Comprehensive economic analysis of Albania, 2021–2028

According to the Macroeconomic Framework 2026–2028, approved by the government at the beginning of February 2025, it appears that the economic, financial, and fiscal trends are positive and with a clearly optimistic pace.

Referring to the Ministry of Finance’s document, it seems that fiscal and macroeconomic policies are oriented toward stabilization and sustainable economic growth, with an optimistic pace aiming to support businesses and citizens. This framework may reflect a good assessment for the near economic future, but it is important to consider several aspects, such as:

Economic Growth. If this optimism is based on increased production and domestic investments, it could have a direct impact on GDP growth and unemployment reduction. However, it should be considered that factors such as foreign investments and the private sector may influence the realization of these expectations.

Fiscal Policies. The success of the macroeconomic framework will also depend on the management of public debt and the implementation of policies that support increased tax revenues, while aiming to control government expenditures. There may be room for reducing the fiscal deficit and increasing investor and international institution confidence.

Inflation and Wages. Price stability and citizens’ purchasing power will significantly influence the effectiveness of macroeconomic policies. If the government plans to keep inflation under control and increase wages, this may positively impact the quality of life.

Public Revenues and Expenditures. Proper planning of revenues and expenditures is essential to maintain budget balance. This will help increase confidence in fiscal policy and improve conditions for businesses and citizens.

Despite the optimistic pace offered by this framework, it remains important to further monitor and analyze concrete results and the implementation of specific measures that may impact its long-term success, which we have briefly summarized below.

1. Growth trends and fiscal policy implications

Growth Trajectory

• Real GDP growth softens from 9.0% (2021) to ~3.4% (2024–2028).
• GDP per capita (PPP) increases from $17,667 to $31,142.
• The economy is shifting toward services and construction, neglecting manufacturing and agri-food sectors, which are vital for economic diversification.

Fiscal Policy Implications

• The elasticity of fiscal revenues has shown slow improvements, with revenues to GDP reaching 29.1% in 2028, still low compared to EU standards (above 35%).
• The fiscal deficit has decreased from -4.6% (2021) to -1.0% (2028), showing a consolidating approach that limits space for strategic public investments.
• Gross public debt has fallen from 74.1% (2021) to 52.1% (2028), but the high level of debt-to-GDP remains an obstacle for achieving long-term fiscal and economic sustainability.

From the commentary seen, we believe that to achieve the above indicators, it is necessary:

• Structural reforms and economic diversification, addressing structural weaknesses in manufacturing and agriculture sectors is key to economic growth.
• More effective management of public investments, with increased efficiency in allocating funds to high-impact long-term projects. Focus should be on capital expenditures and productivity-enhancing projects.
• Flexible fiscal policies to cope with external shocks and stimulate long-term growth.
• Improved fiscal mobilization with mechanisms to combat tax evasion and digitalization of tax administration.

To enable achievement, the following are required:

• Implementation of a medium-term growth strategy addressing structural obstacles.
• Identification and removal of factors limiting growth.
• Strengthening public investment management, including effective project evaluation.
• Focus on reforms that increase productivity and the economy’s competitiveness.

2. Debt sustainability and management

Current Trajectory

• Gross public debt has significantly decreased from 74.1% (2021) to 52.1% (2028), providing room for capital spending and reducing fiscal risks.
• The interest burden on public debt is decreasing, freeing up necessary funds for investments.

Risk Assessment appears to be seen in:

• Currency risk exposure. External debt represents a risk, especially from exchange rate fluctuations.
• Refinancing risk. Maturity profile still relatively short.
• Market entry conditions. Macroeconomic stability facilitates access, but structural weaknesses remain an issue.
• Contingent liabilities. Off-budget commitments (PPPs and guarantees) increase fiscal risk.

A better address might be:

• Extending average debt maturity to reduce refinancing risk.
• Developing the domestic debt market by increasing the share of domestic financing.
• Implementing active debt management, including buybacks and refinancing.
• Encouraging institutional investors and expanding the investor base.

3. Inflation and monetary stability

Inflation Trends

• Inflation has decreased from the peak of 6.7% (2022) to below 3.0% (2024–2028), signaling stability in monetary policies.
• GDP deflator (0.8% in 2028) indicates low inflationary pressures in the economy, but also reflects slow economic growth.

From the situations arising during 2023–2024, we believe:

• Monetary policies should be consistent with economic growth objectives.
• Establishing protective mechanisms against potential shocks in energy and food markets, but not in the form of price boards as in 2022.

4. Labor market analysis

Trends and Issues

• Unemployment is expected to fall from 12% (2021) to 9.0% (2028), but facing emigration and low labor force participation hinders long-term growth.
• The mismatch between skills and labor market needs represents a structural barrier difficult to address.

