## 1albea2025003-source-pdf

## Source details

**Canonical URL:** [1albea2025003-source-pdf](https://www.imf.org/-/media/files/publications/cr/2025/english/1albea2025003-source-pdf.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2025/english/1albea2025003-source-pdf.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2025/english/1albea2025003-source-pdf.pdf.json)

---

### At a glance: pivotal moment and key fiscal anchors
- Political and EU context
  - Socialist Party won 83 of 140 seats in May elections.
  - All 33 negotiating chapters officially opened.
  - Backed by € 922 million (3.7 percent of GDP) from the EU Growth Plan for the Western Balkans.
- Macroeconomic backdrop and market signals
  - Output well above pre-pandemic trend; tourism boom central.
  - Primary balance reached 1.7 percent of GDP in 2024.
  - Public debt dropped to 54.5 percent of GDP.
  - €650 million, 10-year Eurobond issued in February 2025.
  - S&P upgraded Albania’s sovereign rating to BB from BB- in March 2025.
- Policy focus recommended
  - Preserve fiscal buffers through revenue mobilization and tax policy reforms, alongside improvements to spending quality and transparency.
  - Maintain price and financial stability through agile monetary policy and prudential tools.
  - Targeted reforms in human capital, labor markets, governance and business regulation to boost productivity.

### Recent indicators: growth, labor markets, inflation, external and financial developments
- Growth and demand
  - Real output expanded by 4 percent in 2024 and 3.6 percent y/y in H1 2025.
  - Foreign visitor arrivals grew by around 6.5 percent y/y through October.
- Labor market and wages
  - Unemployment rate reached a historical low of 9.4 percent in Q2 2025.
  - Cumulative minimum wage increase of 33 percent in 2022–24.
  - Median wages in 2024 stood at just 15 percent of the EU level.
  - Real wage growth has outpaced productivity gains.
- Inflation and monetary policy
  - Headline inflation remains well below the 3 percent target; core inflation has risen.
  - BoA’s 25-basis point policy rate cut to 2.5 percent in July.
  - Inflation pressures uneven: core services and rent, and lately core goods.
- External sector and reserves
  - Current account deficit doubled relative to 2023, reaching 2.5 percent of GDP in 2024; CA deficit broadly stable at 2.1 percent of GDP in H1 2025.
  - FX purchases amounted to 3.4 percent of GDP during the first ten months of 2025—30 percent regular, 70 percent unscheduled.
  - Gross external reserves reached 7.6 months of imports in October (148 percent of the IMF’s reserve adequacy metric).
- Banking and credit
  - Net interest margins remained above 3 ½ percent in Q2 2025.
  - NPL ratios near historical lows.
  - Rapid credit growth in 2024 largely driven by real estate lending; overall growth starting to level off.
  - BoA launched a 25 billion lek (1 percent of GDP) credit line; uptake by mid-2025: 0.1 percent of GDP disbursed.

### Baseline outlook and medium-term projections
- Growth projections
  - Economy projected to grow by 3.5 percent in 2025.
  - Growth expected to rise to 3.6 percent in 2026.
  - Converge to potential of 3.2 percent thereafter.
- Inflation outlook
  - Headline inflation projected to gradually converge to 3 percent by end-2026.
  - Real wage growth projected to remain positive and outpace productivity amid a tight labor market.
- External position
  - Current account deficit projected to rise from 2.8 percent in 2025 to 3.5 percent of GDP by 2030.
  - Deterioration driven by rising imports and slowing remittances; partly offset by tourism services exports and rising primary income.
- Modeling notes
  - Projections based on October 2025 WEO Global Assumptions.
  - Direct effects of 10 percent U.S. tariffs (imposed since April 2025) minimal given exports to the U.S. account for about 0.3 percent of GDP.

### Risks around the baseline and scenario impacts
- Downside global risks
  - Prolonged uncertainty, geopolitical tensions, commodity price volatility could reduce tourism, FDI and remittances and trigger financial market volatility and rollover risks.
- Domestic downside risks
  - Accelerated emigration and aging could shrink the labor force, tighten the labor market, push up wages and inflation, pressuring competitiveness and possibly requiring BoA tightening.
  - Sharp decline in real estate prices could raise NPLs, slow credit growth, weigh on activity and trigger exchange rate depreciation.
- Upside potential
  - Sustained implementation of the EU reform agenda could boost productivity and growth (not yet included in staff baseline).
- Stress scenario (WEO Scenario A)
  - Albania’s growth would be about 1 percent lower than in the baseline by early 2026.
  - Fiscal balance would worsen by about 0.4 percent of GDP by 2027.
  - Public debt ratio would rise by 2 percentage points.
  - Inflation would remain largely unaffected due to offsetting exchange rate depreciation.
- Policy buffer guidance
  - Allow automatic stabilizers to operate.
  - Use available fiscal space to provide targeted support to the vulnerable.
  - Exchange rate flexibility to absorb shocks without changing monetary policy stance.

### Fiscal outlook, debt dynamics, and gross financing needs
- Fiscal projections and stance
  - Staff projects a small primary surplus in 2025 and 2026, followed by a zero primary balance in the outer years.
  - Cyclically adjusted stance corresponds to a broadly neutral stance in 2026–30.
- Debt and financing
  - SR-DSF indicates moderate risk of debt distress.
  - Under current policies, debt ratio projected to decline to below 50 percent by 2030.
  - Gross financing needs average 13 percent of GDP in 2025–30.
  - Gross financing needs (GFNs) figures: 2024: 15.2; 2025: 16.8; 2026: 15.4; 2027: 13.2; 2028: 12.1; 2029: 9.0; 2030: 9.5 (percent of GDP).
- Debt management recommendations
  - Adjust maturity profile (average time to maturity around 2.5 years; residual maturity noted 2.3 years in figures).
  - Regular issuance of short-term instruments (3- and 6-month T-bills) to develop the short end of the yield curve.
  - Enhance secondary and repo market liquidity, improve investor relations, align repo regulations and data transparency with international standards.
  - Implement the 2026–30 Debt Management Strategy.

### Long-term spending pressures and adjustment needs
- Defense and social spending pressures
  - Albania plans to increase defense spending to 2 .45 percent of GDP by 2030 (compared with the 3.5 percent NATO commitment).
  - Aging will increase pension and health spending pressures after 2030; education and training demands will rise.
- Staff recommended adjustment
  - Additional measures of about 2    percent of GDP over 2026–30 to phase in needs while maintaining compliance with national fiscal rules (zero minimum primary balance, declining debt-to-GDP ratio until 45 percent), if combined with growth-enhancing reforms.
- Box 1 scenarios (additional cumulative measures beyond the 2 percent staff recommendation)
  - Scenario 1: pressures from social and defense spending to reach the 3.5 percent target with growth-enhancing structural reforms.
  - Scenario 2: same as (1) but without structural reforms — additional cumulative fiscal measures needed: 1.5 percent of GDP.
  - Scenario 3: same as (1) adding climate mitigation/adaptation spending (World Bank estimate around 2.5 percent of GDP per year) — additional cumulative measures unspecified in this summary.
  - Scenario 4: same as (3) but without structural reforms — additional cumulative fiscal measures needed: 4 percent of GDP.

### Revenue measures, tax policy and administration
- MTRS and baseline treatment
  - Staff takes 50 percent of projected MTRS gains from authorities for legislated measures; revenues phased over 2026–2028.
- Revenue options (Text Table 3; percent of GDP)
  - INCLUDED IN THE BASELINE: MTRS measures (VAT, Profit tax, PIT).
  - ADDITIONAL REVENUE MEASURES (Lower Bound — Upper Bound):
    - Rationalizing tax expenditures: 0.9 — 1.1
    - Sole proprietors and companies with turnover up to ALL 14 million (zero rate CIT currently): 0.6 — 0.7
    - VAT reforms: 0.3 — 0.4
    - Property tax: 0.2 — 0.2
    - Recurrent value-based property tax - MTRS: 0.2 — 0.2
    - Revenue Administration: 0.4 — 1.0
    - Remaining measures in the MTRS: 0.4 — 0.4
    - Improving IT Infrastructure, data access and utilization, staffing and capacity: 0.0 — 0.6
    - TOTAL: 1.2 — 2.0
  - Memo Items:
    - Tax revenue potential-outturn gap: 4.8
    - Tax expenditure: 0.34
    - Additional memo figures in source: 0.16, 0.14, 0.04, 3.5
- Tax policy implementation risks
  - Postponement of property tax reforms to 2028 and taxation for self-employed/small businesses to 2029 poses implementation risks (2029 is a parliamentary election year).
  - The “Fiscal Peace” Agreement provisions risk undermining tax compliance and raising AML/CFT concerns; staff recommends embedding debt relief in permanent legislation with transparent rules.

### Spending rationalization and pensions
- Expenditure management
  - Institutionalize regular spending reviews with clear governance to identify low-priority programs.
- Pensions and social protection
  - Comprehensive approach urged: address low effective contribution rates (wage underreporting), revisit early retirement provisions, explore voluntary supplementary private schemes.
  - Pension bonuses should be avoided; staff prefers well-targeted social assistance.
- Pension fiscal costs assumption
  - Pension bonuses example: urban pensions planned increase from 27,000 Lek to 40,000 Lek — staff assumes full allocation; associated fiscal cost projected to rise by around 10 billion Lek each year over next five years, reaching a total of about 50 billion Lek by 2030.

### Budgetary governance, PIM, PPPs, and fiscal risk management
- Public investment management
  - Restore unified project cycle, robust feasibility requirements, clarify multi-year commitment controls.
  - Harmonize decision-making across procurement and PPPs; MoF to coordinate entire investment cycle.
  - Consider Climate-PIMA (C-PIMA) to assess progress since 2016.
  - Eliminate unsolicited proposals (80 percent of current PPP portfolio) and streamline governance.
- Fiscal risk transparency
  - Publish standalone fiscal risk statement aligned with the budget cycle.
  - Institutionalize monitoring of on-lending and PPP exposures; operationalize IMF SOE Health Check, SOE stress test, and PFRAM.
  - Subject off-balance sheet funding to transparent reporting and beneficial ownership disclosure.

### Monetary policy stance, exchange rate policy and reserves
- Policy rate and stance
  - BoA current policy rate: 2.5 percent — assessed neutral ex-post and marginally accommodative ex-ante.
  - With inflation expectations and core inflation close to target, a stance close to neutral is justified; BoA should be ready to adjust swiftly.
- Exchange rate and FX intervention
  - Exchange rate should act as shock absorber with greater flexibility.
  - Sterilized FX intervention (FXI) could reduce inflation and output variability in limited non-fundamental shocks but has costs.
  - IMF staff estimates opportunity cost of holding reserves for emerging market economies at about 0.4 percent of GDP over 2012-24.
  - Continued reserve accumulation increases interest rate risk and potential FX revaluation losses.
  - De jure regime: free floating; de facto classification reclassified as crawl-like in 2024 due to sizable unscheduled interventions and a 2-percent corridor.
  - In first ten months of 2025, FX purchases amounted to 3.4 percent of annual GDP and exceeded the BoA’s target range for the year.

### Financial sector resilience, macroprudential policy and emerging vulnerabilities
- System-wide resilience
  - Aggregate capital and liquidity coverage ratios: 19.3 and 275 percent, respectively.
  - Banks hold large sovereign securities: 28 percent of total assets (vs. 10 and 8 percent averages in Western Balkan and EU countries).
  - Stress tests show resilience to individual shocks; dispersion across banks increased in 2025.
- Real estate lending risks
  - Volume of banks’ real estate loans grew by 14 percent y/y as of Q3 2025.
  - Credit-to-GDP gap for households positive for first time since 2009.
  - Elevated LTV and LSTI/DSTI ratios in new household mortgages and CRE loans.
  - About a quarter of household loans denominated in FX; unhedged volumes broadly unchanged.
- Macroprudential actions and recommendations
  - BoA introduced binding borrower-based measures (BBMs) for new residential real estate (RRE) loans — should become permanent and complement CCyB.
  - CCyB increases to 0.5 percent (from 0.25 percent) by end-December 2025.
  - Move towards a positive neutral rate for the CCyB and finalize the systemic risk buffer (SyRB) framework.
  - For CRE-lending: improve data quality and consider sectoral SyRB, higher risk weights, or targeted BBMs if systemic risks identified.
- Supervisory rigor and IFRS 9 transition
  - Address cases of non-compliance firmly (dividend suspensions, capital conservation plans).
  - Reconsider recent relaxations of risk-adjusted capital and large exposures frameworks for strategic transport projects.
  - Prepare for IFRS 9 implementation challenges and consider prudential provisioning backstops.
- Albanian Development Bank (ADB) safeguards
  - Government established National Development Bank with initial capital of 10 billion Lek (April 2025); authorized to grant loans, issue securities, accept retail deposits via Albanian Post Office.
  - Risks without safeguards: weak internal controls, inadequate supervision, lack of transparency; activities should be time-bound and targeted to ensure additionality.

