About Albania and Key Financial Statistics

About Albania and Key Financial Statistics

Overview of Economy:

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, more recently, its negative effects have put some pressure on the Albanian economy, resulting in a significant economic slowdown. While the government is focused on establishing a favorable business climate through the simplification of licensing requirements and tax codes, it entered into a new arrangement with the IMF for additional financial and technical support. Remittances, a significant catalyst for economic growth, declined from 12-15% of GDP before the 2008 financial crisis to 5.7% of GDP in 2014, mostly from Albanians residing in Greece and Italy. The agricultural sector, which accounts for almost half of employment but only about one-fifth 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 and make attracting foreign investment difficult. Inward FDI has significantly increased in recent years as the government has embarked on an ambitious program to improve the business climate through fiscal and legislative reforms. Albania’s electricity supply is uneven despite upgraded transmission capacities with neighboring countries. Technical and non-technical losses in electricity - including theft and non-payment - continue to undermine the financial viability of the entire system, although the government has taken steps to stem non-technical losses and begin to upgrade the distribution grid. Also, with help from international donors, the government is taking steps to improve the poor national road and rail network, a long-standing barrier to sustained economic growth. The country will continue to face challenges from increasing public debt, having exceeded its former statutory limit of 60% of GDP in 2013 and reaching 72% in 2014. Strong trade, remittance, and banking sector ties with Greece and Italy make Albania vulnerable to spillover effects of debt crises and weak growth in the euro zone. The government will face critical tests in 2015 as it works to implement IMF-mandated reforms, especially those aimed at improving the electricity sector.