The wage increase in the Albanian economy over the past two years has not been accompanied by an increase in production, and this trend is risky, as evidenced by the International Monetary Fund in the latest consultation under the agreement with Albania.

“In 2022, the annual wage increase exceeded the annual increase in productivity. Production per employee remains at levels much lower than in the region (about 37 percent below the levels of Bosnia and Herzegovina, North Macedonia, Serbia, and 57 percent below the level of Montenegro),” calculated the Fund.

The Government’s plan to raise the average wage in the public sector to 900 euros by early 2025 is on track for realization. Wage increases in the public sector can be transferred to the entire economy, posing a risk of increasing underlying inflation.

The IMF’s latest research shows that wage growth is particularly concerning when labor markets are tight, and the economy is operating below potential.

The Government’s plan to raise wages in the public sector will contribute to an increase in inflation by 0.5 percentage points in both 2024 and 2025.

Furthermore, if this wage increase is not offset by productivity growth, the country risks losing competitiveness. This is already happening as ten foreign clients producing clothing and footwear in Albania are moving to other countries because of the country’s fourfold increase in the minimum wage within a year.

The Fund’s research showed that Albania has the lowest wages in both the public and private sectors compared to the Western Balkans region.

Since 2022, the average gross monthly wage in the public sector in Albania has been approximately 30 percent lower than in Western Balkan economies, both in nominal value and in purchasing power.

In the private sector, real wages increased by 0.2 percent in 2022, while in the public sector, it increased by only 1.9 percent.

Albania also has the lowest public sector wage bill compared to its neighbors.

The wage bill accounts for 4.5 percent of GDP in Albania, less than half the average in the EU and Balkan economies (10 percent).

The wage bill of Albania’s public sector is low compared to budget revenues. The public sector wage bill accounts for 16.7% of budget revenues, while the average for other Balkan countries is 27 percent.

But the IMF recommended that the increase in public sector wages be based on better employee performance to promote work productivity.