### Bank of Albania borrower-based measures and lending indicators (RRE and CRE)
- Data and scope
  - BoA collected borrower-based indicators since H1/2024 (LTV, LSTI proxies for DSTI), backed by regulation No 44/2023.
- RRE lending (H2 2024)
  - Total RRE lending: ALL 24 billion (0.95 percent of GDP).
  - 78 percent of RRE lending in local currency and at variable rates.
  - 74 percent of RRE lending went to first-time buyers.
  - Average LTV: 71 percent; average LSTI: 34 percent.
  - EUR-loans for first- and second-time buyers: LSTI 48 percent and LTV 83 percent.
  - Small buy-to-let segment: EUR-LTV 112 percent, ALL-LSTI 41 percent.
  - In first-time buyers with ALL-loans: 20 percent of volume at LTVs above 85 percent; >25 percent at LSTIs above 40 percent.
- CRE lending (H2 2024)
  - CRE lending: ALL 48 billion.
  - 42 percent of contracts in euro, 60 percent of volume in euro.
  - Average LTV: 54 percent; 20 percent of volumes > LTV 80 percent; 7 percent > LTV 100 percent.
- Binding BBMs (mid-2025 calibration, decision 25/2025)
  - Maximum LTV-limit local/foreign currency: 85 percent/75 percent; second/sequential buyers: 80 percent/70 percent.
  - Maximum DSTI-limit local/foreign currency: 40 percent/35 percent; second/sequential buyers: 35 percent/30 percent.
  - Exceeding quota: banks may exceed limits up to 15 percent of quarterly approved and disbursed loan value.
  - Complementary maturity limit: max 30 years or until borrower’s retirement age, whichever smaller.
- Data shortcomings and capacity priorities
  - Gaps in NBFI coverage; need for more frequent investment fund data; debt service-to-income indicator quality issues; need for granular CRE indices and collateral valuation data.
  - INSTAT working on tourism satellite accounts; technical assistance recommended for GDP and statistical discrepancies.

### Productivity-boosting policies to enhance EU integration benefits
- Context and risks
  - GDP per capita lags CESEE peers; output per hour worked below EU average; emigration risks deepening labor shortages.
  - Informality and youth NEET rates above EU and Western Balkans averages.
- Recommended policy packages
  - Active Labor Market Policies (ALMPs): expand coverage to rural/informal/vulnerable groups; mobile employment teams; improve monitoring and forecasting.
  - Education and training: strengthen digital tools, teacher development, STEM curricula; accelerate dual VET and Youth Guarantee rollout.
  - Reduce informality and boost participation: enforce labor law, simplify business processes, improve childcare access to raise female participation.
  - Firm productivity and innovation: support digitization, improve business climate, resource competition authority, reduce red tape, step up R&D investment.
  - Governance: merit-based appointments, digitalize court operations, strengthen preventive anti-corruption measures and SPAK independence.
- Modeling results (Box 2)
  - Without productivity gains, EU integration could lead to high emigration, population loss, and lower output per capita.
  - With productivity improvements (calibrated to ~30 percent GDP per capita increase), modeled outcomes show major output-per-capita growth, lower unemployment, moderated emigration, and better labor inflows and retention.
  - Examined policy packages: (i) structural reforms; (ii) ALMPs; (iii) SME support; (iv) participation incentives — combined packages materially improve wages, output per capita, unemployment, employment rate, and migration outcomes.

### External Sector Assessment and tourism exposure (Annex highlights)
- External position assessment
  - Albania's external position in 2025 stronger than implied by medium-term fundamentals.
  - Projected CA balance in 2025: −2.8 percent of GDP (2024: −2.5 percent of GDP).
- NIIP and balance sheet
  - NIIP improved from −57.2 percent in 2020 to around −40.6 percent in 2024; expected to deteriorate to −43.4 percent in 2025.
  - Liabilities: 92.8 percent of GDP in 2024 → 101.0 percent of GDP in 2025.
  - Assets: 52.1 percent of GDP in 2024 → 57.6 percent of GDP in 2025.
  - FDI accounts for around 66.2 percent of GDP in 2025.
- Tourism as conduit of external shocks (Annex IV)
  - Arrivals: from 2.7 million in 2020 to 11.7 million in 2024; 95 percent for personal reasons.
  - Out of 11.1 million foreign citizen arrivals in 2024, 3.2 million were from euro area countries.
  - Exports of travel services rose from ~7.5 to 20 percent of GDP in 2020–24.
  - Empirical estimates: a standard contractionary ECB shock reduces EA arrivals by ~2 percent, FDI inflows by 2-percent, and depreciates the lek vs. euro by 0.5 percent (responses significant at 95-percent level and temporary).
- REER and competitiveness
  - As of September 2025, REER about 3.8 percent above the 2024 average; cumulative appreciation over past decade about 53 percent.
  - Model disagreement: CA model REER gap −12.2 percent (elasticity 0.3); REER model overvaluation 38.4 percent.
- Reserves and FX interventions
  - BoA’s FX purchases in first ten months of 2025: 3.4 percent of annual GDP.
  - Gross reserves projected to reach 147 percent of the fixed exchange rate regime ARA metric at end-2025 under de facto classification.

### Debt Sustainability Analysis (Annex V) — baseline and risks
- Baseline public debt path (percent of GDP)
  - Actual 2024: 54.55
  - 2025: 52.75
  - 2026: 51.65
  - 2027: 50.85
  - 2028: 50.04
  - 2029: 49.34
  - 2030: 48.74
  - 2034: 47.10
- Change in public debt (percent of GDP)
  - 2024: -3.5; 2025: -1.8; 2026: -1.1; 2027: -0.9; 2028: -0.8; 2029: -0.7; 2030: -0.6
- Primary deficit (percent of GDP)
  - 2024: -1.7; 2025: -0.4; 2026: -0.2; 2027: 0.0; 2028: 0.0; 2029: 0.0; 2030: 0.0
- Gross financing needs and composition (percent of GDP)
  - GFN: 2024: 15.2; 2025: 16.8; 2026: 15.4; 2027: 13.2; 2028: 12.1; 2029: 9.0; 2030: 9.5
  - Local currency GFN (selected): 2024: 14.1; 2025: 13.0; 2026: 13.6
  - Foreign currency GFN (selected): 2024: 2.8; 2025: 4.2; 2026: 1.9
- Long-term risks and demographics
  - Pension financing needs (percent of GDP per year): 30 years: 3.0%; 50 years: 4.9%; Until 2100: 5.5%.
  - Old-age dependency ratio early 2025: about 26 percent; projections could reach 80–85 percent by mid-century under some scenarios.
- Medium-term risk signal
  - Probability of debt non-stabilization: 34.2 percent (fanchart/module metrics).
  - Average baseline GFN: 12.7 percent of GDP (module figure).
  - Overall DSA assessment: Moderate risk of sovereign stress.

### Risk Assessment Matrix — key global and domestic risks and policy responses
- Global high-likelihood, high-impact risks
  - Escalating trade measures, geopolitical tensions, commodity price volatility, financial market volatility and correction — policy responses emphasize structural reforms, monetary adjustment, exchange rate flexibility, FXI for excess volatility, automatic fiscal stabilizers, and macroprudential buffers.
- Domestic medium/high risks
  - Worsening demographic trends (faster emigration), real estate market downturn — policy responses emphasize structural reforms, monetary adjustment, targeted social support, spending reviews, close bank portfolio monitoring, bottom-up stress testing, and strengthened macroprudential/supervisory frameworks.
- Climate change and cyberthreats
  - Climate: Likelihood Medium, Impact High — prioritize resilient infrastructure, diversify renewable energy, targeted assistance.
  - Cyberthreats: Likelihood High, Impact Medium — implement IMF TA measures, business crisis preparedness, paced AI adoption with regulatory frameworks.

### Staff appraisal — synthesis of priorities
- Macroeconomic accomplishments
  - Albania among fastest growing economies in Europe; fiscal discipline reduced public debt; BoA’s policy helped bring headline inflation below target; external imbalances narrowed; reserves strong.
- Key policy priorities
  - Fiscal: growth-friendly revenue reforms (streamline tax expenditures, modernize property taxes, enhance tax administration), improve spending quality and fiscal transparency, resist blanket pension bonuses, and operationalize fiscal risk reporting.
  - Monetary/FX: maintain readiness to adjust policy rate quickly; let exchange rate adjust flexibly; limit FXI to non-fundamental volatility; weigh reserve accumulation costs.
  - Financial stability: monitor vulnerabilities (large borrower, FX, sovereign exposures, rapid real estate lending); ensure capital adequacy compliance; smooth IFRS 9 transition; make BBMs permanent; strengthen data and CRE monitoring.
  - Structural: accelerate reforms in human capital, labor markets, governance, business regulation to boost productivity and facilitate EU convergence.
- Institutional recommendations
  - Strengthen PIM and PPP oversight; ensure development bank governance safeguards; convene FSAG; publish standalone Fiscal Risk Statement; implement Medium-Term Debt Management Strategy.

*Source: International Monetary Fund (excerpt from staff chapter and annexes).*

### 1. Adjustment Needs Under Long-Term Spending Pressures ____________________________________ 15

### 1. Adjustment Needs Under Long-Term Spending Pressures ____________________________________ 15

### At a glance: pivotal moment and key fiscal anchors
- Government mandate and EU agenda
  - Socialist Party won 83 of 140 seats in May elections.
  - All 33 negotiating chapters officially opened.
  - Backed by € 922 million (3.7 percent of GDP) from the EU Growth Plan for the Western Balkans.
- Macroeconomic backdrop
  - Output well above pre-pandemic trend; tourism boom central.
  - Primary balance reached 1.7 percent of GDP in 2024.
  - Public debt dropped to 54.5 percent of GDP.
  - €650 million, 10-year Eurobond issued in February 2025.
  - S&P upgraded Albania’s sovereign rating to BB from BB- in March 2025.
- Policy focus recommended in the report
  - Preserve fiscal buffers through revenue mobilization and tax policy reforms, alongside improvements to spending quality and transparency.
  - Maintain price and financial stability through agile monetary policy and prudential tools.
  - Targeted reforms in human capital, labor markets, governance and business regulation to boost productivity.

### Recent indicators: growth, labor markets, inflation, and external/financial developments
- Growth and demand
  - Real output expanded by 4 percent in 2024 and 3.6 percent y/y in H1 2025.
  - Foreign visitor arrivals grew by around 6.5 percent y/y through October.
- Labor market and wages
  - Unemployment rate reached a historical low of 9.4 percent in Q2 2025.
  - Cumulative minimum wage increase of 33 percent in 2022–24.
  - Median wages in 2024 stood at just 15 percent of the EU level.
  - Real wage growth has outpaced productivity gains.
- Inflation and monetary policy
  - Headline inflation remains well below the 3 percent target; core inflation has risen.
  - BoA’s 25-basis point policy rate cut to 2.5 percent in July.
  - Inflation pressures uneven: driven by core services and rent, and more lately core goods.
- Fiscal and sovereign market indicators
  - 2024 primary balance: 1.7 percent of GDP; public debt: 54.5 percent of GDP.
  - Sovereign bond spreads fell from around 200 to 150 basis points over the last year.
- External sector and reserves
  - Current account deficit doubled relative to 2023, reaching 2.5 percent of GDP in 2024.
  - CA deficit broadly stable at 2.1 percent of GDP in H1 2025.
  - FX purchases amounted to 3.4 percent of GDP during the first ten months of 2025—30 percent regular, 70 percent unscheduled.
  - Gross external reserves reached 7.6 months of imports in October (148 percent of the IMF’s reserve adequacy metric).
- Banking and credit
  - Net interest margins remained above 3 ½ percent in Q2 2025.
  - NPL ratios near historical lows.
  - Rapid credit growth in 2024 largely driven by real estate lending; overall growth starting to level off.
  - BoA launched a 25 billion lek (1 percent of GDP) credit line; uptake by mid-2025: 0.1 percent of GDP disbursed.

### Baseline outlook and medium-term projections
- Growth projections
  - Economy projected to grow by 3.5 percent in 2025.
  - Growth expected to rise to 3.6 percent in 2026.
  - Converge to potential of 3.2 percent thereafter.
- Inflation outlook
  - Headline inflation projected to gradually converge to 3 percent by end-2026.
  - Real wage growth projected to remain positive and outpace productivity amid a tight labor market.
- External position
  - Current account deficit projected to rise from 2.8 percent in 2025 to 3.5 percent of GDP by 2030.
  - Deterioration driven by rising imports (higher real disposable income and public investment) and slowing remittances; partly offset by strong tourism services exports and rising primary income.
- Comparative and model notes
  - Projections based on October 2025 WEO Global Assumptions.
  - Direct effects of 10 percent U.S. tariffs (imposed since April 2025) minimal for Albania given exports to the U.S. account for about 0.3 percent of GDP.

### Risks around the baseline and scenario impacts
- Downside global risks
  - Prolonged uncertainty, geopolitical tensions, commodity price volatility could reduce tourism, FDI and remittances and trigger financial market volatility and rollover risks.
- Domestic downside risks
  - Accelerated emigration and aging could further shrink the labor force, tightening labor market and pushing up wages and inflation, pressuring competitiveness and possibly requiring BoA tightening.
  - Sharp decline in real estate prices could raise NPLs and slow credit growth, weighing on activity and triggering exchange rate depreciation.
- Upside potential
  - Sustained implementation of the EU reform agenda could boost productivity and growth (not yet included in staff baseline).
- Stress scenario (WEO Scenario A; higher tariffs, supply disruptions, tighter financial conditions)
  - Albania’s growth would be about 1 percent lower than in the baseline by early 2026.
  - Fiscal balance would worsen by about 0.4 percent of GDP by 2027.
  - Public debt ratio would rise by 2 percentage points.
  - Inflation would remain largely unaffected due to offsetting exchange rate depreciation.
- Policy buffer guidance
  - Allow automatic stabilizers to operate.
  - Use available fiscal space to provide targeted support to the vulnerable.
  - Exchange rate flexibility to absorb shocks without changing monetary policy stance.

### Authorities’ views and alternative medium-term expectations
- The authorities broadly agreed with staff’s outlook and risks.
- The BoA and the MoF anticipate stronger medium-term growth—at 4 and 3.5 percent, respectively—supported by productivity improvements (including from AI and EU-linked structural reforms) and potentially rising immigration.
- Authorities view geopolitical tensions as the main downside risk and fast EU integration (including the New Growth Plan) as a significant upside.

