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Albania: Maintaining Growth, While Pursuing Reforms

Albania: Maintaining Growth, While Pursuing Reforms

Albania: Maintaining Growth, While Pursuing Reforms


Synopsis

Albania has made great strides reintegrating with the international and European communities and is an important contributor to regional stability in the Balkans. Over the past decade, Albania has been one of the fastest-growing countries in Europe, enjoying average annual real growth rates of 6 percent. In 2008 Albania graduated from IDA, the World Bank’s concessional lending arm, and now joins the ranks of the world’s upper-middle income countries by being creditworthy for the International Bank for Reconstruction and Development (IBRD).


Full Brief—5 Pages
Maintaining Growth, While Pursuing Reforms
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Challenge

Albania is an upper middle-income country with a strong economic-growth track record, but remains an outlier among its European neighbors on most health and education indicators. There have been notable improvements in some social indicators, yet Albania still has significant challenges to converge with regional standards in the areas of secondary enrollment, child and maternal mortality rates, and accessing safe drinking water. The next few years are likely to be less favorable given the eurozone recession and debt crisis in Greece, Albania’s major economic partner. The slow recovery may take its toll on the most vulnerable, necessitating renewed attention to improving the effectiveness of social protection systems and safeguarding progress on social indicators.


Approach

Albania weathered the initial impact of the 2008-09 global financial and economic crises relatively well, but the level of the public debt has elevated to around 59 percent of GDP. Since three-fifth of the debt is domestic, and the foreign debt is largely concessional, Albania does not face an immediate risk of re-financing its debt. In order to sustain possible future negative shocks without losing market confidence, public debt needs to be reduced to rebuild sufficient fiscal space. The Bank intensified dialogue with the authorities on macroeconomic policies, budget planning, and financial sector resilience in the context of significantly increased support through development policy loans (DPLs) made available to Albania to help overcome the impacts of the eurozone crisis. The Bank is also supporting reforms to increase effectiveness and administration of social safety nets. It is vital that Albania improves competitiveness and exports to offset uncertainties of remittances and other international flows. Albania still has considerable potential to boost foreign direct investment. Through analytic and advisory activities, the DPL series and investment operations, the Bank is helping to plan a long-term competiveness agenda that includes: skills development and higher education, innovation and information and computer technology, governance, public finance management, and reforms and critical investments in energy, transport and water management.


Results

Albania has made great strides over the last decade and is considered a success story after graduating from the Bank’s concessional lending arm (the International Development Association or IDA) in 2008 to become creditworthy for the International Bank for Reconstruction and Development (IBRD), joining the ranks of the world’s upper-middle income countries. The World Bank has been playing a major role in supporting reforms, strengthening institutions, and financing investments across the full range of sectors.

  • Over the past decade, Albania has been one of the fastest-growing countries in Europe, enjoying average annual real growth rates of 6 percent.
  • The poverty rate was reduced from 25 percent to 12 percent between 2002 and 2008, one of the highest rates of poverty reduction in the ECA region.
  • Institutional capacities for debt management were strengthened leading to participation in international capital markets.
  • Supported by the Bank and International Finance Corporation (IFC), Albania has taken important steps to upgrade its regulatory framework for business. Its Doing Business indicators and rankings moved from 136th in 2007 to 82nd in 2011, and they achieved the second-highest ranking among the top ten reformers worldwide in 2009.
  • The legal framework for public private partnerships in some strategic sectors, such as in the energy sector, is improved.
  • During the 2002-2007 period, the Road Maintenance Project contributed to reducing the roughness index from 10 for national roads and 19 for rural roads to 5 and 8, respectively. Under the Secondary and Local Roads Project, the Bank financed rehabilitation/improvement of secondary and local roads. About 110 km of secondary and local roads were reconstructed or rehabilitated during the 2008-2012 period. So far, the project helped catalyze around US$400 million from other external partners for rehabilitating and improving an additional 1,000-1,500 kilometers of the secondary and local roads network.
  • Under the Water Resources Management Project, during the 2004-2009 period, 36,000 hectares of land were returned to irrigation, and over 34,500 hectares drained. In addition, 33 dams and reservoirs were rehabilitated. The rehabilitated dams and reservoirs improved the irrigable land downstream by about 6,860 ha.
  • Under the Natural Resources Development Project, erosion reduction measures have been established and erosion reduction is estimated at 220,000 tons from November 2005 to date.

Bank Contribution

The current portfolio consists of 10 projects totaling US$220.3 million in IDA credits and IBRD loans; US$180 million in co-financing loans, credits, and grants; and US$35 million of recipient-executed Trust Funds – amounting to a consolidated financial package of around US$435 million in various sectors including roads, energy, education, health, irrigation, and rural development. The new World Bank Group Country Partnership Strategy (CPS) for 2011-2014 introduced new IBRD lending of around US$300 million and increased IFC financing for the private sector to a level of US$120-150 million. The CPS includes two DPLs and several new investment operations: additional financing for the ongoing Dam Safety Project, the Social Assistance Modernization Project, and the Water Sector Reform Project.


Partners

The World Bank Group continues to be the second largest donor to Albania after the European Commission (EC) in terms of disbursements, with around US$60 million per year. A significant share of the commitments in the current Bank portfolio is co-financed with other partners, at a ratio of 0.8 in co-financing to each dollar of Bank-financing. The Bank is also managing a Multi-Donor Trust Fund for a group of seven donors, and an innovative fee-based service arrangement with Albania’s One UN (United Nations) Programme.


Moving Forward

European Union (EU)-related reforms are expected to receive greater attention over the next few years, and the Bank has been providing relevant assistance where appropriate. The Bank will continue to broaden its support to help Albania (i) accelerate economic recovery toward high growth in a post-crisis Europe; (ii) broaden and sustain its social gains; and (iii) reduce vulnerability to climate change. The CPS program continues to support governance improvements in Albania.


Beneficiaries

Each year 400 new cases of breast cancer are diagnosed in Albanian women, and doctors say early diagnosis increases the chance for treatment and survival. With support from the World Bank, four state-of-the-art mammography machines have been placed in four big cities in different regions of Albania.

For women such as 48-year-old Liza, this has made an enormous difference. She used to travel 240 km from the small city of Erseka to the capital to follow her health situation after a mastectomy, as it was the only place to get a mammogram in a country with a population of around 3 million. But next time Liza won’t have to travel far. A new mammography unit is now operating in the city of Korca, less than an hour’s drive from her hometown. “Obviously, I feel better that I had the results immediately. The further you have to travel, the more stressful it is. Now, it is less stressful and less expensive. The equipment is new and very good, and I am very pleased” Liza said. Learning about ways to prevent breast cancer and the use of mammography is still new to many Albanian women. A recently-launch campaign is urging health-care practitioners to routinely screen women for breast and cervical cancer and to refer them for mammograms, which are provided at no charge.