stronger revenue mobilization. At the same time, despite a 3.3 percent average GDP ALBANIA Key conditions and growth rate over 2015-2019, private invest- ment continues to be discouraged by low challenges firm productivity, an unskilled labor force, limited access to finance, burdensome lo- Table 1 2021 Albania’s growth was robust in 2021. It av- gistics and poor market integration. How- Population, million 2.8 eraged 10.4 percent over the first three ever, at 28.4 percent of GDP, public rev- GDP, current US$ billion 17.2 quarters, fully offsetting the losses caused enues provide little space to increase GDP per capita, current US$ 6089.5 by the pandemic-induced recession. much-needed investment in public infra- a 32.4 Upper middle-income poverty rate ($5.5) Growth was driven by continued accom- structure and human capital. A Medium- a 36.0 modative monetary and fiscal policies, re- Term Revenue Strategy is under prepara- Gini index b 100.2 construction investment, abundant hydro- tion, which has the potential to increase School enrollment, primary (% gross) Life expectancy at birth, years b 78.6 electric production early in the year, and revenues over the medium run. Total GHG Emissions (mtCO2e) 9.2 the tourism recovery, all of which boosted private demand. Source: WDI, Macro Poverty Outlook, and official data. a/ Most recent value (2018), 2011 PPPs. For 2022, prospects are uncertain with b/ WDI for School enrollment (2020); Life expectancy many downside risks. The war in Recent developments (2019). Ukraine and continuing sanctions could push energy, food, and commodity prices Higher consumer confidence, increased even higher, shrinking households’ pur- demand for Albanian exports, and fiscal A robust recovery took place in 2021 chasing power and consumption. Addi- stimulus supported the strong growth re- thanks to policy stimulus and resurgence tional risks include new, vaccine- resis- covery in 2021. Growth in trade and con- of travel, construction, and extractive ac- tant Covid-19 variants, tighter global fi- struction—the latter connected to recon- nancial and trade conditions, and re- struction and new infrastructure pro- tivity. Private investment, consumption, newed travel restrictions. jects—contributed the most. Favorable and public spending drove growth, while Public debt increased further in 2021, reach- hydrologic conditions have boosted ex- public debt remained high. Poverty is ex- ing 78.4 percent of GDP. The government tractives and energy production and pected to have declined below pre-pan- suspended the fiscal rule of a declining tourism exports. debt-to-GDP ratio and issued a Eurobond of Jobs did not increase in 2020/2021. There demic levels, despite a sluggish labor mar- EUR650 million, benefitting from the coun- were over 16 thousand fewer employed ket. Growing inflation and the war in try’s stable B+ rating. At its current level, the people in 2021 than in 2019. Employment Ukraine threaten economic and poverty high government debt is at significant grew only in ICT, construction, transport, prospects in 2022. rollover risk. Given the current inflation and retail and wholesale, and utilities. At the expected monetary policy tightening in same time, labor force participation fell high-income economies, reducing Alba- for the second consecutive year among all nia’s public debt and strengthening its fiscal age groups. As a result, the unemploy- policy credibility are vital. ment rate was stable at 11.5 percent. The Productivity-enhancing public investment formal real wage increased by 3.7 percent is crucial to boost growth but will require in 2021, close to the 2019 increase, while FIGURE 1 Albania / Headline inflation and core inflation FIGURE 2 Albania / Actual and projected poverty rates and real GDP per capita Percent Poverty rate (%) Real GDP per capita (constant LCU) 4 45 650000 630000 40 3 610000 35 590000 2 570000 30 550000 1 25 530000 20 510000 0 490000 15 470000 -1 Inflation (CPI) Core inflation 10 450000 2016 2018 2020 2022 2024 -2 Upper middle-income pov. rate Real GDP pc Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Sources: INSTAT and World Bank. Source: World Bank. Notes: see Table 2. MPO 1 Apr 22 the minimum wage increased