Good budget for 2025?

Albania’s proposed 2025 budget outlines a strategy for economic growth of 3.9%, driven by sectors such as tourism, construction and infrastructure development. The government plans to raise 7.55 billion euros and spend 8.2 billion euros, focusing on investments in health, education, infrastructure and defence.

Notable allocations include 810 million euros for healthcare, 740 million euros for infrastructure projects and 620 million euros for education. The defence sector will receive 526 million euros, reflecting growing NATO demands.

Social welfare is also prominent, with funds earmarked for pensions, social services and support for vulnerable populations.

Albania’s 2025 budget reflects a commitment to social inclusion and sustainable development, but it faces challenges in addressing the needs of its most vulnerable populations.

The country focuses on green growth and social equity, but structural issues, such as regional disparities and underinvestment in social services, may limit the effectiveness of these efforts.

The UN Sustainable Development Cooperation Framework for Albania emphasizes the need for increased and more equitable investments in health, education and social services, with a focus on addressing exclusion and vulnerability.

Albania is focusing on advancing its EU integration with targeted investments in infrastructure, public services and debt management. This includes a projected GDP growth of 3.5% and increased public investment in the education, health and energy sectors, along with improving social welfare systems.

However, there are concerns that economic priorities linked to EU membership may overshadow domestic social agendas, including healthcare and social welfare.

Albania’s budget prioritizes sustainable development, but its approaches to supporting vulnerable populations and achieving long-term sustainability with inclusiveness are hampered by deeper systemic challenges.

Creating a good budget for Albania requires a detailed understanding of its economic structure, priorities, and the needs of its population.

In a general approach to analyzing the draft budget for 2025, we see that:

– the assessment of the economic landscape has been considered with reservations.

a. Gross Domestic Product, which shows us that the Albanian economy in 2024 will reach 2.49 trillion lek (± 24.77 billion Euros) with a forecast to grow next year by 126.5 billion lek (± 1.25 billion Euros) will continue to rely mainly on the large service sectors (especially tourism), construction and real estate, as well as natural resources and less on other sectors. Meanwhile, growth sectors have been identified with reservations, such as: energy, agriculture, infrastructure and FDI inflows.

b. The implementation of structural reforms to support equitable growth, productivity growth and competitiveness are considered with reservations as this still includes poor progress in improving the business environment, fostering innovation and deeper integration into the regional economy.

c. The export potential is not focused on sectors where Albania has competitive advantages (e.g. minerals and textiles). The priority that budgetary policy should give to investment should be in export-oriented industries and not by relying on tourism as a notional (unreal) compensation related to exports.

d. There is progress in stabilizing public finances, in particular through digital investments and revenue collection. Strengthening public finances by ensuring fairer personal income tax rates, increasing VAT revenues and maintaining the credibility of fiscal policy is not sufficiently expressed in this draft budget. Government fiscal revenues from taxes, duties, and other sources have left capital taxes, which include the narrow base of the profit tax and the capital gains tax, the narrow base for VAT, social contributions, and revenues from industries such as tourism and natural resources, underutilized.

– development priorities have been identified incorrectly.

a. Investments in transport infrastructure (roads, ports and railways) have also been overestimated in this budget with funds allocated at a value of 9% of all budget expenditures. However, alongside investment in infrastructure, investments in additional resources and management of the green energy sector, increased investments in water supply and sewage systems and digital infrastructure should have been identified as high investment priorities, bills that through low allocation of domestic and foreign funds never manage to produce efficiency in their use, in line with Albania’s objective for EU integration, having a poor performance in fulfillment every year.

b. Addressing environmental issues and promoting sustainable practices is insufficiently explored in the draft budget. This includes more effective waste management and building a fund for resilience to natural disasters, which are increasing as budgetary costs year after year.

c. Education and healthcare. Investing in people’s skills and education to address the skills gap and improve the learning process has received minimal attention compared to the need to reform the university system and develop better skills to adapt to the needs of the labor market. Allocation of funds to improve education, research, vocational training and healthcare is not enough to support long-term economic development.

d. Given Albania’s focus on distributing welfare to vulnerable groups, the draft budget provides insufficient funds for social welfare programs, such as pensions, unemployment benefits and support for low-income families.

e. The fight against corruption has never been considered a priority in helping economic development. Addressing corruption to improve governance and the delivery of public services is in fact necessary to understand how much it is worth when the targets against it can be assessed in the damage they cause by actions and inactions.

– balancing domestic needs with external commitments does not comply with EU standards and requirements.

a. budgetary allocations of funds should comply with EU standards and requirements for infrastructure, governance and human rights. In fact, they are not respected enough and properly in terms of the implementation of the principles mentioned in the note[1].

b. funding needs require a sustainable debt-to-GDP ratio while investing in growth projects. However, in the last decade the stock of public debt has been steadily increasing although its ratio to GDP is at lower levels than 2-3 years ago.

However, there are concerns about the balance and realisation of the budget. While the government defends the budget as a sign of economic progress, critics argue that the budget mainly benefits the wealthy and does little to address the rising cost of living and the needs of vulnerable citizens. Critics argue that the budget’s reliance on concessions and public-private partnerships may disproportionately benefit a small number of businesses, at the expense of broader economic diversification.

Rising public sector spending, particularly due to the high number of public administration employees, also raises questions about fiscal sustainability.

Furthermore, several reports show that a significant portion of the population is facing rising debt, suggesting that economic growth has not yet translated into broad-based improvements in well-being.

However, the Albanian government has proposed an ambitious budget for 2025, aiming for economic growth and fiscal stability. The proposed budget of €8.2 billion marks a significant increase from previous years.

Overall, looking across the Western Balkans region, the 2025 budgets reflect a balance between fiscal prudence, infrastructure development and efforts to foster economic convergence with the European Union. This strategy is in line with the broader EU-backed Growth Plan for the Western Balkans, which aims to accelerate the integration of the region while promoting economic stability and sustainable development.

[1] The budget should be a single document, presenting a clear and comprehensive financial plan.
Sound financial management: Ensuring that funds are used efficiently and effectively.
The budget process and its implementation should be open and transparent to the public.