Albania flag Albania: Economic and Political Overview

The economic context of Albania

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Albania is a transition economy, not highly integrated into global capital flows but showing strong economical performances. The country has been impacted by the difficulties of the Eurozone, which is the destination of almost 80% of its exports and the largest investor in the country. Furthermore, the economic crisis caused by the Covid-19 pandemic has significantly reduced growth. In 2021, the economy rebounded, as GDP grew an estimated 5.3% mainly supported by household consumption (underpinned by growing employment and increasing wages) and public investment in reconstruction efforts following the earthquake of 2019. Economic activity is expected to normalise gradually in 2022 and 2023, with the IMF forecasting growth of 4.5% and 4.1%, respectively. However, the COVID-19 pandemic and high energy prices represent downside risks to the forecast.

According to IMF data, public debt represented 81.5% of GDP in 2021, much higher than the pre-pandemic level of 67.8%. According to the IMF's latest forecast, it is expected to remain stable at 79.5% this year and 79.2% in 2023. Despite the strong recovery of revenue, in 2021 high public expenditure for investment pushed the fiscal deficit at 5.9% (EU Commission). A planned public wage increase coupled with a Eurobond issuance are projected to slow the reduction of fiscal deficit to 4% in 2022 and 3.5% in 2023. The Central Bank did not increase its low policy rate of 0.5%; nevertheless, increased energy prices contributed to an increase in inflation (1.9% in 2021). More persistent upward pressure from wage growth is forecast to drive the inflation rate towards the central bank’s 3% inflation target, reaching 2.3% this year and 2.5% in 2023.

After reaching a record low of 11.7% in 2020 due to the negative economic impact of the COVID-19 pandemic, the situation worsened in 2021, when the rate stood at 12% (IMF). The European Commission forecasts that moderate employment growth is expected to gradually reduce the unemployment rate to just above 10% by 2023, whereas the IMF forecasts an increase to 12.5%. Albania remains one of the poorest countries in Europe (with a GDP per capita PPP of USD 15,225 - IMF): the latest figures from the national statistical office show that 23% of the population was at risk of poverty before the pandemic. A large share of GDP (estimated at around 50%) is still accounted for by the informal economy, which hinders the economic reform agenda. In the midst of the crisis, the European Commission decided to open accession negotiations with Albania.

 
Main Indicators 20202021 (e)2022 (e)2023 (e)2024 (e)
GDP (billions USD) 15.16e18.3118.2618.8419.86
GDP (Constant Prices, Annual % Change) -3.5e8.54.02.53.2
GDP per Capita (USD) 5e6666
General Government Gross Debt (in % of GDP) 75.973.970.370.268.5
Inflation Rate (%) 1.62.06.24.33.0
Unemployment Rate (% of the Labour Force) 11.710.610.310.010.0
Current Account (billions USD) -1.32-1.40-1.58-1.52-1.56
Current Account (in % of GDP) -8.7-7.7-8.6-8.0-7.9

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

Agriculture is an important economic sector for the Albanian economy. It contributes 19.1% of the GDP and employs 36.4% of the workforce (World Bank, latest data available). Agricultural production concentrates on wheat, corn, oats, potatoes, vegetables, olives, tobacco, fruits, sugar beets, vines, livestock farming and dairy products. The agriculture sector in Albania suffers from a lack of modern equipment, highly fragmented land ownership and limited area of cultivation, all of which lead to a relatively low productivity. Only 24% of its territory is classified as agricultural land while 76% is non-arable land (of which 6% are forests; source: FAO). Finally, it should be noted that agricultural production is higher than its share of the GDP: a large part of the produce is in fact consumed by the farmers themselves and therefore is not marketed.

The industrial sector accounts for 20.1% of the country's GDP and employs 20.1% of the active population. The sector is concentrated on food processing, textiles and clothing, timber work (construction), oil, cement, chemical products, mining, transport and hydraulic energy. The manufacturing sector’s value-added is estimated to contribute to nearly 6.2% of the country’s GDP (World Bank).

The services sector represents 48.4% of the GDP, employing 43.4% of the workforce. Trade, transport and hospitality services, important branches of the Albanian economy, contributed strongly to the country's economic recession, with a 27% decline. Tourism, representing more than 20% of Albania's GDP, was one of the sectors most affected by the pandemic: although Albania received 5.6 million international arrivals in 2021 (114% more compared to 2020 - INSTAT), this figure is still well below the pre-pandemic level. According to the latest figures by the European Banking Federation, the structure of the banking and financial system consists of 12 banks (four of which with Albanian capital and eight with foreign capital), 30 non-bank financial institutions (NBFIs), 538 foreign exchange bureaus, 14 savings and loan associations (SLAs) and one union of SLAs.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 36.4 20.1 43.4
Value Added (in % of GDP) 19.3 19.7 48.4
Value Added (Annual % Change) 0.9 -1.0 -8.8

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
65,2/100
World Rank:
66
Regional Rank:
35

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 
 

Country Risk

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Latest Update: November 2022

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