### Policy priorities and recommendations (summarized from the chapter)
- Fiscal policy and public finances
  - Preserve fiscal buffers through revenue mobilization and tax policy reforms.
  - Improve spending quality and transparency to secure long-term fiscal sustainability.
- Monetary and financial stability
  - Maintain price and financial stability via agile monetary policy and prudential tools.
  - Allow exchange rate flexibility to help absorb external shocks.
- Structural reforms to boost potential growth
  - Implement targeted reforms in human capital, labor markets, governance, and business regulation to lift productivity and support income convergence to the EU.
- Use of buffers in adverse scenarios
  - Let automatic stabilizers work and deploy targeted fiscal measures to protect vulnerable groups if global risks materialize.

*Source: International Monetary Fund.*

### 17.       Under current policies, s  taff projects a small primary surplus in 2025 and 2026,

### 17.       Under current policies, staff projects a small primary surplus in 2025 and 2026,

### Fiscal outlook and baseline projections
- Staff projects a small primary surplus in 2025 and 2026, followed by a zero primary balance in the outer years.
- Staff expects a deterioration in the primary balance in 2025 on account of a year-on-year increase in capital spending, though the authorities are on track to marginally overperform their 2025 zero primary balance budget target based on monthly outturns.
- Monthly pension bonuses starting in 2026 and the gradual increase in defense spending will be financed by expected gains from the authorities’ Medium-Term Revenue Strategy (MTRS), current spending savings, and under-execution of capital spending.
- In cyclically adjusted terms, staff’s baseline projections correspond to a broadly neutral stance in 2026–30.

### Debt dynamics, gross financing needs, and market development
- The SR-DSF points to moderate risk of debt distress, primarily driven by elevated gross financing needs (Annex V).
- Under current policies, the debt ratio is projected to decline to below 50 percent by 2030.
- Gross financing needs (GFNs) average 13 percent of GDP in 2025–30.
- Risks from contingent liabilities include SoEs and PPPs.
- Staff recommends:
  - Adjusting the maturity profile (average time to maturity is around 2.5 years and redemptions are concentrated in the earlier months of the year) to mitigate rollover risks.
  - Regular issuance of short-term instruments (3- and 6-month T-bills) to develop the short end of the yield curve.
  - Enhancing secondary and repo market liquidity, improving investor relations, and aligning repo market regulations and data transparency with international standards.
  - Implementation of the 2026–30 Debt Management Strategy.

### Long-term fiscal pressures and adjustment needs
- Albania plans to increase defense spending to 2 .45 percent of GDP by 2030 (compared with the 3.5 percent NATO commitment).
- As the economy develops, the authorities will likely need to spend more on social spending including on pensions and health, where the impact of aging will be most pronounced after 2030, as well as education and training.
- Staff recommends additional measures of about 2    percent of GDP over 2026–30 to allow phasing in these needs while maintaining compliance with national fiscal rules—a zero minimum primary balance, and declining debt-to-GDP ratio until it reaches 45 percent—also beyond 2030, if combined with growth-enhancing reforms.
- Box 1 scenarios and required additional cumulative measures (in addition to staff’s recommended measures of 2 percent over 2026–30):
  - Scenario 1: pressures from social and defense spending to reach the 3.5 percent target with growth-enhancing structural reforms.
  - Scenario 2: same as (1) but without structural reforms — additional cumulative fiscal measures needed: 1.5 percent of GDP.
  - Scenario 3: same as (1) but adding public spending pressures related to climate mitigation and adaptation (estimated at around 2.5 percent of GDP per year by the World Bank).
  - Scenario 4: same as (3) but without structural reforms — additional cumulative fiscal measures needed: 4 percent of GDP.
- Main assumptions for Box 1:
  - Baseline path primary balance: Set at 0 percent of GDP (minimum required by national fiscal rule).
  - Spending pressures (2026–40): Relative to 2025 levels.
  - Macro assumptions: Nominal GDP growth and effective interest rate follow staff baseline to 2030; for 2031–40, GDP growth held at 2030 pace, interest rates move in line with October WEO forecasts and some further adjustments in outer years.
  - Structural reform yields: Based on GDP gains from closing half of national-level reform gaps (see Figure 1) to frontier.

### Fiscal baseline assumptions (Text Table 2)
- Tax revenues: MTRS gains: Staff takes 50 percent of projected gains from authorities in Lek for legislated measures, revenues are phased over 2026–2028 (Table 3).
- Social contributions: The increase in minimum wages will increase social insurance contributions.
- Defense: From the 2025 level of 2 percent of GDP, defense spending increases by roughly 0.1 pp per year through 2030.
- Wages: The minimum wage will increase from €400 to €500 in 2026 and €600 in 2028, with partial spillovers to the public sector pay scale.
- Pensions: Pension outlays include a yearly indexation and are based on the authorities’ projections and consistent with World Bank (Albania Public Finance Review, 2025) estimates. For pension bonuses—e.g., the planned increase in urban pensions from 27,000 Lek to 40,000 Lek—staff assumes the full allocation. The associated fiscal cost is projected to rise by around 10 billion Lek each year over the next five years, reaching a total of about 50 billion Lek by 2030.
- Capital Exp.: Staff assumes under-execution consistent with historical patterns and to maintain a non-negative primary balance.

### Revenue measures, tax policy, and administration
- Measures should be high-quality and growth friendly. The 2026 budget maintains focus on revenue administration measures.
- Postponement of key tax policy reforms (e.g., property taxes to 2028 and taxation for self-employed/small businesses to 2029) poses significant implementation risks, with 2029 being a parliamentary election year.
- Tax expenditures and VAT:
  - Timely phase out of zero taxation for small businesses and streamlining the tax regime for self-employed professionals to avoid arbitrage between labor and business income and enhance fairness.
  - Gradually increasing reduced VAT rates including for the tourism sector, rationalizing exemptions, and aligning sectoral treatments with the EU acquis.
- Property taxes:
  - Implement the planned market value-based property tax reform comprehensively and on an accelerated timetable, including full adoption of market-based cadastral values, consolidation of overlapping instruments, implementation of a functioning IT platform by municipalities, and robust administrative coordination.
  - Integrate the temporary revaluation tax into a coherent strategy to ensure compliance and sustainable revenue gains.
- Tax administration:
  - Strengthen tax administration through risk‑based audits, IT and data integration, and enforcement to secure full MTRS yields.
  - The “Fiscal Peace” Agreement provisions (cancellation and conditional forgiveness of tax and customs debts, voluntary arrangement to pre-determine taxable profits and suspend tax audits, revaluation of past financial statements at a uniform 5 percent preferential rate) risk undermining tax compliance and raising AML/CFT concerns. Staff recommends embedding debt relief in permanent legislation with transparent rules for debt write-off and aligned with international standards.
  - Over the longer term, continued progress in strengthening governance and reducing informality would help further lift tax collection.

### Additional revenue measure options and estimated gains (Text Table 3; Percent of GDP)
- INCLUDED IN THE BASELINE: MTRS measures (VAT, Profit tax, PIT).
- ADDITIONAL REVENUE MEASURES (Lower Bound — Upper Bound):
  - Rationalizing tax expenditures: 0.9 — 1.1
  - Sole proprietors and companies conducting trade and professional services with an annual turnover up to ALL 14 million benefit from a zero rate CIT: 0.6 — 0.7
  - VAT reforms: 0.3 — 0.4
  - Property tax: 0.2 — 0.2
  - Recurrent value-based property tax - MTRS: 0.2 — 0.2
  - Revenue Administration: 0.4 — 1.0
  - Remaining measures in the MTRS: 0.4 — 0.4
  - Improving IT Infrastructure, data access and utilization, staffing and capacity: 0.0 — 0.6
  - TOTAL: 1.2 — 2.0
- Memo Items:
  - Tax revenue potential-outturn gap: 4.8
  - Tax expenditure: 0.34
  - (Additional memo figures shown in source: 0.16, 0.14, 0.04, 3.5)

### Spending rationalization and pensions
- Regular spending reviews institutionalized as a core budgetary tool with clear governance structures will help identify low-priority programs.
- Comprehensive approach to improve pension adequacy and sustainability should include:
  - Targeting low effective contribution rates by addressing wage underreporting and fostering formalization.
  - Revisiting early retirement provisions and other parameters.
  - Exploring voluntary supplementary private schemes.
- Pension bonuses should be avoided, as they weaken the link between contributions and benefits, add to fiscal pressures, and distort incentives. Support for vulnerable households is best provided through well-targeted social assistance.

### Budgetary governance, PIM, PPPs, and fiscal risk management
- Budgetary practices: Budget revisions should be channeled through the regular legislative process, instead of normative acts, to enhance transparency and predictability.
- Public investment management (PIM) and PPPs oversight:
  - Restore a unified project cycle for public investment projects, maintain robust feasibility requirements, and clarify multi-year commitment controls.
  - Harmonize decision-making across traditional procurement and PPPs, with the Ministry of Finance coordinating the entire investment cycle.
  - Consider a Climate-PIMA (C-PIMA) to take stock of progress since the 2016 PIMA.
  - Eliminate unsolicited proposals (80 percent of the current portfolio) and streamline governance to avoid fragmented responsibilities.
- Fiscal risk management:
  - Align publication of the standalone fiscal risk statement with the budget cycle.
  - Institutionalize regular monitoring and risk assessments of on-lending and PPP exposures.
  - Operationalize the IMF’s SOE Health Check tool, SOE stress test, and the PPP Fiscal Risk Assessment Model (PFRAM).
  - Subject off balance sheet funding structures to transparent reporting and governance requirements, including disclosure of ultimate beneficial ownership.

### Authorities’ views (fiscal and revenue)
- Authorities remain committed to maintaining a non-negative primary balance and reducing public debt.
- They expect additional revenue gains of about 1 percent of GDP over the next two years from implementing the MTRS, while emphasizing that tax policy will remain largely unchanged until 2029.
- They view measures to strengthen revenue administration, including finalizing the fiscal cadaster, reducing cash usage, and leveraging AI, as key to sustained revenue collection improvements.
- Authorities view the “Fiscal Peace” Agreement as intended to reduce informality and ease the tax burden for businesses and see monthly pension bonuses as essential to offset adverse effects of the 2014 pension reform.
- Authorities agree that continued public investment reforms will be key to addressing under-execution of capital spending.

### Monetary policy stance and exchange rate policy (Sections B and Figure notes)
- The BoA current policy rate of 2.5 percent is assessed as neutral on an ex-post basis and marginally accommodative on an ex-ante basis.
- With inflation expectations and core inflation close to target, a monetary policy stance close to neutral is justified, but the BoA should be ready to swiftly adjust its stance in both directions.
- The exchange rate should act as a shock absorber with greater flexibility, and further reserve accumulation should be guided by cost-benefit analysis.
- Sterilized FXI could reduce inflation and output variability in limited cases of non-fundamental shocks, but authorities should carefully weigh potential consequences for market development.
- Recent IMF staff analysis estimates a non-trivial opportunity cost of holding reserves for emerging market economies at about 0.4 percent of GDP over 2012-24.
- Continued reserve accumulation would subject the BoA to greater interest rate risk and potential FX revaluation losses.
- The BoA reaffirms commitment to a freely floating exchange rate while noting limited interventions may be necessary to reduce excessive financial market volatility and prevent abrupt shifts between FX and lek-denominated deposits.

### Financial sector resilience and prudential needs
- Systemic risks appear broadly contained.
- Aggregate capital and liquidity coverage ratios stand at 19.3 and 275 percent, respectively, though non-compliance with minimum regulatory requirements continues to be observed for a limited number of banks.
- Staff’s stress tests show banks are resilient to individual shocks that increase NPL ratios, interest rates, or lead to exchange rate depreciation, with weighted average capital ratios being higher than in the last Article IV in most scenarios.
- Liquidity conditions have improved banking system-wide.
- The NBFI sector accounts for less than 10 percent of total financial sector assets, and so far, no crypto-related providers have set up operations in Albania.

*Source: Excerpt from IMF staff chapter content.*

### 27.      Some vulnerabilities, however, are emerging and their effect on systemic risks will

### 27. Some vulnerabilities, however, are emerging and their effect on systemic risks will require careful monitoring

### Emerging vulnerabilities and systemic risk findings
- Banks
  - 2025 solvency stress tests show greater dispersion across individual banks compared to 2024, indicating some institutions improved resilience while others became more vulnerable to shocks, especially from large borrower exposure.
  - Results could be more severe under scenarios where multiple extreme shocks materialize simultaneously.
  - Banks continue to hold large amounts of sovereign securities: 28 percent of their total assets compared to an average of 10 and 8 percent, respectively, in Western Balkan and EU countries.
- Real estate lending
  - Volume of banks’ real estate loans grew by 14 percent year-on-year (as of Q3 2025).
  - The credit-to-GDP gap for households is now in positive territory for the first time since 2009.
  - A significant part of new household mortgages and commercial real estate (CRE) loans have elevated loan-to-value (LTV) and loan-service-to-income ratios.
  - About a quarter of household loans are denominated in FX, with unhedged volumes broadly unchanged in recent years.

