Before 1991 the ruling communist party directed the country’s entire economy through a series of five-year plans. All means of production were under state control, agriculture was fully collectivized, industry was nationalized, and private enterprise was strictly forbidden. In addition, a provision of the constitution prohibited the government from seeking foreign aid, accepting loans, or allowing foreign investment, which contributed to Albania’s reputation as isolationist. In the postcommunist period, economic decision making was decentralized, and restrictions on private trade were lifted. Foreign investment was pronounced by the mid-1990s, with assistance coming from the United States, the European Union, and the International Monetary Fund. By the middle of that decade, Albania boasted the fastest-growing economy on the continent, but, as one of Europe’s poorest countries, it was still considered less developed.
Albania’s economic transition stumbled in 1997 when individual investors, constituting perhaps one-third of the country’s population, fell prey to a pyramid finance scheme that devastated the national economy and led to weeks of anarchy. A UN-sponsored multinational force was called to restore order. This chaos, compounded by the Kosovo conflict at the end of the decade, led to fractious political polarization that slowed the development of the Albanian economy for several years. Still, economic reform continued, and, at the beginning of the 21st century, Albania was recording modest annual growth in gross domestic product (GDP). Remittances from Albanians working abroad account for a significant amount of revenue. Although more than four-fifths of the economy has been privatized since the 1990s, the transformation process has been slow and uneven.
Albania has made remarkable economic progress during the past three decades. Due to the strong growth performance, Albania grew from one of the poorest nations in Europe to a middle-income country, with poverty declining by half during that period.
However, Albania’s growth model needs to shift from consumption-fueled to investment- and export-led growth. The new model will need to help those people with less access to economic opportunities to contribute to, and benefit from, economic growth.
In order to accelerate the pace of equitable growth, Albania is implementing structural reforms that will raise productivity and competitiveness in the economy, create more jobs, and improve governance and public service delivery. Enhanced regional connectivity and access to regional and global markets, coupled with export and market diversification, can also help promote faster growth.
Recognizing these challenges, the Government of Albania has been working on a broad-based reform program focused on macroeconomic and fiscal sustainability, financial sector stabilization, energy concerns, social assistance and disability reform, and territorial decentralization.
Significant progress, propelled by the ongoing reforms, has created the conditions for rebounding business confidence and domestic demand, including early signs of increased investment and an export-led recovery. Maintaining the reform momentum and implementation is critical to Albania’s continued economic growth and aspirations to European Union (EU) integration.