The end of 50 years communism - in the early 90s - has profoundly given the country the possibility to rethink its economic development and build new opportunities based on Albania’s extensive potential. The collapse of communism has not only brought fundamental changes in terms of social and economic progress but also strengthened the financial system, which has also witnessed a significant increase in the number of banks and insurance companies.
Subsequently, the importance of investment and export has become the core of Albania’s approach in order to speed up the existing growth and align its position with the economy of European countries. Albania embraced this challenge and therefore decided to implement reforms that would increase productivity, competitiveness and promote employments.
By enhancing Albania’s presence into the global markets, the Government of Albania decided to sustain this initiative by launching reforms that highlight the sustainability of the macro economy, the financial sector, the energy and the pensions. Significant improvement, coupled with reforms, have formed attractive conditions for rebuilding business confidence and increasing domestic demand.
|GDP, current US$ billion||11.4|
|GDP per capita, current US$||4,146.8|
|Poverty rate ($5 /day 2005PPP terms) (2012)||47.5|
|Life expectancy at birth, years (2014)||77.8|
An important aspect that defines the economic growth of a country is a stable macroeconomic condition and social development. The Republic of Albania has surprisingly sustained its economic development despite the European economic crisis. Thanks to a remarkable growth performance, Albania shifted from the poorest country in Europe in 1990 to a middle-income ranking in 2008 with macroeconomic indicators being encouraging in terms of poverty.
Taking a glance at the inflation and the Consumer Price Index in Albania, we note that prices are stable with a slight average growth of +1.3% in 2016 comparing to 2015. The biggest increase in 2016 occurred in “Food and non-alcoholic beverage”.
Consumer Price Index:
In 2016, the employment rate in Albania considerably grew by + 6.5 % compared to previous year mainly driven by job creation in the industry and services. In comparison to the previous year, the unemployment rate dropped by 1.9 % and consequently led to an increase of the labour force participation to 67.3%. The official unemployment rate declined by 2.5 percentage points to a year average of 15.2%.
The agricultural and services sectors have the highest share of employed with respectively 40.2 % and 40.4 % of the total employment as shown in the figure below:
The growth of bank lending, as a percentage of GDP and total assets, constitutes one of the basic features during this period. Despite their growth in terms of number and activity, we note
that Albanian banks lack specialization in a certain area, such as investment banks, savings banks or commercial banks. With very few differences among them, all banking institutions cover almost the same activities, hence making their division harder.
More developed countries, without exception, have more developed financial markets. Therefore, it would seem that policies to develop the financial sector would be expected to raise economic growth. Indeed, the role of financial development is considered to be the key to economic development and growth.
Albania’s economy expanded by 3.5% in 2016, supported by robust domestic demand.
Private investment in two large energy projects, financed by foreign capital and a recovery in private consumption, drove growth.
Net exports also contributed positively to growth on the back of expanding exports of tourism services. The services sector was the main driver of growth, followed by the labor-intensive construction and agriculture sectors.
Prudent fiscal and monetary policies sustained macroeconomic stability. The fiscal deficit for 2016 declined to 1.8% of GDP from 4.6% in 2015 supported by higher revenues and lower public expenditures. A primary budget surplus in 2016 is expected to start bringing down the debt-to-GDP ratio for the first time to 72.9% of GDP.
Average annual inflation fell from 1.9% in 2015 to 1.3% in 2016, with monetary policy geared toward supporting growth.
Higher transfers and strong services exports drove the narrowing of the current account deficit (CAD) to 9.6% of GDP in in 2016 from 10.8% in 2015.
The trade deficit expanded by 2% as investment-related imports picked up and exports of commodities slowed down. The CAD was financed at 93% by steadily increasing foreign direct investments (FDIs).
Stronger growth stimulated job creation in 2016. Employment grew by 5.8% in the fourth quarter of the year (year-on-year [y-o-y]), driven by job creation in industry and services. Labor force participation further increased to 67.3%. The official unemployment rate declined by 2.5 percentage points to a year average of 15.2%.
Poverty is estimated to have declined as economic growth and labor markets have picked up, suggesting a more inclusive growth pattern. The improvements in employment included a reduction in youth unemployment as well as higher female labor force participation rates.
Albania’s economic outlook is expected to improve over the medium term. Growth is projected at 3.5% during 2017–18 and is expected to increase further to 3.8% in 2019, driven by private investments and private consumption.
As the economy continues to accelerate and labor markets improve, further gains in poverty reduction are expected. Continued fiscal consolidation and other reform efforts are expected to gradually reduce the debt-to-GDP ratio below 60% of GDP by 2021.
Economic prospects are vulnerable to downside risks. Uncertain global market conditions and a slower growth in the Eurozone could reduce Albania’s exports and FDI inflows, with implications for a slower output growth.
Harnessing growth will require macroeconomic stability and the implementation of structural reforms to improve the business climate, including continuing reforms in the judicial and energy sectors, enhancing public investment management, addressing the high ratio of NPLs, and improving the skills of the labor force. Importantly, the reform agenda-in, for example, energy and skills—should be informed by equity considerations to sustain and enhance the poverty and inclusion gains made thus far.
Travel & Tourism
After more than 45 years of isolation under communism, Albania has started to open to foreign tourists and travel & tourism have become an important economic activity for Albania. As well as its direct economic impact and the direct contribution of travel & tourism in the GDP of the country, the industry has significant indirect and induced impacts such as travel & tourism investment spending, government collective spending as well as domestic purchases of goods and services by the sectors dealing directly with tourists.
In 2017 the direct contribution from Travel & Tourism to the GDP was USD 1,124.100 and Visitor exports generated around USD 2 million in Albania. The forecast is for the latter to rise by more than 3.6% in 2018.
For further information we invite you to read below the World Travel & Tourism assessment on the economic impact of travel & tourism in Albania during 2017:
Travel & Tourism economic impact 2018 Albania (Source: © wttc.org)