### Supervisory rigor and prudential policy recommendations
- Capital requirements and enforcement
  - Cases of banks falling short of regulatory requirements should be addressed consistently and firmly by the supervisor, including through temporary suspension of dividends and preparation of capital conservation plans.
  - Recent relaxations of risk-adjusted capital adequacy and large exposures frameworks for loans financing strategic transport infrastructure projects are not fully aligned with international standards and should be reconsidered.
  - Prudential regulation should be risk-based and not be used to encourage lending to specific sectors.
- Asset quality and IFRS 9 transition
  - Support for the BoA’s comprehensive quarterly assessments for all banks, on-site inspections, and progress in enhancing loan origination processes and NPL management.
  - The BoA should be prepared for challenges arising from IFRS 9 implementation and quantify the impact of the transition.
  - The BoA should actively pursue transitional arrangements and consider a prudential provisioning backstop.
  - All parties should allocate sufficient staffing and resources to the IFRS 9 transition.
- Liquidity and stress test design (figure notes preserved)
  - Stress test scenarios referenced include: 1) 100% increase in NPLs (credit - NPL), 2) default of the largest borrower of each bank (concentration), 3) 200 basis-point increase in interest rate assuming long-term government bonds are MtM (interest rate), and 4) 25 percent depreciation of the lek (FX).
  - Liquidity stress scenario assumes a 20 percent haircut on lek-denominated sovereign government bonds (under BoA's liquidity facility). The computed LCR refers to the LCR in lek.
  - Minimum capital requirement referenced: 12% minimum requirement.

### Macroprudential framework and measures
- Borrower-based measures (BBMs)
  - The BoA introduced BBMs for new residential real estate (RRE) loans; these BBMs should become a permanent tool and complement the countercyclical capital buffer (CCyB).
- Countercyclical Capital Buffer (CCyB) and SyRB
  - CCyB will increase to 0.5 percent (from 0.25 percent) by end-December 2025.
  - Financial stability could be further strengthened by moving towards a positive neutral rate for the CCyB, alongside finalizing the systemic risk buffer (SyRB) framework.
  - For CRE-lending, data availability and quality should be improved; if systemic risks are identified, they should be addressed by an appropriate macroprudential tool (e.g., a sectoral SyRB, higher risk weights, or targeted BBMs).

### Albanian Development Bank (ADB) — governance and operational risks
- Key facts
  - In April 2025, the government announced establishment of a National Development Bank with an initial capital of 10 billion Lek injected by the MoF, which also oversees its operations.
  - The bank will be authorized to grant loans, issue securities, and accept retail deposits through the Albanian Post Office.
- Risks and required safeguards
  - Such institutions can pose significant fiscal and financial sector risks without:
    - strong internal controls and risk management;
    - oversight from banking supervisors;
    - transparency and disclosure;
    - prioritization of activities;
    - regular reporting to the MoF on liabilities and exposures.
  - Activities should be time-bound and targeted at market failures to ensure “additionality” rather than crowding out private investment.

### Financial sector oversight, interlinkages, and AML/CFT
- Oversight and data
  - As the financial sector becomes more complex, AFSA should enhance data collection and risk monitoring and strengthen supervision of bank–NBFI interlinkages.
  - Use available instruments for interinstitutional cooperation, including the Financial Stability Advisory Group (FSAG), which has not convened for more than three years.
- AML/CFT
  - Timely implementation of the National Risk Assessment to mitigate identified AML/CFT risks is important.
  - BoA has adopted a dedicated office for AML/CFT risk monitoring.

### Authorities’ views (as reported)
- The BoA considers the financial system resilient to stress and has taken steps to address limited cases of noncompliance, including dividend distribution restrictions.
- The BoA expects to ensure alignment with IFRS 9 by early 2027, eliminating dual reporting and improving data quality.
- The BoA views recent risk-weights adjustments for strategic infrastructure projects’ lending as consistent with European standards and aimed at mitigating concentration of large-scale projects within a few institutions.
- The BoA is vigilant on CRE lending and ready to introduce additional measures as needed.
- Authorities stress the development bank will support lending to underfunded sectors and operate under strict governance standards.

### Productivity-boosting policies to enhance EU integration benefits
- Context and challenges
  - Albania’s GDP per capita lags most CESEE peers; output per hour worked remains below the EU average with limited improvement over the past decade.
  - Emigration, likely to rise further with EU accession, risks deepening labor shortages.
  - Informality and youth NEET rates remain above EU and Western Balkans averages.
- Labor market and skills
  - Participation in lifelong learning is low; students’ PISA scores are below WB and EU averages.
  - Vocational schools are present in 20 out of 61 municipalities.
  - Only 3½ percent of the registered unemployed with NAES participated in employment promotion programs in 2024.
  - Successful placements in 2024 fell by half compared to 2023, even as vacancies increased.
- Policy recommendations to boost productivity and participation
  - Active Labor Market Policies (ALMPs)
    - Expand ALMP coverage to rural areas, informal workers, and vulnerable groups; consider mobile employment teams for remote municipalities.
    - Improve program monitoring and evaluation; extend the Labor Market Information Observatory to sector-specific analysis and forecasting models.
  - Education and training
    - Strengthen digital tools and teacher development; expand STEM curricula and accelerate dual VET systems and full rollout of the Youth Guarantee scheme.
    - Ensure stronger incentives and partnerships with the private sector, clear cost-sharing rules, enhanced legal/regulatory frameworks, and robust data collection.
  - Reduce informality and enhance participation
    - Improve labor law enforcement and simplify business processes.
    - Improve accessibility, quality, and affordability of childcare to boost female labor force participation.
  - Boost firm productivity and innovation
    - Support innovation and digitization, improve the business climate, ensure a level playing field via a well-resourced competition authority, and reduce red tape.
    - Step up investment in R&D and adoption of new technologies to create higher value-added production.
  - Governance
    - Prioritize timely, merit-based, and impartial appointments to independent oversight bodies.
    - Accelerate digitalization of court operations and expand public access to judicial information.
    - Strengthen preventive anti-corruption legislation and monitoring of public administration; maintain SPAK’s operational independence and adequate resourcing.
- Modeling results (Box 2)
  - If EU integration occurs without productivity gains, Albania could face high emigration, population loss, and lower output per capita with only slight wage improvements.
  - With productivity improvements (calibrated to increase GDP per capita by about 30 percent), Albania would see major output-per-capita growth, lower unemployment from EU integration, moderated surge in emigration, attracted labor inflows, and better talent retention.
  - Policy packages examined include: (i) structural reforms (governance, rule of law, infrastructure); (ii) ALMPs; (iii) SME support lowering entry costs; and (iv) labor force participation incentives. Modeled impacts show material improvements in wages, output per capita, unemployment, employment rate, and migration outcomes when productivity gains accompany reduced migration costs.

### Staff appraisal — key conclusions and policy priorities
- Macroeconomic stance and accomplishments
  - Albania is among the fastest growing economies in Europe; output is well above pre-pandemic trend driven by tourism.
  - Fiscal discipline has reduced public debt; proactive monetary policy has helped bring headline inflation below target.
  - External imbalances have shrunk with strong foreign reserves; external position assessed stronger than implied by fundamentals.
- Medium-term challenges
  - Income convergence to the EU requires addressing structural reform gaps in human capital, governance, and business regulation.
  - Demographic shifts, rising wages, asset prices, and a more unsettled external environment pose risks to tourism-driven growth sustainability.
- Fiscal risks and recommendations
  - Rising spending pressures could threaten fiscal sustainability beyond 2030.
  - Albania is projected to maintain non-negative primary balances in 2025-30 with public debt falling below 50 percent of GDP.
  - Staff recommends growth-friendly revenue reforms (streamlining tax expenditures, modernizing property tax systems, enhancing tax administration) and improvements in spending quality and fiscal transparency.
  - The “Fiscal Peace” Agreement risks undermining progress in tax administration and compliance.
  - Well-targeted social assistance is preferable to planned monthly pension bonuses.
- Monetary policy and exchange rate
  - BoA should be ready to respond quickly to market conditions; FX purchases should be limited to addressing non-fundamental fluctuations.
  - With inflation expectations and core inflation close to target, the current policy rate of 2.5 percent and a monetary stance close to neutral are appropriate.
  - BoA should adjust policy swiftly if second-round wage effects prove stronger than expected.
  - Sustained exchange rate appreciation largely driven by fundamentals—BoA should allow greater flexibility and rely on interest rates for price stability.
- Financial stability priorities
  - Vigilant monitoring and proactive prudential policymaking are required for vulnerabilities from large-borrower, FX and sovereign exposures, and rapid real estate lending growth.
  - Enhance capital adequacy compliance and ensure smooth IFRS transition.
  - Recent relaxations in risk-adjusted capital adequacy and large exposure frameworks for strategic transport infrastructure loans warrant reconsideration.
  - Borrower-based measures for new residential real estate loans are an important structural tool.
  - Improve data availability for CRE lending and consider moving toward a positive neutral rate for the CCyB and finalizing the SyRB framework.
  - The new development bank requires strong governance and oversight.

*Source: IMF staff report text (excerpt).*

### 42.      Comprehensive reforms will be needed to revive productivity and foster income

### Comprehensive reforms will be needed to revive productivity and foster income convergence with the EU

### Policy recommendations and institutional priorities
- Improve skills through broader training coverage and education quality.
- Create high-quality jobs and boost overall firm productivity.
- Enhance the business environment through further governance reforms.
- Strengthen preventive legislation and improve monitoring of public administration as essential anti-corruption measures.
- Safeguard SPAK’s operational independence and resources.
- Administrative note: It is expected that the next Article IV consultation will be held on the standard 12-month cycle.

### Real sector and prices (selected indicators)
- Real GDP (growth): 2020: -3.3; 2021: 9.0; 2022: 4.8; 2023: 4.0; 2024: 4.0; 2025: 3.5; 2026: 3.6; 2027: 3.4; 2028: 3.2; 2029: 3.2; 2030: 3.2
- Domestic demand contribution: 2020: -3.6; 2021: 9.2; 2022: 4.7; 2023: 1.2; 2024: 6.9; 2025: 4.1; 2026: 4.1; 2027: 4.0; 2028: 3.9; 2029: 3.8; 2030: 3.8
- Consumption contribution: 2020: -3.7; 2021: 3.6; 2022: 4.6; 2023: 2.7; 2024: 3.4; 2025: 3.2; 2026: 2.8; 2027: 2.1; 2028: 2.2; 2029: 2.3; 2030: 2.4
- Investment contribution: 2020: 0.1; 2021: 5.6; 2022: 0.1; 2023: -1.5; 2024: 3.5; 2025: 0.9; 2026: 1.3; 2027: 2.0; 2028: 1.7; 2029: 1.5; 2030: 1.3
- External demand contribution: 2020: 0.5; 2021: -0.3; 2022: 0.2; 2023: 2.9; 2024: -2.7; 2025: -0.9; 2026: -0.5; 2027: -0.6; 2028: -0.7; 2029: -0.6; 2030: -0.6
- Consumer Price Index (eop): 2020: 1.1; 2021: 3.8; 2022: 7.4; 2023: 4.0; 2024: 2.1; 2025: 2.4; 2026: 3.0; 2027: 3.0; 2028: 3.0; 2029: 3.0; 2030: 3.0
- Consumer Price Index (avg.): 2020: 1.6; 2021: 2.0; 2022: 6.7; 2023: 4.8; 2024: 2.2; 2025: 2.2; 2026: 2.8; 2027: 3.0; 2028: 3.0; 2029: 3.0; 2030: 3.0

### Fiscal sector (percent of GDP, selected)
- Total revenue and grants: 2020: 25.7; 2021: 27.4; 2022: 26.6; 2023: 27.2; 2024: 28.2; 2025: 29.0; 2026: 29.3; 2027: 29.5; 2028: 29.7; 2029: 29.7; 2030: 29.7
- Tax revenue: 2020: 18.2; 2021: 19.5; 2022: 19.5; 2023: 19.2; 2024: 19.8; 2025: 20.3; 2026: 20.5; 2027: 20.6; 2028: 20.6; 2029: 20.6; 2030: 20.6
- Total expenditure: 2020: 32.4; 2021: 31.9; 2022: 30.3; 2023: 28.5; 2024: 28.7; 2025: 30.6; 2026: 31.4; 2027: 31.8; 2028: 32.0; 2029: 31.9; 2030: 31.9
- Primary balance: 2020: -4.6; 2021: -2.7; 2022: -1.8; 2023: 0.7; 2024: 1.7; 2025: 0.4; 2026: 0.2; 2027: 0.0; 2028: 0.0; 2029: 0.0; 2030: 0.0
- Overall balance (including guarantees): 2020: -6.7; 2021: -4.6; 2022: -3.6; 2023: -1.3; 2024: -0.4; 2025: -1.7; 2026: -2.0; 2027: -2.2; 2028: -2.3; 2029: -2.2; 2030: -2.3
- Interest (percent of GDP): 2020: 2.1; 2021: 1.9; 2022: 1.8; 2023: 2.0; 2024: 2.2; 2025: 2.1; 2026: 2.2; 2027: 2.2; 2028: 2.3; 2029: 2.2; 2030: 2.3
- General Government Debt (percent of GDP): 2020: 75.1; 2021: 74.8; 2022: 64.7; 2023: 58.0; 2024: 54.5; 2025: 52.7; 2026: 51.6; 2027: 50.8; 2028: 50.0; 2029: 49.3; 2030: 48.7

### External sector and reserves
- Trade balance (goods and services, percent of GDP): 2020: -14.5; 2021: -13.3; 2022: -10.3; 2023: -5.4; 2024: -6.9; 2025: -7.2; 2026: -7.3; 2027: -7.4; 2028: -7.7; 2029: -7.8; 2030: -8.0
- Current account balance (percent of GDP): 2020: -8.7; 2021: -7.7; 2022: -6.0; 2023: -1.3; 2024: -2.5; 2025: -2.8; 2026: -2.9; 2027: -3.0; 2028: -3.2; 2029: -3.4; 2030: -3.5
- Gross international reserves (billions of Euros): 2020: 3.9; 2021: 5.0; 2022: 5.0; 2023: 5.8; 2024: 6.3; 2025: 7.1; 2026: 7.4; 2027: 7.7; 2028: 8.1; 2029: 8.5; 2030: 8.8
- Reserves (in months of imports of goods and services): 2020: 9.6; 2021: 8.8; 2022: 6.9; 2023: 7.3; 2024: 7.0; 2025: 7.5; 2026: 7.4; 2027: 7.3; 2028: 7.2; 2029: 6.9
- Gross external debt (millions of euros): 2020: 8,549; 2021: 9,755; 2022: 9,766; 2023: 10,074; 2024: 10,163; 2025: 10,578; 2026: 10,976; 2027: 11,461; 2028: 11,990; 2029: 12,553; 2030: 12,610
- Gross external debt (percent of GDP): 2020: 64.1; 2021: 64.0; 2022: 54.1; 2023: 46.4; 2024: 40.7; 2025: 39.8; 2026: 39.2; 2027: 38.8; 2028: 38.3; 2029: 37.8; 2030: 35.8
- Nominal GDP (millions of euros): 2020: 13,344; 2021: 15,246; 2022: 18,059; 2023: 21,726; 2024: 24,980; 2025: 26,567; 2026: 27,988; 2027: 29,515; 2028: 31,304; 2029: 33,191; 2030: 35,189

### Monetary and financial indicators (selected)
- Broad money growth (percent change): 2020: 10.5; 2021: 8.6; 2022: 4.9; 2023: 2.5; 2024: 4.9; 2025: 6.5; 2026: 6.0; 2027: 6.5; 2028: 6.3; 2029: 6.3; 2030: 6.3
- Private credit growth (percent change): 2020: 8.9; 2021: 8.6; 2022: 7.0; 2023: 5.0; 2024: 12.3; 2025: 11.5; 2026: 9.5; 2027: 6.5; 2028: 6.3; 2029: 6.3; 2030: 6.3
- Financial soundness indicators (selected, Dec-24 and Sep-25): Regulatory capital as a percent of risk-weighted assets: Dec-24: 20.2; Sep-25: 20.3. Nonperforming loans (gross) as a percent of total loans: Dec-24: 4.2; Sep-25: 4.4. Return on equity (ROE): Dec-24: 18.2; Sep-25: 15.8.

