with IFC and MIGA, to systematically de‑risk private capital across these sectors while advancing alignment with EU accession, climate, and digital standards. The country’s progress is tangible, and the outlook is promising. With continued reforms and targeted investments, we can help unlock private sector growth and deliver measurable benefits for citizens, creating jobs and opportunities, strengthening institutions, and advancing sustainable development aligned with Albania’s EU aspirations.
Monitor: What would be your recommendations for a sustainable, productivity-driven model of economic growth in the medium and long term—beyond the current growth pattern driven by wages and net taxes?
MP: Albania has the talent, energy, and determination to shift into a model anchored in productivity and innovation. I’ve seen firsthand how public–private collaboration is leaning forward—ready to do more with better rules, smarter investments, and empowered people.
The road ahead includes an ambitious EU convergence. To get there, we need to raise private-sector productivity by accelerating innovation and technology adoption and by making it simpler for firms to start, scale, and export. Clear, predictable regulations, faster permitting, and dependable property rights will unlock investment and help SMEs grow.
Government effectiveness is the next lever. Prioritizing high-quality public investments, strengthening public financial management, and ensuring fair, consistent regulation will build confidence. Transparent infrastructure planning and efficient delivery can crowd in private capital and lift productivity. Joining SEPA is an encouraging step, but finance must go deeper. Expanding access to credit and digital financial services will allow households and businesses to invest, while stable macro policies—anchored inflation and sound supervision—create the certainty investors need.
Ultimately, growth will be driven by Albania’s people. Bringing more women into the workforce, lowering barriers for youth and returning migrants, and making work pay through childcare, flexible work, and active labor policies can raise participation and productivity. Coupled with the momentum we witnessed on the ground, these reforms can accelerate convergence, build a modern, competitive economy, and create better jobs across generations.
