Albania’s economic system underwent a shift from central planning to a market economy based on free-market principles.
The primary drivers of the Albanian economy are the service sector (54.1%), followed by agriculture (21.7%), and then industry (24.2%). Some natural resources exist, but the agricultural, food processing, lumber, oil, cement, chemical, mining, basic metals, hydropower, tourist, textile, and petroleum industries are what really drive the economy.
Energy, mining, metallurgy, agriculture, and tourism are among the most robust industries. The country’s main export industries are textiles and chrome.
Summertime tourism has always been a major contributor to national GDP. Tourism in 2019 is expected to bring in over $2.4 billion, thanks to the over 6.4 million visitors.
|GDP, current US$ billion||17.2|
|GDP per capita, current US$||6,089.5|
|Upper middle-income poverty rate (US$5.5)||32.4|
|Life Expectancy at birth, years||78.6|
Albania Economy In Europe 2023 [Facts & History]
Important structural reforms are currently being implemented in Albania, with the goals of promoting equitable growth, increasing productivity and competitiveness, expanding employment opportunities, and enhancing the quality of government and public services.
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Improved exports and market diversity, as well as increased regional connections and access to regional and global markets, can all contribute to accelerated growth. Recovery from the epidemic and the devastating earthquake that hit in November 2019 has been the government’s top priority. It has been tough to keep up the rate of reforms in light of the current situation.
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Due to government spending on infrastructure and a subsequent increase in tourism, construction, and resource extraction, Albania saw a strong economic rebound in 2021. Growth was supported by private investment, consumer spending, and government outlays, although public debt levels remained elevated.
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The economic and poverty outlook for the year 2022 is bleak due to rising inflation and the war in Ukraine. The World Bank and other organizations are working together to help the government achieve its long-term goals.
Strategic Policy Making and Its Application
The Country Partnership Framework (CPF) guides the World Bank Group’s Albania program and ensures that it contributes to Albania’s economic growth and EU membership in a fair and sustainable manner (EU).
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The CPF for FY15-20 was prolonged for two more years due to the pandemic outbreak and general elections in 2021. Restoring macroeconomic balances, facilitating rapid expansion in the private sector, and bolstering the efficiency and effectiveness of public sector administration and service delivery are the primary goals of the plan.
Upwards of 85% of the planned program has been completed so far. Among the ongoing portfolio’s benefits to the government’s top priorities is its help in meeting new demands, such as those brought on by the 2019 earthquake and the pandemic known as COVID-19.
The Board is anticipated to endorse a new Country Partnership Framework for FY23–27.
Through an ambitious program, the World Bank Group will build on its successful partnership with Albania to help the country quickly recover and transform into one with a stronger, more equitable, more resilient, and greener economy, as well as one where the people enjoy better health and greater productivity in their daily lives.
Projects in the areas of digitization, environment, transportation, and agriculture are among those in the pipeline that are being planned to meet the Government’s demands.
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The role of irrigated agriculture in the Albanian economy remains significant. World Bank’s “The Future of Water in Agriculture in Albania: A Broad Sector Rethink” is a recent paper that analyzes the agricultural water sector and proposes solutions to improve its efficiency.
Fortunately, Albania has a lot of water available to it. In Albania, irrigation is used on about 79.2 percent of the country’s farmland. There is a current need for 1 billion cubic meters of water per irrigation season to irrigate 360,000 hectares.
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Climate change is predicted to increase annual agricultural water storage needs to 1.5 billion cubic meters. Some of the most devastating effects of climate change include increased frequency and intensity of extreme weather events like floods, droughts, and seawater intrusion, all of which pose special threats to the infrastructure that supports irrigation and drainage. In addition, extreme weather such as floods, droughts, and heat waves is predicted to pose the greatest threat to crop output.
A number of obstacles, such as a lack of funding for necessary infrastructure repairs and updates, ineffective marketing, disorganized farmers, limited access to credit, and slow progress in the agro-food processing industry, all work against the sector’s potential.
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The outdated irrigation and drainage systems around the country must be updated immediately. Albania must ensure routine maintenance of infrastructure and boost agricultural competitiveness to break the “rehabilitate-neglect-rehabilitate” trend.
The report proposes five areas of intervention to increase climate resilience and guarantee the revival of the rural economy: I modernizing irrigation and drainage infrastructure; (ii) enhancing resilience to flooding risks; (iii) supporting agricultural value chains and private irrigation; (iv) investing in institutions, information, and knowledge; and (v) introducing green and environmentally sound farming and irrigation practices.
New Trends In The Economy
The first quarter of 2022 had a GDP expansion of 6 percent. Despite price increases, business and consumer confidence remained high, leading to an increase in private consumption, exports, and investment.
Domestic consumption increased by 8.6 percent from the previous year. Since exports soared by 25.3% year over year and imports rose by 17.6%, net foreign demand was a boon to GDP expansion.
As the government’s spending on earthquake repair came to an end, gross fixed capital formation fell to 15.5% year-on-year from 16.9% in Q4 2021.
The employment market increased in Q1 2022, growing by 3.4%. Poverty is predicted to have decreased from 34.4% in 2020 to 28.1% in 2021 as a result of the robust growth in GDP per capita during that year.
Inflation reached 7.4 percent annually in June 2022, the highest level since March 2020. In August, the Federal Reserve Board decided to increase its benchmark interest rate by 50 basis points, to 1.75 percent. Inflation, formalization efforts, and increased profit tax all contributed to a 19.2% year-over-year increase in fiscal revenues in H1 2022.
While tariffs for households and SMEs remained unaltered, the government extended aid to poor people and subsidized energy SOEs in response to rising food prices.
As a result of global trends and lasting supply-side shocks, economic growth is anticipated to average 2.7% annually from 2019 through 2024. Albania’s development prospects are bleak because ongoing geopolitical tensions may drive up prices, disrupt supply chains, and unsettle the financial markets. The combination of a weak employment market and reduced purchasing power may slow efforts to reduce poverty.
The government’s share of GDP is projected to fall to 68.9 percent in 2022 and continue its steady drop thereafter.
All of this is predicated on the fiscal rule-required expectation that the primary balance would become positive in 2024. But if international conditions continue to deteriorate, the government may be forced to reduce spending to prevent a rise in the debt-to-GDP ratio and a corresponding weakening of the fiscal balance. The risks associated with interest rates and refinancing remain high because of Albania’s increasing reliance on foreign funding.
Growth in GDP is expected to be bolstered by private consumption again in the medium term. Further growth support could come from private investment if policies to improve the business climate are put into place.
After a large drop in 2021, poverty reduction is anticipated to continue in 2022; nevertheless, ongoing inflationary pressures pose a threat to future progress.