*Source: IMF staff estimates and calculations, Albanian authorities.*

### Annex I. Implementation of 2024 Article IV Recommendations

### Annex I. Implementation of 2024 Article IV Recommendations

### Fiscal Policy
- Recommendation: Maintain a modest annual primary surplus and strengthen debt management; sustain revenue reforms. The Medium-Term Revenue Strategy (MTRS) can lay groundwork for sustained revenue reforms.
- Implementation and outcomes:
  - Primary balance rose to 1.7 percent of GDP in 2024.
  - Public debt ratio declined by 3.5 percentage‑points to 54.5 percent of GDP in 2024.
  - The authorities adopted the Medium‑Term Revenue Strategy at end‑2024 and began implementation during 2025.
  - In 2025, the authorities completed a comprehensive review and costing of tax expenditures to support rationalization of exemptions and reduced rates.
  - Preparatory work for a new property tax law has progressed in 2025.
  - No legislative changes were introduced in 2025 on the self-employed regime or the removal of the zero PIT rate for small businesses.
- Further recommended tax policy reforms:
  - Rationalize the tax structure and reduce exemptions to increase efficiency and expand the tax base.
  - Resume efforts to streamline the tax regime for self-employed professionals and remove the zero-income tax rate for small businesses.
  - Complete groundwork for introduction of a new property tax law in a timely manner.
- Public investment and contingent liabilities:
  - Recommendation: Operationalize the National Single Project Pipeline (NSPP), improve budget execution monitoring, enhance central oversight of SOEs and PPPs, and integrate PPPs into the PIM framework and regular budgetary process.
  - Implementation and outcomes:
    - The National Single Project Pipeline was updated and approved in February 2025.
    - New PIM guidelines were adopted in March 2025 to strengthen project appraisal and gatekeeping.
    - A draft PPP law was prepared to improve oversight.
    - The updated PIM framework and the draft PPP law still fail to fully align PPP processes with the public investment management cycle and the regular budget process.
  - Contingent liabilities and fiscal risk reporting:
    - Recommendation: Regular publication of a suitably robust standalone fiscal risk statement.
    - Progress: Preparation of a standalone Fiscal Risk Statement in 2025; it has not yet been published.
    - With IMF technical assistance, the authorities established a disclosure calendar, standardized reporting templates, and incorporated tools such as SOE stress tests and PPP risk assessments.

### Monetary Policy and Financial Sector
- Monetary policy stance and inflation monitoring:
  - Recommendation: Continue a data-dependent approach to monetary policy.
  - Implementation: After a policy rate cut of 0.25 percent in July 2025, the Bank of Albania (BoA) has maintained the policy rate at 2.5 percent, closely monitoring core and headline inflation developments.
- Exchange rate and FX intervention:
  - Recommendation: Let the exchange rate play its role as a shock absorber, with FX intervention (FXI) as a complementary tool; internalize potential adverse consequences of FXI.
  - Implementation and outcomes:
    - The BoA has continued to intervene in the FX market to mitigate large fluctuations in the exchange rate.
    - FX reserves increased by EUR 800 million in the first 10 months of 2025, reaching EUR 7.1 bn in October 2025.
    - The lek has continued to appreciate gradually within a narrow band.
- Banking sector supervision and macroprudential policy:
  - Recommendation: Enhance banking sector resilience through strict regulatory enforcement and greater alignment with EU frameworks.
  - Implementation and outcomes:
    - The BoA carried out onsite and offsite inspections and enforced capital adequacy and large exposures regulation.
    - In specific cases the BoA implemented measures including suspension of dividend distribution and approval of capital conservation plans.
    - Non-compliance with large exposure regulations has been addressed through promotion of syndicated lending and governance measures including dismissals of key staff when relevant. Occasional cases of non-compliance have persisted.
  - Recommendation: Strengthen macroprudential toolkit to allow monetary policy to focus on price stability.
  - Implementation and outcomes:
    - The BoA adopted borrower-based measures for both local and foreign currency RRE-lending.
    - The BoA activated the CCyB, which will reach 0.5 percent by December 2025.
- Market development and legal framework:
  - Recommendation: Develop the secondary bond market and secured money market, including market-wide adoption of ISDA.
  - Implementation and outcomes:
    - Legal and regulatory framework and trade/post-trade infrastructure established.
    - Progress limited on market-wide adoption of ISDA due to parallel revision of the law in the framework of EU accession.
    - Work has recently resumed on aligning the legal framework with ISDA standards to allow repo and derivative contracts under the ISDA Master Agreement.
- Green finance and cyber risk:
  - Recommendation: Maintain momentum on climate risk assessment, data gap identification, regulatory framework, and develop national taxonomy in line with EU standards.
  - Implementation and outcomes:
    - Authorities are developing the National Green Taxonomy as a core component of the Second Medium-Term Green Strategy 2026–2028.
    - The BoA initiated a gap analysis on Green Finance to enhance capacity to assess and manage climate-related financial risks.
  - Recommendation: Sustain progress in mitigating cyber risks and finalize regulatory frameworks as part of the BoA’s 2024–26 Medium-Term Strategy.
  - Implementation and outcomes:
    - The BoA carried out a self-assessment exercise and has visibility on maturity of commercial banks’ cyber controls.
    - The BoA is committed to repeating the exercise until full maturity is achieved and using results to inform cyber security supervisory priorities.
- NBFI supervision and interinstitutional cooperation:
  - Recommendation: Enhance supervision and regulation of the NBFI sector; improve data collection and interinstitutional cooperation through FSAG, which has not convened for 3 years.
  - Implementation and outcomes:
    - Authorities amended regulations to enhance NBFI reporting on operational risk.
    - Authorities engaged in active monitoring of financial groups and drafted a new law on financial conglomerates.
    - The Financial Stability Advisory Group (FSAG) has yet to be convened.

### Structural Policies
- Firm growth and tax incentives:
  - Recommendation: Remove tax benefits for firms with turnover below 14 million leks to eliminate disincentive to grow.
  - Implementation: The authorities have not included the removal of this measure in their short to medium-term plans.
- Innovation, R&D, and skills:
  - Recommendation: Foster transition to higher value-added production, integration into global value chains, step up investments in technology and R&D, and create innovation networks.
  - Implementation and outcomes:
    - The share of R&D expenditure to GDP remains low.
    - Authorities awarded grants to innovative startups and established a few new innovation centers that require time to provide outputs.
  - Recommendation: Fully implement the dual vocational education and training system, update training programs toward labor market needs, and advance the digital agenda.
  - Implementation and outcomes:
    - Continued implementation of the National Strategy for Employment and Skills.
    - Provision of vocational training programs, including in ICT with a focus on programming-related qualifications.
    - Targeted initiatives to improve employment among vulnerable groups (long-term unemployed, NEET youth, women, persons with disabilities) through personalized employment plans, training, and social services.
    - A Youth Guarantee pilot in Tirana, Shkodër, and Vlorë aims to improve access to jobs or training.
- Infrastructure and energy:
  - Recommendation: Overcome infrastructure bottlenecks to improve connectivity and benefit from domestic energy production.
  - Implementation and outcomes:
    - Progress has been made addressing infrastructure bottlenecks, but gaps remain compared to EU peers.
    - Major transport projects are underway but not finalized, including modernization of key railway lines and construction of Vlora International Airport.
    - Efforts to upgrade roads and integrate with the Trans-European Transport Network continue.
    - Albania is diversifying beyond hydropower through renewable projects and some limited gas infrastructure investments, supported by the National Energy and Climate Plan and EU-aligned efficiency measures.

### Governance Reforms
- Judicial reform and case management:
  - Recommendation: Forcefully implement the National Strategy for Reducing Case Backlogs for 2024–27; continue work on an electronic integrated case management system; ensure transparent, merit-based, competitive appointment of non-magistrate members to the High Judicial Council and High Prosecutorial Council.
  - Implementation and outcomes:
    - The National Strategy for Reducing Case Backlogs (2024–27) is in place and under implementation, though court delays persist.
    - The High Judicial Council adopted in July 2025 a 2025–2027 Roadmap for the Efficiency of the Justice System.
    - Work on the electronic integrated case management system continues with allocated resources; full functionality is projected only in the medium term.
    - Selection of members from civil society to the High Judicial Council and the High Prosecutorial Council has been completed; as of end-2024, both Councils are fully functional.
- Anti-corruption:
  - Recommendation: Adopt the 2024–30 Anticorruption Strategy incorporating GRECO recommendations and ensure timely implementation of the Action Plan; ensure SPAK has necessary resources.
  - Implementation and outcomes:
    - Authorities adopted the 2024–30 Anticorruption Strategy, including GRECO recommendations, and started implementation by 2025.
    - SPAK’s budget has expanded since its creation, but latest budget revisions through normative acts reduced 2025 budgetary allocations initially foreseen for the entity.
- AML/CFT:
  - Recommendation: Timely implement the 2024–30 National Strategy for the Prevention of Money Laundering and Financing of Terrorism (AML/CFT) and leverage the AML framework to support tax compliance and address tax crimes.
  - Implementation and outcomes:
    - Albania continued to implement FATF recommendations in 2025.
    - Rollout of the 2024–30 National Strategy for the Prevention of Money Laundering and Financing of Terrorism is ongoing.
    - The inter-agency technical working group has met regularly; supervisory authorities conducted reviews of internal risk assessments following the National Risk Assessment (NRA).
    - The BoA adopted regulations on fund transfer information and on licensing and supervision of foreign exchange bureaus, aligned with international standards and Moneyval recommendations.
    - The BoA established a dedicated office for AML/CFT risk monitoring.

### Annex II. External Sector Assessment (Summary)
- Overall assessment:
  - Albania's external position in 2025 was stronger than the level implied by medium-term fundamentals and desirable policy settings.
  - Projected current account (CA) balance in 2025: −2.8 percent of GDP, compared to −2.5 percent of GDP in 2024, and well below the average deficit of around 6 percent of GDP in 2018–22.
  - The 2025 assessment is based on projections and preliminary data; strong tourism inflows explain much of the improvement and warrant caution.
- Potential policy responses:
  - Boost private investment by improving business climate and governance.
  - Fully execute planned capital spending to close infrastructure gaps.
  - Meet building fiscal pressures from defense and social spending.
  - BoA should let the exchange rate adjust flexibly to absorb external shocks.
- Foreign assets and liabilities (position and trajectory):
  - NIIP trajectory: improved from −57.2 percent in 2020 to around −40.6 percent in 2024; expected to deteriorate to −43.4 percent in 2025.
  - Liabilities: 92.8 percent of GDP in 2024 → 101.0 percent of GDP in 2025.
  - Assets: 52.1 percent of GDP in 2024 → 57.6 percent of GDP in 2025.
  - FDI accounts for around 66.2 percent of GDP in 2025.
  - Drivers: increase in assets due to reserve accumulation amid lek appreciation; Eurobond issuance added to liabilities via portfolio investment flows.
- Current account dynamics:
  - Background: CA deficit expected to widen to 2.8 percent of GDP in 2025 from 2.5 percent in 2024, reflecting falling exports of goods amid lek appreciation and competitiveness pressures, offset by slower import growth.
  - Services exports (tourism) were a primary cause of the reduced deficit relative to 2018–22.
  - Medium-term projection: CA deficit expected to gradually widen toward the norm as tourism growth moderates, imports grow with rising real personal disposable income and strong public investment, and remittances slow due to weaker growth in diaspora countries.
  - Vulnerabilities: high dependence on tourism, FDI inflows, remittances, and reliance on hydropower sensitive to weather-related disruptions.
- Real exchange rate (REER):
  - As of September 2025, REER about 3.8 percent above the 2024 average; cumulative appreciation over past decade about 53 percent.
  - Model assessments differ:
    - CA model suggests a REER gap of −12.2 percent (elasticity 0.3), consistent with positive CA gap.
    - REER model assesses the REER to be overvalued by 38.4 percent.
  - Continued lek appreciation pressures export competitiveness; wage growth outpaces productivity due to labor shortages from aging population and negative net migration.
- Capital and financial accounts:
  - Net financial inflows in 2025 primarily driven by FDI of around 6.1 percent of GDP.
  - Net portfolio inflows: −0.8 percent of GDP in 2025 (portfolio flows are more volatile).
  - Recent FDI concentrated in construction and tourism projects; FDI growth may slow as tourism normalizes.
- FX intervention and reserves:
  - BoA conducts scheduled FX auctions to build reserves per its reserve adequacy framework; de jure regime: free floating.
  - De facto classification reclassified as crawl-like in 2024 due to sizable unscheduled interventions and exchange rate confined to a 2-percent corridor.
  - In first ten months of 2025, FX interventions were exclusively FX purchases amounting to 3.4 percent of annual GDP and already exceeded the upper limit of the BoA’s target range for the year.
  - Under the de facto classification, gross reserves projected to reach 147 percent of the fixed exchange rate regime ARA metric at end-2025, then decrease gradually as FX intervention pace slows.
  - Assessment: Without FX interventions, the lek would have appreciated faster, raising the CA deficit. Lek appreciation largely driven by fundamentals; BoA should let exchange rate adjust flexibly and intervene only to address non-fundamental fluctuations. FX reserves are assessed to be adequate; further accumulation should be guided by a careful cost-benefit analysis.
- EBA-lite model results (2025, in percent of GDP):
  - CA-Actual: -2.8
  - Cyclical contributions (from model): (-)-0.1
  - Natural disasters and conflicts: (-)-0.3
  - Adjusted CA: -2.3
  - CA Norm (from model, cyclically adjusted): -5.5
  - Adjusted CA Norm: -5.5
  - CA Gap: 3.2
    - of which Relative policy gap: 3.1
  - Elasticity: -0.3
  - REER Gap (in percent): -12.2 and 38.4 (models differ)
  - Note: Based on the EBA-lite 3.0 methodology; cyclically adjusted, including multilateral consistency adjustments.