However, we believe faster progress is needed in:

• Active employment policies, by allocating larger funds for subsidizing professional training for youth and vulnerable groups.
• Education reform, aligning curricula with strategic economic and technological sectors.

5. Current account balance and exports

Main Trends

• The current account balance is expected to improve from -7.7% (2021) to -3.2% (2028), reflecting increased service exports, but more important goods exports appear to remain weak.
• Goods exports (7.7% of GDP in 2028) show a pronounced lack of diversification, and this is a major problem without proper addressing.

Thus, the main need is:

• Promoting goods production through policies that support domestic supply chains and industrialized exports.
• Improving trade infrastructure, facilitating access to European and global markets.

6. European objectives and sustainable development

Progress Toward Integration

• Albania has made progress in some economic indicators but remains behind in implementing reforms to reach EU standards.

It is necessary:

• Accelerating institutional reforms, establishing transparent governance and increasing market credibility.
• Focusing on investments in renewable energy and efficient management of natural resources, in accordance with SDGs.

4. Mobilization of Tax Revenues

Current Status

• Revenue-to-GDP ratio increases from 26.6% (2022) to 29.1% (2028).
• Projections expect an increase in tax revenues thanks to fiscal system reforms.
• Administrative capacities in revenue collection are also expected to improve.

Gap analysis requires much more addressing of:

• Tax efficiency, which remains low compared to economic potential.
• Voluntary compliance, as discrepancies and tax evasion limit the tax base.
• Well-studied and debated policies, since the lack of tax incentives for strategic sectors seems more of a political-electoral approach.
• Administration, which still requires digitalization and improvement of processes.

The medium-term revenue strategy will be evaluated as effective if it fulfills:

• Digital transformation of tax administration to increase efficiency and transparency.
• Risk-based compliance, focusing audits where evasion is high.
• Modernization of tax policy to promote growth and competitiveness.
• Effective cooperation with international partners to strengthen the fight against evasion.

5. Budget expenditure framework

Composition analysis

• Current expenditures are gradually reduced, increasing the weight of capital expenditures.
• Priorities will remain infrastructure, education, and health.
• Program efficiency remains limited by the lack of systematic monitoring and review.

The reform agenda appears to focus on:

• Implementation of performance-based budgeting.
• Expenditure review mechanisms to eliminate duplication and abuse.
• Procurement reforms to increase efficiency and transparency.
• Rationalizing subsidies for inefficient sectors.

Priority Areas should be:

• Development of modern infrastructure.
• Investment in human capital (education and vocational training).
• Strengthening social protection for vulnerable groups.
• Climate change resilience and investment in renewable energy.
• In conclusion,
• The macroeconomic framework described in the government’s document for the 2026–2028 period offers a positive vision for economic growth and stability, but its implementation will depend on the ability to manage structural challenges and to achieve the right balance between growth and fiscal discipline.
• In short-term priorities, one of the most important aspects is maintaining fiscal discipline and reducing public debt. This objective is critical for economic stability, but implementation may face difficulties, as debt reduction requires expenditure cuts and revenue increases. This can create political tensions, as it may require the reduction of public services or tax increases, which are often unpopular with citizens.
• Strengthening the tax administration is also essential, but it has often happened that despite previous efforts, the tax administration has failed to combat evasion and increase revenue collection. This will require serious investments in technology and a cultural change in tax management, which is not easy to achieve.
• In terms of debt management, the government has mentioned the need for clear strategies. This is a proper step, as external and domestic debt can create serious problems for the economy if not managed efficiently. However, the creation of such a strategy may face major challenges, as it requires careful planning and consistency in its application.
• In public investments, the focus is on increasing the efficiency of project management, which is also a pronounced need. Many times, public investments have been accompanied by delays and corruption, and this problem must be addressed with concrete measures to ensure that every euro is spent responsibly and brings economic growth.
• At the medium-term level, structural reforms for economic diversification are an important objective, especially for Albania, which has an economy burdened by a few specific sectors, such as tourism. However, implementing these reforms will require not only political will, but also major investments in infrastructure and education, as well as a business climate that promotes innovation and the development of other industries.
• Activating the labor market is important to reduce unemployment and create employment opportunities. Active policies that help individuals transition from one sector to another, as well as training for new skills, can bring a positive impact, but will also require investments in education and professional skills that are aligned with the demands of the labor market.
• In the long-term vision, sustainable economic growth and fiscal stability are undoubtedly key objectives. But here arises another issue: how sustainable will this pace be if the country’s economy remains sensitive to external influences, such as international crises or financial uncertainty? This will require greater diversification of sources and increased flexibility of the economy to adapt to global changes. Social inclusion and regional development are also important, but to achieve these, more detailed planning and a concrete commitment from the government are needed to ensure that no region or social group is left marginalized in the processes of economic development.