Albania flag Albania: Economic and Political Overview

The economic context of Albania

Economic Indicators

Albania is considered a transition economy, not highly integrated into global capital flows but demonstrating strong economic performance. The country has been affected by the challenges within the Eurozone, which receives nearly 80% of its exports and serves as the largest investor in the nation. Despite maintaining positive momentum in the face of repercussions from Russia’s invasion of Ukraine, the Albanian economy showed signs of moderation in 2023, according to the International Monetary Fund (IMF), experiencing an estimated growth of 3.6% compared to the 4.8% increase recorded in 2022. Despite this slowdown, the IMF highlighted the country's economic resilience, driven by strong private consumption, a robust services sector, active construction, increased electricity production, and a surge in tourism. Looking ahead to 2024, the IMF projects a further slowdown in growth to 3.3%, still driven by robust private consumption and further boosts from tourism and construction.

Albania's government has undertaken significant fiscal consolidation efforts in the aftermath of the pandemic. This includes notable improvements in collecting value-added tax. Consequently, the country achieved a zero primary balance-to-GDP ratio in 2023, exceeding the government's fiscal rule of a non-negative primary balance one year earlier than planned. The IMF anticipates limited additional fiscal consolidation in the medium term. The 2024 budget aims for a small primary surplus, indicating continued responsible fiscal management. Despite the slowdown in economic growth, public debt remained around 62.9% at the end of 2023 and is projected to be sustainable in the medium to long term (estimated at 59.7% by 2025). Inflation, which hovered around 4.8% in 2023 due to tight labor markets, is expected to gradually decrease, reaching the central bank's target of 3% by early 2025 (IMF). The central bank itself remains more optimistic, anticipating a return to the 3% target by mid-2024.

The unemployment rate was estimated at around 11% in 2023 by the IMF and is expected to remain relatively stable over the forecast horizon. The National Employment and Skills Strategy implemented by the government aims to strengthen vocational training, upskilling, and inclusion. Increased public service digitalization, financial inclusion, and labor inspections have benefited the business environment and the formalization of the economy. However, a large share of GDP (estimated at around 50%) is still accounted for by the informal economy, which hinders the economic reform agenda.

 
Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 19.0822.7425.4326.9128.69
GDP (Constant Prices, Annual % Change) 4.83.33.13.43.5
GDP per Capita (USD) 6,6587,9578,9249,47410,135
General Government Gross Debt (in % of GDP) 65.560.058.057.056.5
Inflation Rate (%) 6.74.83.53.03.0
Unemployment Rate (% of the Labour Force) 11.111.011.011.011.0
Current Account (billions USD) -1.14-0.84-0.96-1.11-1.12
Current Account (in % of GDP) -6.0-3.7-3.8-4.1-3.9

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

Agriculture is an important sector for the Albanian economy. It contributes 18.6% of the GDP and employs 35% 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 relatively low productivity. The productive capacity of Albania’s agriculture sector meets only one-third of the domestic demand for food and feed (World Bank); 42.8% of its territory is classified as agricultural land (1,17 million ha) and 28.7% 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. Data from INSTAT shows that agricultural growth is projected to average approximately 2.4% annually in real terms between 2025 and 2027, making an average annual contribution to economic expansion of roughly 0.4 percentage points.

The industrial sector accounts for 21.4% of the country's GDP and employs 21% of the active population. It is characterized by a diverse range of industries, with key sectors including textiles and clothing, minerals, energy, and food processing. Textiles and clothing production have historically been significant contributors to the economy, leveraging the country's skilled workforce and competitive labor costs. Albania also possesses substantial mineral resources, particularly chromium, which has been a cornerstone of its industrial output. Energy production, notably hydroelectric power, holds considerable potential for growth and investment. Additionally, food processing represents a growing sector, benefiting from Albania's rich agricultural resources. Emerging industries include technology and manufacturing, as the country seeks to diversify its industrial base and attract foreign investment. The manufacturing sector’s value-added is estimated to contribute to nearly 7% of the country’s GDP (World Bank).

The services sector represents 47.4% of the GDP, employing around 44% of the workforce. Tourism is an important sector of the economy: after being severely affected by the COVID-19 pandemic, foreign tourist arrivals to Albania rose to over 10.1 million in 2023 (+35% year-on-year – Ministry of Tourism). 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) 34.6 21.6 43.8
Value Added (in % of GDP) 18.6 21.4 47.3
Value Added (Annual % Change) 0.1 7.7 6.2

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

 
 

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Latest Update: April 2024