*Annex I. Implementation of 2024 Article IV Recommendations; Annex II. External Sector Assessment — content as presented in the source PDF.*

### Annex III. Risk Assessment Matrix

### Annex III. Risk Assessment Matrix

### Global Risks — summary of key risks, impacts, and policy responses
- Escalating Trade Measures and Prolonged Uncertainty  
  - Likelihood: High  
  - Impact: High. Growth effects mainly through trading partners’ growth given reliance on tourism-related services exports, remittances and FDI. Albania’s goods exports (including textiles) could be negatively affected. A significant weakening of demand for tourism could result in exchange rate depreciation and real estate price decreases.  
  - Policy Responses:  
    - (1) Advance the structural reforms agenda to boost productivity, job creation, and domestic investment.  
    - (2) Adjust monetary policy as needed to anchor inflation expectations and return inflation to target over the medium term.  
    - (3) Exchange rate flexibility would help facilitate adjustments in the current account, while FXI could be deployed to reduce excess volatility.  
    - (4) Automatic fiscal stabilizers should be allowed to operate in the short term to support activity, while available fiscal space could be deployed for targeted support to the vulnerable and protect priority spending.  
    - (5) Macroprudential policies, including cyclical and systemic buffers, should be deployed as warranted to mitigate systemic financial instability.

- Geopolitical Tensions  
  - Likelihood: High  
  - Impact: High. Albania is a small open economy, highly dependent on tourism, remittances and FDI. Local hydropower production is weather dependent and sometimes insufficient, while other energy sources (including oil) are imported. Commodity price volatility would have terms of trade repercussions and negatively affect the financial accounts of SOEs with repercussions for fiscal transfers.  
  - Policy Responses:  
    - (1) Adjust monetary policy as needed to anchor inflation expectations and return inflation to target over the medium.  
    - (2) Exchange rate flexibility would help facilitate adjustments in the current account, while FXI could be deployed to reduce excess volatility.  
    - (3) Automatic fiscal stabilizers should be allowed to operate in the short term to support activity, while available fiscal space could be deployed for targeted support to the vulnerable and protect priority spending.  
    - (4) Strengthen energy security to lower vulnerability to energy supply and price shocks, including through further diversification into solar.

- Commodity Price Volatility  
  - Likelihood: High  
  - Impact: High. Shifts in supply and demand—driven by geopolitical tensions and conflicts, OPEC+ actions, or the green transition—may fuel commodity price swings, intensifying external and fiscal pressures, social unrest, and macroeconomic instability.  
  - Policy Responses: Same as for Geopolitical Tensions.

- Financial Market Volatility and Correction  
  - Likelihood: High  
  - Impact: High. Stretched asset valuations and elevated leverage among Non-Bank Financial Intermediaries amplify risks. Financial market volatility may affect the real estate sector, resulting in price adjustments, trigger exchange rate depreciation (given banks’ exposure to unhedged FX loans), and reduce demand for Albanian sovereign debt from foreigners. The government’s significant reliance on short-term debt presents rollover risks.  
  - Policy Responses:  
    - (1) The BoA should continue monitoring the real estate sector to assess the impact of market volatility on asset valuation and its impact on banks’ balance sheets.  
    - (2) Exchange rate flexibility would help absorb shocks, but if volatility causes disorderly market conditions, the central bank should take steps to restore market functioning.  
    - (3) Macroprudential policies, including cyclical and systemic buffers, should be deployed as warranted to mitigate systemic financial instability.  
    - (4) Clear and consistent communication about medium-term fiscal plans can bolster market confidence. Allow automatic stabilizers in the short term and have a clear plan to get back to medium-term targets through continued revenue-based growth friendly adjustment. Diversifying the debt holder base and lengthening maturities would bolster resilience.

- Climate Change  
  - Likelihood: Medium  
  - Impact: High. Extreme weather events and natural disasters are expected to increase in intensity, frequency, and economic cost, raising fiscal deficits, lowering growth, and reducing productivity.  
  - Policy Responses:  
    - (1) Prioritize public investment in disaster resilient infrastructure and sustainable growth.  
    - (2) Enhance energy security by continuing to diversify renewable energy sources.  
    - (3) Provide targeted assistance to affected groups and sectors.

- Cyberthreats  
  - Likelihood: High  
  - Impact: Medium. As digitalization and adoption of AI accelerate (including with the introduction of an AI Ministry), cyberattacks pose risks to various segments of the economy.  
  - Policy Responses:  
    - (1) Implement measures from the 2022 IMF technical assistance activity to lower cyber-attack risks for banks and government institutions.  
    - (2) Ensure businesses have comprehensive crisis preparedness strategies to respond to and recover from cyber incidents.  
    - (3) Carefully pace adoption of AI in line with capacity to manage risks and ensure adequate regulatory frameworks.

### Domestic Risks — summary of key risks, impacts, and policy responses
- Worsening Demographic Trends Compared to Baseline (faster emigration, including highly skilled)  
  - Likelihood: Medium  
  - Impact: High. In the absence of reforms to boost productivity or participation, a lower labor supply reduces potential growth. Faster wage growth without productivity increases risks de-anchoring inflation expectations and forcing more aggressive monetary tightening, lowering growth further.  
  - Policy Responses:  
    - (1) Boost productivity through structural reforms (ALMPs, education and training, governance, business regulations) to mitigate emigration pressures.  
    - (2) Adjust monetary policy as needed to anchor inflation expectations and return inflation to target.  
    - (3) Avoid generalized public sector wage hikes and focus on targeted social support. Conduct regular spending reviews to ensure efficient use of scarce resources. Put in place well-designed reforms to contain age-related spending.

- Real Estate Market Downturn (sharp and sudden decline in residential and commercial property prices)  
  - Likelihood: Medium  
  - Impact: High. A significant increase in NPLs leads to tighter credit conditions and a slowdown in credit growth. Negative wealth effects weaken confidence, reduce FDI inflows, and could trigger exchange rate depreciation.  
  - Policy Responses:  
    - (1) Closely monitor and supervise banks’ credit portfolios.  
    - (2) Promote bottom-up stress testing exercises of banks’ portfolios.  
    - (3) Calibrate monetary and fiscal policies as appropriate.  
    - (4) Enhance monitoring of real-estate exposures.  
    - (5) Strengthen macroprudential and supervisory frameworks.

### Annex IV — Albania’s Tourism Sector as a Conduit of External Shocks (key findings)
- Aggregate and composition statistics:  
  - "Out of 11.1 million foreign citizen arrivals to Albania in 2024, 3.2 million were from euro area (EA) countries."  
  - Alternative series in the annex: "Arrivals of foreign citizens have more than quadrupled from 2.7 million in 2020 to 11.7 million in 2024, of which about 95 percent are arrivals for personal reasons such as holidays and visiting relatives."  
  - Exports of travel services increased from about 7.5 to 20 percent of GDP in 2020–24.  
  - Accommodation and food services value added increased from 1.9 to 4.1 percent of GDP in 2020–24.  
  - FDI inflows increased from EUR 0.9 bn in 2020 to EUR 1.6 bn in 2024 (although decreased relative to GDP).  
  - The lek has appreciated by about 25 percent from end-2020 to end-2024, largely driven by stronger external demand.

- Country composition of arrivals in 2024 (percent of total for the year):  
  - Kosovo: 37.9 percent  
  - EU countries: 33.6 percent (including Italy 10.7 percent, Greece 6.3 percent, Germany 3.2 percent)  
  - North Macedonia: 7.7 percent  
  - Montenegro: 6.5 percent

- Empirical strategy and data:  
  - Uses exogenous ECB monetary policy shocks (Jarocinski and Karadi, 2020) as an instrument to approximate changes to EA aggregate demand and overcome endogeneity.  
  - Employs local projections with monthly data; monthly arrivals by country from January 2019 (INSTAT); FDI and exchange rate (Bank of Albania); ECB shock data available through June 2025.  
  - Where necessary, series are seasonally adjusted and converted to logs.

- Estimated responses to a standard contractionary ECB monetary policy shock (defined as about a 5 bps increase in 1-year Bund yield and about a 0.1 percent decrease in euro area’s GDP):  
  - Decrease in foreign citizen arrivals to Albania from EA countries by about 2 percent.  
  - Decrease in FDI inflows by 2-percent.  
  - Depreciation of the lek vis-à-vis the euro by 0.5 percent.  
  - Statistical significance: All responses are significant at the 95-percent confidence level but are temporary, turning statistically insignificant after three months. Quarterly estimations corroborate significant but short-lived responses up to two quarters for arrivals and the exchange rate (less so for FDI inflows).  
  - Caveats: Estimates should be treated with caution given magnitudes and wide confidence intervals, short and volatile sample including the pandemic and rapid recovery, constrained regression specification, and limited robustness checks. VARs, different lag specifications, and subsamples excluding pandemic months produced broadly consistent results for arrivals and the exchange rate.

### Debt sustainability and sovereign stress — summary points from Annex V
- Overall assessment: Moderate risk of sovereign stress with medium-term outlook favorable; public debt projected to continue gradual long-term decline.  
- Fiscal dynamics and vulnerabilities:  
  - Gross financing needs average about 13 percent of GDP in 2025–30.  
  - Fiscal rules requiring a nonnegative primary balance from 2024 and continued reduction in public debt should support fiscal sustainability.  
  - Implementation of the medium-term debt management strategy expected to lengthen maturities and lower financing costs.  
  - Long-standing challenges: limited transparency of contingent liabilities—particularly linked to state-owned enterprises and public-private partnerships—continue to weigh on the medium-term debt outlook.  
  - Long-term risks: adverse demographics (high emigration, low birth rates, population aging) will weigh on growth and drive higher pension and healthcare costs; climate action and defense spending add pressures. Without major reforms, pension-related obligations will continue to burden long-term fiscal and growth outlook.  
- Policy implication: Further strengthen debt management to extend maturities and mitigate rollover risks; enhance monitoring, management, and mitigation of fiscal risks.

*Source: IMF staff (Annex III: Risk Assessment Matrix; Annex IV: Albania’s Tourism Sector as a Conduit of External Shocks; Annex V: Sovereign Risk and Debt Sustainability Assessment).*

### Annex V. Figure 2. Debt Coverage and Disclosure

### Annex V. Figure 2. Debt Coverage and Disclosure

### Debt coverage in the DSA
- Coverage chosen in the DSA: 1/CGGGNFPSCPSOther
- If central government, are non-central government entities insignificant? n.a.

### Subsectors included in the chosen coverage
- Baseline inclusion by subsector:
  - Budgetary central government: Yes
  - Extra budgetary funds (EBFs): No
  - Social security funds (SSFs): No
  - State governments: No
  - Local governments: Yes
  - Public nonfinancial corporations: No
  - Central bank: No
  - Other public financial corporations: No

### Consolidation, accounting, and valuation notes
- Debt consolidation across sectors: table shows holder/issuer consolidation indicators with zeros for Budgetary central govt, Extra-budget. funds, Social security funds, State govt., Local govt., Nonfin pub. corp., Central bank, Oth. pub. fin. corp. and a Total of 000000000.
- Basis of recording / Valuation of debt stock: Not applicable.
- Valuation definitions provided:
  - Nominal value 5/: Nominal value at any moment is the amount the debtor owes to the creditor; reflects value at creation and subsequent economic flows other than market price changes.
  - Face value 6/: Undiscounted amount of principal to be paid at (or before) maturity.
  - Market value 7/: Value as if acquired in market transactions on the reporting date; only traded debt securities have observed market values.
- Reporting on Intra-Government Debt Holdings: entries reference CPS, NFPS, GG: expected, CG, Non-cash basis 4/, Cash basis, Currency & deposits, Oth acct. payable 2/, Market value 7/, Nominal value 5/, Face value 6/, Non-consolidated, Consolidated.

