Albania has continued its strong performance in achieving high economic growth through the implementation of its National Strategy for Social and Economic Development. Much has been achieved towards establishing a market-based economy since the beginning of transition in 1992.
This fourth World Bank Group Country Assistance Strategy (CAS) for Albania (a joint product of IDA/IBRD and IFC), covering the period FY06-FY09, outlines a program of support including financing on modified IDA terms of up to US$ 86 million as well as IBRD financing of up to US$ 110 million.
The proposed CAS builds on the experience of the World Bank Group since the early 1990s. It aims to support Albania’s National Strategy for Social and Economic Development and the European Union Stabilization and Association process with the ultimate objective of EU integration and the attainment of the Millennium Development Goals.
Albania’s record since it embarked on its transition in the early 1990s has been impressive. The country has successfully built the foundations of market-based economy, created democratic institutions and gradually built capacity in the public administration to cope with political and economic transformation. Such achievements notwithstanding, Albania remains one of the poorest countries in Europe with an income per capita estimated at US$ 2,040 (Atlas method) in 2004, widespread poverty, high unemployment rate, substantial regional disparities, and weak governance structures.
During the implementation of the previous CAS, Albania enjoyed macroeconomic stability and average real GDP growth rates of over 5 percent – the highest in Southeastern Europe - underpinned by rising exports, and continuing improvements in factor productivity. However, maintaining this performance will be increasingly difficult, and Albania will need to attract much needed foreign direct investment, increase public and private savings, accelerate accumulation of physical and human capital, and improve governance structures to maintain its impressive progress to date. Despite GDP per capita reaching an estimated US$ 2,040 in 2004, widespread poverty, high unemployment, and wide regional disparities remain daunting challenges.
The CAS program seeks to support Albania’s efforts in improving governance while increasing selectivity. The new CAS recognizes that more coherent efforts need to be made to address the challenge of poor governance in Albania, and introduces a ‘Governance Filter’ compromising of four core principles which will be used to ensure that governance considerations are mainstreamed into all of the Bank’s interventions. The proposed activities of the CAS are clustered around two pillars: (i) promoting economic growth through support to private sector development, and (ii) improving public services delivery, particularly in the social sectors .
The program is designed to mitigate risks that could limit the effectiveness of the proposed program and impede achievement of outcomes. The new CAS recognizes that achieving the outcomes articulated in the Results Framework will be subject to risks, particularly in the form of internal or regional political instability and external economic shocks. Strong political commitment in the region to EU integration and flexibility in the proposed support program will serve to reduce these risks.
Albania is well poised to continue its strong economic performance and make significant strides towards its goal of full European integration in the next four years. However, the government must make inroads against the governance problems that remain pervasive, and also attract investment and develop its human capital. A key challenge will also be to ensure that the benefits of continued economic prosperity accrue equitably across Albanian society, with particular attention to the poorest.
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