The International Monetary Fund (IMF) released its report on Albania today, highlighting that in 2024, the Albanian economy is among the fastest-growing in Europe, driven by tourism and prudent macroeconomic policies. However, it faces challenges such as rapid population aging, emigration, low productivity, and governance shortcomings.

The report, following the IMF mission held in November, emphasizes that despite strong performance, Albania’s per capita Gross Domestic Product (GDP) is about one-quarter of the level of EU member states.

“Despite the optimistic macroeconomic outlook, significant structural challenges remain. GDP per capita stands at around one-quarter of the levels in the U.S. and EU, while rapid aging and emigration persist. Broad reforms are required to improve governance, public financial management, human capital development, and productivity to foster more sustainable long-term growth,” the IMF report on Albania states.

Maintaining macroeconomic stability is essential, alongside accelerating EU-alignment reforms, which are expected to bring sustainable and inclusive growth, the IMF concludes.

Key Recommendations

The IMF stressed the need for sustainable reforms in revenue administration and tax policies to address rising spending demands. It also called for fiscal transparency in public investments, state-owned enterprises, and public-private partnerships, as well as reforms in fiscal risk management.

The IMF urged Albanian authorities to ensure closer alignment with EU standards and regulatory compliance, while deeper reforms are necessary to maximize the benefits of the EU accession process.

“Continuing investments in infrastructure and governance reforms, including the 2024-30 Anti-Corruption Strategy and adherence to international standards against money laundering and terrorism financing, remain key priorities,” IMF officials noted in their assessments.

Economic Performance

The report highlights that output is now significantly higher than pre-COVID-19 levels, thanks to a booming tourism sector. Prudent fiscal policies have significantly reduced public debt, while inflation has decreased due to monetary policies, falling global commodity prices, and the appreciation of the Albanian lek. The trade deficit has also narrowed significantly.

The IMF expects growth prospects to remain strong. Real GDP growth was 3.9% in 2023, and it is projected to average around 3.5% annually from 2024 to 2029, driven by domestic consumption, tourism, and construction. By the end of 2024, inflation is expected to drop to around 2%, one percentage point below the Bank of Albania’s target.

The report notes that authorities are expected to exceed their 2024 budget target; from a forecasted surplus of 0.3% of GDP, the surplus is expected to reach 0.5%. The 2025 budget aims for a primary balance of zero, while revenues are deemed on track, aided by favorable economic conditions and delays in capital expenditure execution. IMF directors noted that maintaining a small annual surplus would strengthen fiscal sustainability alongside debt management efforts.

Public debt is projected to remain sustainable in the medium term, decreasing from an estimated 56% at the end of 2024 to around 50% by 2029.

Financial System Risks

The IMF observes systemic vulnerabilities in the financial system, although the banking sector remains liquid and well-capitalized.

Risks to the economy include exposure to large borrowers and banks, as well as the rapid expansion of bank lending to the real estate sector, which has seen continuous price increases and constitutes two-thirds of unhedged foreign currency loans.