### Contingent liabilities and exclusions
- Debt of state-owned enterprises (SOEs) is not included in public debt statistics.
- Debt guarantees provided by the government to SOEs are included.
- Potential contingent liabilities arising from public-private partnership projects are not included.
- Note 2/: Stock of arrears could be used as a proxy in the absence of accrual data on other accounts payable.
- Note 3/: IPSGSs = Insurance, Pension, and Standardized Guarantee Schemes, typically including government employee pension liabilities.
- Note 4/: Includes accrual recording, commitment basis, due for payment, etc.

### Key public-debt structure observations (from Annex V figures)
- Nonmarketable debt in Albania includes borrowings from multilateral institutions (e.g. World Bank, EBRD, EIB), official bilateral lenders, and occasional private syndicated loans.
- Share of euro‑denominated debt in total outstanding external public debt: as of mid-2025, accounted for around 83 percent of total outstanding external debt.
- Albania does not have any local currency‑linked public debt.
- Projection assumption: new borrowing not yet identified in the government's Medium-Term Budget Framework will take the form of a eurobond issue with a maturity of 10 years.
- Residual maturity: 2.3 years (stated in figure caption).

### Baseline scenario — key figures (Annex V. Table 1; Percent of GDP unless indicated)
- Public debt:
  - Actual 2024: 54.55
  - 2025: 52.75
  - 2026: 51.65
  - 2027: 50.85
  - 2028: 50.04
  - 2029: 49.34
  - 2030: 48.74
  - 2031: 48.24
  - 2032: 47.74
  - 2033: 47.44
  - 2034: 47.10
- Change in public debt:
  - 2024: -3.5
  - 2025: -1.8
  - 2026: -1.1
  - 2027: -0.9
  - 2028: -0.8
  - 2029: -0.7
  - 2030: -0.6
  - 2031: -0.5
  - 2032: -0.5
  - 2033: -0.3
  - 2034: -0.3
- Contribution of identified flows:
  - 2024: -2.9
  - 2025: -1.7
  - 2026: -0.9
  - 2027: -0.6
  - 2028: -0.5
  - 2029: -0.5
  - 2030: -0.4
  - 2031: -0.4
  - 2032: -0.3
  - 2033: -0.2
  - 2034: -0.1
- Primary deficit:
  - 2024: -1.7
  - 2025: -0.4
  - 2026: -0.2
  - 2027: 0.0
  - 2028: 0.0
  - 2029: 0.0
  - 2030: 0.0
  - 2031: 0.0
  - 2032: 0.0
  - 2033: 0.0
  - 2034: 0.1
- Noninterest revenues (selected years):
  - 2024: 28.2
  - 2025: 29.0
  - 2026: 29.3
  - 2027: 29.5
  - 2028: 29.7
  - 2029: 29.7
  - 2030: 29.7
  - 2031: 29.7
  - 2032: 29.7
  - 2033: 29.7
  - 2034: 29.7
- Noninterest expenditures (selected years):
  - 2024: 26.5
  - 2025: 28.5
  - 2026: 29.1
  - 2027: 29.5
  - 2028: 29.7
  - 2029: 29.7
  - 2030: 29.7
  - 2031: 29.6
  - 2032: 29.6
  - 2033: 29.7
  - 2034: 29.7
- Automatic debt dynamics:
  - 2024: -1.3
  - 2025: -0.7
  - 2026: -0.6
  - 2027: -0.7
  - 2028: -0.5
  - 2029: -0.5
  - 2030: -0.4
  - 2031: -0.4
  - 2032: -0.4
  - 2033: -0.3
  - 2034: -0.2
- Real interest rate and relative inflation:
  - 2024: 0.9
  - 2025: 1.1
  - 2026: 1.2
  - 2027: 1.0
  - 2028: 1.1
  - 2029: 1.0
  - 2030: 1.1
  - 2031: 1.1
  - 2032: 1.1
  - 2033: 1.2
  - 2034: 1.2
- Real growth rate (labeling/format in table indicates):
  - 2024: -2.3
  - 2025: -1.8
  - 2026: -1.8
  - 2027: -1.7
  - 2028: -1.6
  - 2029: -1.6
  - 2030: -1.5
  - 2031: -1.5
  - 2032: -1.5
  - 2033: -1.5
  - 2034: -1.5
- Other identified flows:
  - 2024: 0.1
  - 2025: -0.6
  - 2026: -0.1
  - 2027: 0.1
  - 2028: 0.1
  - 2029: 0.1
  - 2030: 0.1
  - 2031: 0.1
  - 2032: 0.0
  - 2033: 0.0
  - 2034: 0.0
- Contribution of residual:
  - 2024: -0.6
  - 2025: -0.1
  - 2026: -0.2
  - 2027: -0.3
  - 2028: -0.3
  - 2029: -0.3
  - 2030: -0.2
  - 2031: -0.1
  - 2032: -0.2
  - 2033: -0.1
  - 2034: -0.2
- Gross financing needs:
  - 2024: 15.2
  - 2025: 16.8
  - 2026: 15.4
  - 2027: 13.2
  - 2028: 12.1
  - 2029: 9.0
  - 2030: 9.5
  - 2031: 11.0
  - 2032: 11.0
  - 2033: 10.3
  - 2034: 9.4
- Of which: debt service:
  - 2024: 16.9
  - 2025: 17.2
  - 2026: 15.6
  - 2027: 13.2
  - 2028: 12.2
  - 2029: 9.0
  - 2030: 9.5
  - 2031: 11.0
  - 2032: 11.0
  - 2033: 10.3
  - 2034: 9.3
- Local currency / Foreign currency composition of gross financing needs:
  - Local currency (selected): 2024: 14.1; 2025: 13.0; 2026: 13.6; 2027: 9.3; 2028: 8.6; 2029: 7.5; 2030: 6.9; 2031: 6.9; 2032: 7.7; 2033: 7.5; 2034: 7.6
  - Foreign currency (selected): 2024: 2.8; 2025: 4.2; 2026: 1.9; 2027: 3.9; 2028: 3.5; 2029: 1.5; 2030: 2.7; 2031: 4.1; 2032: 3.3; 2033: 2.9; 2034: 1.8
- Memo:
  - Real GDP growth (percent): 2024: 4.0; 2025: 3.5; 2026: 3.6; 2027: 3.4; 2028: 3.2; 2029: 3.2; 2030: 3.2; 2031: 3.2; 2032: 3.2; 2033: 3.2; 2034: 3.2
  - Inflation (GDP deflator; percent): 2024: 2.4; 2025: 2.0; 2026: 2.3; 2027: 3.0; 2028: 3.0; 2029: 3.0; 2030: 3.0; 2031: 3.0; 2032: 3.0; 2033: 3.0; 2034: 3.0
  - Nominal GDP growth (percent): 2024: 6.5; 2025: 5.6; 2026: 6.0; 2027: 6.5; 2028: 6.3; 2029: 6.3; 2030: 6.3; 2031: 6.3; 2032: 6.3; 2033: 6.3; 2034: 6.3
  - Effective interest rate (percent): 2024: 4.0; 2025: 4.0; 2026: 4.5; 2027: 4.6; 2028: 4.7; 2029: 4.7; 2030: 4.9; 2031: 5.0; 2032: 5.1; 2033: 5.3; 2034: 5.4
- Additional institutional/fiscal notes:
  - Fiscal rules requiring nonnegative primary balance legally binding since 2024.
  - Another fiscal rule: debt should go down y/y until it reaches 45 percent of GDP.
  - Total debt level estimate for 2025 includes arrears.
  - Withdrawal from government's cash deposits in TSA from 2031 onwards assumed same as planned in government's MTBF for 2030.

### Medium-term risk analysis (Annex V. Figure 4)
- Debt fanchart module:
  - Fanchart width: 29.8 0.4
  - Probability of debt non-stabilization: 34.2 0.3 (percent)
  - Terminal debt-to-GDP institutions index: x27.7 0.6
  - Debt fanchart index (DFI): 1.3
  - Risk signal: 3/Moderate
- Gross Financing Needs (GFN) module:
  - Average baseline GFN: 12.7 4.3 (percent of GDP)
  - Initial Banks' claims on the gen. govt (pct bank assets): 26.2 8.5
  - Change in banks' claims in stress (pct banks' assets): 3.9 1.3
  - GFN financeability index (GFI): 14.1
  - Risk signal: 4/Moderate
- Medium-term index / Final assessment:
  - Medium-term index: value components show Debt fanchart index 1.3 and GFN financeability index 14.1
  - Risk signal: 5/ (text indicates overall “Moderate”)
  - Prob. of missed crisis, 2025-2030, if stress not predicted: 18.2 pct.
  - Prob. of false alarms, 2025-2030, if stress predicted: 34.1 pct.
- Staff commentary:
  - High rollover needs and large amortization are main factors underlying medium-term risks.
  - Gross financing needs have declined since last Article IV but remain sizable, averaging 13 percent in 2025-30 (text).
  - Contingent liabilities represent potential downsides.
  - Growing interest from foreign investors in Albanian domestic government bonds; as of mid-2025 they account for about 2.5 percent of outstanding domestic debt.
  - Bank claims on the government are comparatively high; banking sector broadly well capitalized and resilient.
- Source: IMF staff estimates and projections.

### Realism of baseline assumptions and stress considerations (Annex V. Figure 5)
- Recent outturns:
  - Fiscal performance, external position, and growth have tended to outperform staff's baseline projections; tourism arrivals consistently higher than projected.
  - Fiscal performance driven by positive growth momentum, implementation of MTRS, and consistent underexecution of capital spending.
  - The 3-year debt reduction is around the 75th percentile.
- Medium- to long-term concerns:
  - Growth outlook tempered by sustained net emigration and an aging population.
  - Increase in spreads vs. the 10-year U.S. treasury over the medium-term will raise borrowing costs and interest expenditures.
- Laubach (2009) rule note: assumes bond spreads increase by about 4 bps in response to a 1 ppt increase in the projected debt-to-GDP ratio.

### Triggered modules and long-term risks (Annex V. Figure 6)
- Triggered modules include Pensions and Health; custom scenario titled "Albania: Long-Term Risk Assessment: Large Amortization Incl. Custom Scenario".
- Custom scenario baseline assumptions (table):
  - Real GDP growth: 3.2%
  - Primary Balance-to-GDP ratio: 0.0%
  - Real depreciation: -2.9%
  - Inflation (GDP deflator): 3.0%
- Summary points:
  - Amortization needs are a significant share of GFN due to reliance on domestic borrowing and periodic Eurobond issuances.
  - Large external bond redemptions create a lumpy repayment profile with years of elevated rollover pressures.
  - Debt trajectory projected broadly stable near term but faces upward pressures long term.

### Demographics and pensions (Annex V. Figure 7)
- Pension system status:
  - Pension system running a deficit; spending pressures set to intensify with demographic trends.
  - Old-age dependency ratio as of early 2025: about 26 percent.
  - Projections indicate the old-age dependency ratio could more than triple—reaching 80–85 percent by mid-century under certain scenarios.
  - Comparables: 50–60 percent projected for comparable countries.
- Pension financing metrics shown:
  - Pension financing needs (percent of GDP per year): 30 years: 3.0%; 50 years: 4.9%; Until 2100: 5.5% (presented in figure header as "30 years50 yearsUntil 2100 (percent of GDP per year)3.0%4.9%5.5%").
- Modeling caveats:
  - Simulations assume contributions grow in line with GDP per worker and are based on a minimal set of assumptions, abstracting from reforms or long-term impact of emigration on beneficiary pool.

### Borrower-Based Measures (Annex VI) — mortgage lending and financial-stability implications
- Overview:
  - New borrower-based measures (BBMs) introduced in Albania in 2025 apply binding limits for residential real estate (RRE) lending.
  - Recommendations: BBMs should become a permanent macroprudential tool; supervisors should remain vigilant against risks from unhedged FX- and variable-rate loans.
  - Additional tools if CRE risks identified: sectoral systemic risk buffer (sSyRB), higher risk weights, or targeted BBMs.
- Key factual points and metrics:
  - Since 2019, significant increase in construction activity and real estate prices; banks’ exposures to the sector have grown.
  - Volume of outstanding household (HH) loans for house purchases has doubled since end-2019.
  - Real estate loans to private nonfinancial corporations (NFC) grew even stronger.
  - In Q3 2025:
    - Two-thirds of HH-loans were being used for real estate purposes.
    - 41 percent of NFC-loans were being used for real estate purposes.
  - Share of real estate loans in total bank assets: 20 percent.
  - Unhedged FX-loans:
    - Total volume of unhedged FX-loans has halved over the last decade, but de-risking weaker for HHs.
    - New lending to HH for house purchases dominated by variable rates and more recently local currency loans.
    - About two-thirds of the stock of NFC’s real estate loans and close to a third of HH-loans for house purchases are still denominated in euro.
    - As of Q3 2025, less than a quarter of FX-loans remain unhedged, but two-thirds of these serve real estate purposes.
    - HH nominal unhedged exposure similar to levels seen in 2017.
  - Banking sector FX risk management:
    - Elevated exposure to FX-loans is matched by high FX-liabilities; banking sector appears to have effective FX asset and liability management.
    - Bank of Albania supervisory tools: binding requirements when lending to unhedged borrowers; banks must assign a 50 percent higher risk weight for these loans.
    - Banking sector’s net open position in foreign exchange to capital as of Q3 2025: 5.6 percent (well below Bank of Albania limits).
- Figure notes:
  - Annex VI. Figure 1 shows dynamics: RRE market growth; increased banks’ exposure; HH now borrow mostly in ALL and at variable rates; unhedged FX-loans remain an issue particularly for HHs; RRE-purchases play a significant role.
  - Data caveats: some historical data affected by large infrastructure lending, re-classifications, and reporting errors (sharp NFC real estate rise in 2023; temporary declines in unhedged FX-loans in 2017 and 2022).

