TIRANA, November 21, 2025-Albania continues to make steady progress, having achieved upper-middle-income status and moving toward a fully functioning market economy as it advances its European Union (EU) candidacy. To further accelerate growth, attract quality jobs, invest in vital sectors such as education, healthcare, and infrastructure, the reform momentum should focus on improving public finances, according to a new World Bank Public Finance Review (PFR) released today.
"Albania's growth prospects depend on enhancing human capital, upgrading infrastructure, and advancing climate policy to accelerate convergence-particularly in the context of demographic shifts," said Massimiliano Paolucci, World Bank Group Country Manager for Albania. "Albania can boost investment in its people and strengthen its economy by increasing domestic revenue and spending more efficiently."
Recent reforms have strengthened Albania's tax system, but revenues remain below potential due to wage underreporting, informality, broad exemptions, and enforcement gaps. Priority actions include formalizing short-term rentals, introducing market-value-based property taxes, implementing the legislated carbon tax on coal, and aligning tobacco taxes with EU standards. These measures could generate up to 0.9% of GDP in annual revenues, with additional gains from reviewing exemptions and sustaining tax administration improvements.
While Albania's budget is heavily weighted toward pensions and capital investment, spending on health, education, and social protection is relatively modest. The PFR identifies opportunities to improve efficiency and value for money across key sectors, unlocking better outcomes from existing resources and translating spending into tangible results for citizens.
Demographic pressures are rising: by 2060, 29-34% of the population will be over retirement age. The average pension replaces just 32% of wages-the region's lowest. The PFR recommends pension reforms to broaden coverage through incentives for longer contributions, raise benefit levels, improve fairness, add a defined contribution plan for young workers, and simplify formulas.
Reforms must prioritize the future workforce by expanding early childhood education and care (ECEC), where access remains limited. Only 10% of children under age three enrolled in public crèches, and 18 municipalities offer no ECEC services. Expanding access and quality is vital for supporting labor force participation, reducing gender disparities and nurturing human capital.
These reforms, alongside maintaining fiscal discipline and building financial buffers, are essential for supporting Albania's long-term development and further convergence with EU income levels.
