Albania's economy has demonstrated remarkable resilience, emerging as one of the strongest performers in the region, the International Monetary Fund (IMF) said in a statement on October 27.
Boosted by a strong rebound in tourism, the economy surpassed expectations with nearly 5% growth in 2022. The IMF attributed the success to a combination of factors, including fiscal consolidation, increased income and a strengthened local currency.
Meanwhile, Albania’s public debt ratio has returned to pre-pandemic levels, thanks to prudent economic policies. Public debt is expected at around 60% at the end of 2023 and is projected to be sustainable over the medium-term.
Looking ahead, Albania's economic prospects appear robust. The IMF forecasts a steady expansion of real GDP by 3.6% in 2023 and 3.3% in 2024, primarily driven by resilient private consumption, particularly in the tourism and construction sectors.
However, added the statement, challenges persist, notably geopolitical tensions and the vulnerability to weather-related energy shocks, exchange rate fluctuations and persistent inflation.
To ensure sustainable and inclusive growth, Albania must seize the current favourable conditions to implement comprehensive reforms, the Fund recommended.
“An ambitious revenue-based consolidation would build fiscal space for countercyclical policy in the future and support monetary policy. Revenue reforms are also needed to generate resources for human capital development, infrastructure, and climate adaptation,” said the statement.
“Further progress on de-euroisation is critical to strengthen the effectiveness of monetary policy and reduce financial sector vulnerability. Structural reforms in the fiscal and financial sectors, on governance, and the labour market, will amplify the gains from sound and prudent policies.”
The report identified fiscal sustainability as a priority, saying that while significant progress has been made in fiscal consolidation, further efforts are necessary, particularly in revenue mobilisation.
“Additional frontloaded net fiscal measures of around 1½% of GDP over the next five years would bring public debt on a clear downward path towards the fiscal rule target of 45%, and lower gross financing needs decisively,” it said.
Property and gambling tax reforms, alongside VAT adjustments, should be expedited. Additionally, public sector efficiency enhancements are imperative, including a review of functions and leveraging technology for increased productivity. Long-term spending pressures, particularly from the pension system, require careful management and reforms to alleviate the burden on public resources.
Albania's challenges in closing the income gap require multifaceted solutions, said the IMF. Progress in addressing AML/CFT issues and judicial reforms is commendable. Further improvements in governance, rule of law, and investment in human capital are vital. Encouraging female labour force participation and fostering innovation will contribute to reducing disparities and fostering a more inclusive economy.