future hopeful EU member state; oil and gas exporter but investing toward a “blue economy”; COVID-19 and earthquake economic disruptions and declines; experiencing high debt and account balances; strengthening private sector growth and public sector trust
Albania, a formerly closed, centrally planned state, is a developing country with a modern open-market economy. Albania managed to weather the first waves of the global financial crisis but, the negative effects of the crisis caused a significant economic slowdown. Since 2014, Albania’s economy has steadily improved and economic growth reached 3.8% in 2017. However, close trade, remittance, and banking sector ties with Greece and Italy make Albania vulnerable to spillover effects of possible debt crises and weak growth in the euro zone.
Remittances, a significant catalyst for economic growth, declined from 12-15% of GDP before the 2008 financial crisis to 5.8% of GDP in 2015, mostly from Albanians residing in Greece and Italy. The agricultural sector, which accounts for more than 40% of employment but less than one quarter of GDP, is limited primarily to small family operations and subsistence farming, because of a lack of modern equipment, unclear property rights, and the prevalence of small, inefficient plots of land. Complex tax codes and licensing requirements, a weak judicial system, endemic corruption, poor enforcement of contracts and property issues, and antiquated infrastructure contribute to Albania’s poor business environment making attracting foreign investment difficult. Since 2015, Albania has launched an ambitious program to increase tax compliance and bring more businesses into the formal economy. In July 2016, Albania passed constitutional amendments reforming the judicial system in order to strengthen the rule of law and to reduce deeply entrenched corruption.
Albania’s electricity supply is uneven despite upgraded transmission capacities with neighboring countries. However, the government has recently taken steps to stem non-technical losses and has begun to upgrade the distribution grid. Better enforcement of electricity contracts has improved the financial viability of the sector, decreasing its reliance on budget support. Also, with help from international donors, the government is taking steps to improve the poor road and rail networks, a long standing barrier to sustained economic growth.
Inward foreign direct investment has increased significantly in recent years as the government has embarked on an ambitious program to improve the business climate through fiscal and legislative reforms. The government is focused on the simplification of licensing requirements and tax codes, and it entered into a new arrangement with the IMF for additional financial and technical support. Albania’s three-year IMF program, an extended fund facility arrangement, was successfully concluded in February 2017. The Albanian Government has strengthened tax collection amid moderate public wage and pension increases in an effort to reduce its budget deficit. The country continues to face high public debt, exceeding its former statutory limit of 60% of GDP in 2013 and reaching 72% in 2016.
Albania sets its sights on high-end eco tourism
Feb 24, 2023 – Albania, one of Europe’s fastest-growing travel destinations, will focus on alternative rather than mass tourism in a move that government officials hope will help set it apart from competitors. The tiny Balkan state, once hermetically sealed from the outside world, has soared in popularity on the back of a reputation increasingly seen as both trendy and exotic. Last year it attracted 7.5 million visitors, more than twice its population and up from a record 6.4 million in 2019.