by 13.1 per- high infrastructure investment and subse- cent in real terms. quent demand for imports. Still, given the strong growth in GDP per Outlook In the baseline scenario, public debt is ex- capita in 2021, poverty is estimated to have pected to decline slightly to 78.1 percent dropped significantly from 31.4 percent in As of March 2022, the baseline scenario of GDP in 2022, and more significantly 2020 to 22 percent in 2021. projects economic activity to expand at its over the medium term. However, the fis- Inflation rose rapidly during the fourth pre-pandemic, pre-earthquake historical cal balance could further deteriorate in quarter, reaching 3.7 percent in December rate. However, the war in Ukraine could a worsening international context, forcing 2021. Rising food, energy, transport and further increase inflation, disrupt supply the government to cut capital spending to commodity prices risk undermining do- chains, disturb financial markets and un- prevent a hike in the debt-to-GDP ratio. mestic demand and increasing vulnerabil- dermine confidence; all of which could Given Albania’s growing reliance on ex- ity. Food prices increased by 3.9 percent dim Albania’s growth prospects. In turn, ternal financing, the exchange rate, inter- in 2021, close to double the increase of the a sluggish job market combined with di- est rate, and refinancing related risks re- overall basket. This will hurt the bottom 40 minished purchasing power could damp- main elevated. percent, whose food consumption is over en poverty reduction. Consistent with the baseline scenario in half of total consumption. The Central Government spending is expected to de- the years following, private consumption Bank kept the policy rate unchanged but cline gradually, in line with fiscal consol- is projected to return as the primary dri- recently announced an expected tighten- idation plans. However, higher spending ver of GDP growth. Private investment ing through 2022. may be needed to guarantee energy sup- could provide further support to growth Higher tax revenues and new debt al- ply through more costly energy imports if business climate reforms are imple- lowed the government to increase infra- and support to the fragile energy SOEs. mented. A key medium-term reform pri- structure spending. The government also Service exports, including tourism and ority is the need to boost revenue col- raised subsidies to the energy State- fast-expanding business-process opera- lection and achieve fiscal consolidation, Owned Enterprises (SOEs) to ensure en- tions should return to their pre-pandemic while allowing for significant growth-en- ergy supply during the last quarter of growth trends. The current account deficit hancing spending. 2021. Contingent liabilities from SOEs is expected to reach 7.9 percent of GDP on- pose major risks for the budget. ly in 2024, as terms of trade worsen due to TABLE 2 Albania / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 2.1 -4.0 8.6 3.2 3.4 3.5 Private Consumption 3.2 -2.4 3.7 2.6 2.7 2.9 Government Consumption 2.9 1.6 9.4 6.9 -1.0 2.6 Gross Fixed Capital Investment -3.7 -2.0 18.5 -0.9 1.7 3.4 Exports, Goods and Services 2.6 -25.6 29.2 4.8 8.0 6.2 Imports, Goods and Services 2.3 -19.9 18.5 1.9 3.3 4.1 Real GDP growth, at constant factor prices 2.4 -3.4 8.6 3.1 3.4 3.5 Agriculture 0.6 0.3 -0.2 0.2 0.3 0.5 Industry 0.9 -3.5 10.8 5.0 5.0 5.0 Services 3.8 -4.7 10.9 3.2 3.6 3.7 Inflation (Consumer Price Index) 1.4 2.2 2.6 5.0 4.0 3.0 Current Account Balance (% of GDP) -7.9 -8.8 -8.3 -9.6 -8.7 -7.9 Net Foreign Direct Investment (% of GDP) 7.5 6.8 6.4 6.5 6.6 6.6 Fiscal Balance (% of GDP) -1.9 -6.8 -5.8 -5.2 -2.8 -2.7 Debt (% of GDP) 67.4 77.2 78.4 78.1 76.4 75.1 Primary Balance (% of GDP) 0.1 -4.7 -3.8 -2.5 0.0 0.2 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 28.1 31.3 22.0 19.4 16.9 14.7 GHG emissions growth (mtCO2e) -1.5 -6.5 1.6 -1.2 -1.0 -0.8 Energy related GHG emissions (% of total) 47.4 45.4 46.2 45.7 45.2 44.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2016-SILC-C and 2018-SILC-C. Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using customized elasticity (2016-2018) with pass-through = 1 based on GDP per capita in constant LCU. MPO 2 Apr 22