*Source: IMF staff (from the supplied IMF annex and figures).*

### 3.      The Bank of Albania has compiled borrower-based indicators of new RRE-  and CRE-

### 3. The Bank of Albania borrower-based indicators and macroprudential response

### Data collection and indicators
- The Bank of Albania has compiled borrower-based indicators of new RRE- and CRE-loans since H1/2024.
- The data collection includes:
  - ratios on the loan-to-value at origination (LTV for RRE/CRE);
  - the loan service-to-(disposable) income (LSTI for RRE), used as a proxy for the DSTI by the Bank of Albania.
- The data collection is backed by regulation No 44/2023 (Albanian only).
- Granular distribution data are emphasized because averages often mask risks in the tail of distributions.
- The data collection includes loan purpose (one purpose is “collateralized with CRE”); the Bank of Albania reports no overlap or double counting with other loan categories.

### RRE-lending findings (H2 2024)
- Total banks’ RRE lending in H2 2024: ALL 24 billion (0.95 percent of GDP).
- Currency and rate composition:
  - 78 percent of RRE lending are in local currency and at variable rates.
- Borrower types and shares:
  - 74 percent of RRE lending went to first-time buyers.
- Averages and distributional pockets of risk:
  - Average LTV: 71 percent.
  - Average LSTI: 34 percent (FX-loans slightly above these averages).
  - EUR-loans for first-time buyers: LSTI of 48 percent and LTV of 83 percent.
  - EUR-loans for second-time buyers: LSTI of 48 percent and LTV of 83 percent (text refers to both first-time as well as second-time buyers respectively with an LSTI of 48 percent and LTV of 83 percent).
  - Small buy-to-let segment: EUR-LTV: 112 percent, ALL-LSTI: 41 percent.
  - In the largest market segment (first-time buyers with an ALL-loan):
    - a fifth of the volume was issued at LTVs above 85 percent;
    - more than a quarter at LSTIs above 40 percent.
  - LTV- and LSTI-distributions of other categories show similar or higher lending at loose lending standards.
- Risk flags to monitor:
  - buy-to-let loans (small segment but appear risky);
  - variable-rate loans;
  - unhedged FX-loans.

### CRE-lending findings (H2 2024 and H1/2024)
- CRE lending in H2 2024: ALL 48 billion.
- Currency composition:
  - 42 percent of contracts in euro, but 60 percent of volume in euro.
- Averages and distributions:
  - Average LTV: 54 percent.
  - Lowest LTVs recorded for FX-loans and loans for the acquisition of income-generating property.
  - A fifth of the loan volumes exceeded an LTV of 80 percent.
  - 7 percent of volumes were at LTVs above 100 percent.
  - Larger-than-average loan volumes were issued at elevated ratios.
- Recommendation: CRE-lending should be analyzed in more detail and proactively addressed, including sectoral analyses (e.g., tourism), attention to collateral valuations and the development of price indices. Individual banks’ risks should be addressed with microprudential tools; potential systemic risks could call for macroprudential measures (e.g., a sectoral SyRB, higher risk weights or targeted BBMs).

### Binding borrower-based measures (BBMs) — decision and calibration
- BoA activation: Following the collection of data, the BoA set binding upper limits for the LTV and DSTI of new RRE-loans in force since mid-2025. The BBMs will be reviewed no later than two years from entry into force.
- Calibration approach:
  - To calibrate the LTV-limit, the Bank of Albania used an estimate for the overvaluation of house prices to determine the required overcollateralization.
  - For the DSTI-limit, it calculated a financial reserve that borrowers should be able to maintain under stress.
- Decision reference: decision (25/2025), and based on loan data from H1/2024, the following limits apply:
  - Maximum LTV-limit in local/foreign currency: 85 percent/75 percent; for second time and sequential buyers: 80 percent/70 percent.
  - Maximum DSTI-limit in local/foreign currency: 40 percent/35 percent; for second time and sequential buyers: 35 percent/30 percent.
- Exceeding quota:
  - Banks can exceed these limits as long as the value of the respective loans does not exceed 15 percent of the loans approved and disbursed during the respective quarter (“the exceeding quota”).
- Complementary measures:
  - Existing recommendation on maturity of new RRE-loans: maturity shall not exceed 30 years or the number of years until the borrower’s retirement age, whichever is smaller.
  - Active countercyclical capital buffer referenced in BoA justification: “potential risks stemming from an overheating in the credit market and mainly of non-financial assets market.”

### Assessment, monitoring and policy recommendations
- Timeliness and rationale:
  - Activation of BBMs is timely and limits risks to financial stability from loosening lending standards by addressing credit risks at origination and creating buffers against price decreases (LTV) or losses of income (DSTI).
- Ongoing vigilance and adjustments:
  - The Bank of Albania should remain vigilant and adjust its policy stance on RRE-risks as needed.
  - BBMs should be a permanent tool to avoid regular de- and re-activations; future reviews can be used for fine-tuning and to address potential circumvention actions.
  - Lending standards and their evolution should be continuously monitored with a focus on the right tail of distributions and whether banks issue a high share of loans just below BBM-limits.
- Complementary macroprudential and microprudential actions:
  - Continue monitoring variable-rate and unhedged FX-loans closely.
  - For CRE: pursue sectoral analyses, enhance collateral valuation approaches and price indices, use microprudential tools for individual bank risks, and consider macroprudential measures when systemic risks are identified.

### Data issues and capacity priorities
- Data adequacy and shortcomings:
  - The data provided to the Fund are adequate for surveillance though some shortcomings exist.
  - Shortcomings noted include: gaps in coverage of non-bank financial institutions (NBFIs); need for more frequent collection from investment funds; issues with debt service-to-income indicator availability and quality for residential real estate lending; need for more granular sectoral data and attention to collateral valuations for commercial real estate lending; some CRE indicators display a high degree of volatility (interest and debt service coverage ratios).
- Changes since last Article IV:
  - BoA has continued to collect real estate lending related indicators on RRE and CRE and is refining reporting and analysis.
  - Authorities rebenchmarked GDP data and should ensure timely revision of the full series.
  - Monitoring of state-owned enterprises’ balance sheets has improved, partly through application of IMF tools.
- Corrective actions and capacity development priorities:
  - INSTAT is working on tourism satellite accounts to better integrate granular tourism data into national accounts.
  - Technical assistance could help INSTAT improve accuracy and timeliness of GDP statistics.
  - Authorities would benefit from technical assistance addressing the discrepancy between balance sheet data and monetary statistics concerning loans to nonfinancial corporations and households.
  - Particular focus recommended on the availability and quality of the debt service-to-income indicator for residential real estate lending; more granular sectoral CRE data and development of price indices are recommended.

*Source: Bank of Albania; International Monetary Fund.*

### Annex VII. Table 3. Albania: Table of Common Indicators Required for Surveillance

### Annex VII. Table 3. Albania: Table of Common Indicators Required for Surveillance (As of December 3, 2025)

### Data provision and dissemination
- Data Provision to the Fund: Publication under the Data Standards Initiatives through the National Summary Data Page.
- Key data categories listed in the Annex (as presented): Exchange Rates; International Reserve Assets and Reserve Liabilities of the Monetary Authorities; Reserve/Base Money; Broad Money; Central Bank Balance Sheet (including currency and maturity composition); Consolidated Balance Sheet of the Banking System; Interest Rates (both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds); Consumer Price Index; Revenue, Expenditure, Balance and Composition of Financing ‒ General Government (foreign, domestic bank, and domestic nonbank financing); Revenue, Expenditure, Balance and Composition of Financing ‒ Central Government; International Investment Position; Stocks of Central Government and Central Government-Guaranteed Debt; External Current Account Balance; Exports and Imports of Goods and Services; GDP/GNP; Gross External Debt.
- Frequency and timeliness definitions provided in the Annex:
  - “D” daily
  - “W” weekly or with a lag of no more than one week after the reference date
  - “M” monthly or with lag of no more than one month after the reference date
  - “Q” quarterly or with lag of no more than one quarter after the reference date
  - “A” annual
  - “SA” semiannual
  - “I” irregular
  - “NA” not available or not applicable
  - “NLT” not later than
- Note on entries: Based on information from the Summary of Observance for SDDS and SDDS Plus participants, and the Summary of Dissemination Practices for e-GDDS participants, available from the IMF Dissemination Standards Bulletin Board. For those countries that do not participate in the Data Standards Initiatives, as well as those that do have a National Data Summary Page, the entries are shown as "...".

### Membership, quotas, and Fund financial position (as of November 30, 2025)
- Membership Status: Joined October 15, 1991; Article VIII.
- General Resources Account (SDR Million; Percent Quota):
  - Quota 139.30 100.00
  - IMF's Holdings of Currency 139.60 100.21
  - Reserve Tranche Position 26.00 18.67
- SDR Department (SDR Million):
  - Net cumulative allocation 179.96 100.00
  - Holdings 204.92 113.87
- Outstanding Purchases and Loans (SDR Million; Percent Quota):
  - Extended Arrangements 26.30 18.88

### Latest financial commitments (approval, expiration, amounts)
- Outright Loans:
  - RFI Apr. 10, 2020 Apr. 15, 2020 139.3 139.3
- Arrangements:
  - EFF Feb. 28, 2014 Feb. 24, 2017 295.42 295.42
  - ECF 1 Feb. 1, 2006 Jan. 30, 2009 8.52 8.52
  - EFF Feb. 1, 2006 Jan. 28, 2009 8.52 8.52
  - (Footnote: 1 Formerly PRGF.)

### Projected payments to the Fund (SDR Million; based on existing use of resources and present holdings of SDRs)
- Forthcoming:
  - 2025 Principal 0
  - 2026 Principal 21.52
  - 2027 Principal 4.77
- Charges/Interest:
  - 2026 Charges/Interest 0.53
  - 2027 Charges/Interest 0.05
  - 2028 Charges/Interest 0
  - 2029 Charges/Interest 0
- Total:
  - 2026 Total 22.06
  - 2027 Total 4.82
  - 2028 Total 0
  - 2029 Total 0

### Safeguards, exchange rate, and consultation status
- Safeguards Assessments:
  - The BoA made significant progress in addressing the 2022 safeguards assessment recommendations.
  - The remaining recommendation to amend the BoA law remains on hold, pending potential requirements from Albania’s EU accession process.
- Exchange Rate Arrangements:
  - De jure exchange rate system classified as free floating.
  - De facto exchange rate arrangement reclassified as crawl-like (from floating), effective January 5, 2024, given (i) the monetary authorities sizable unscheduled intervention activity relative to the FX interbank market volume, and (ii) the exchange rate following an appreciating trend within a 2 percent band against the euro.
  - Albania has accepted the obligations under Article VIII, Sections 2, 3, and 4, of the IMF’s Articles of Agreement but continues to maintain an exchange restriction in the form of outstanding debit balances on inoperative bilateral payment agreements with two IMF member countries. Those debit balances were in place before Albania became a Fund member in 1991 and relate to debt in nonconvertible and formerly nonconvertible currencies. Despite repeated efforts by the Albanian authorities, no agreement has been reached with the counterparties.
  - The Albanian authorities notified the Fund of no further exchange rate restrictions introduced in accordance with Executive Board Decision No. 144 (52/51).
- Article IV Consultation:
  - Albania is on a 12-month cycle.
  - The 2024 Article IV consultation was concluded on January 17, 2025 (IMF Country Report No. 2025/020).

### Financial sector assessments and data standards
- FSAP Participation, ROSCs:
  - The most recent FSAP was carried out in November 2013 (with a Board date of February 28, 2014).
  - The next FSAP is scheduled to take place in 2026 as agreed with the authorities.
  - A data module ROSC was published on the Fund’s website in June 2000.
  - A fiscal ROSC was completed in June 2003.
  - Albania participates in the enhanced General Data Dissemination System (e-GDDS), and a complete set of e-GDDS data with accompanying metadata for the external, financial, fiscal, and real sectors, as well as for the socio-demographic indicators, is posted on Albania’s National Summary Data Page.
  - A data module ROSC reassessment using the Data Quality Assessment Framework was conducted in March 2006.

### Resident representation
- Resident Representative:
  - Mr. Sebastian Sosa from the regional office for the Western Balkans took his post on August 15, 2023 and oversees Albania’s local office.

### Technical assistance since FY2016 (selected items from Table 1)
- FAD (Tax Administration, Revenue Administration, Public Financial Management, Tax Policy, Public Investment Management, Fiscal Transparency Evaluation, Strengthening PPP Legal Framework):
  - Tax Administration: Multiple (nearly monthly) visits in 2018, February 2022, March 2022, June 2022 (TADAT), September 2022, November 2022, November 2023.
  - Revenue Administration: May 2021 (V), November 2021 (V), February 2022, March 2022, November 2022, May 2023, September 2023, November 2023, February 2024, April 2024, September 2024, September 2025.
  - Public Financial Management: March–April 2016, July 2016, September 2016, October 2016, March 2017, September 2017, October–November 2017, December 2018, April 2019, May 2019, June 2019, November 2019, May 2020 (V), June 2020 (V), December 2020 (V), May 2021 (V), September 2021 (V), October 2021 (V), November 2021 (V), February 2022, May 2022, October 2022, June 2023, October 2023, July 2024, October 2024.
  - Tax Policy: June 2015, September 2016, September 2017; October 2017, June 2018, September 2018, January 2021 (V), October 2021 (V), May 2022, April 2023, October 2023, April 2024, November 2024, January 2025.
  - Fiscal Transparency Evaluation: June 2015.
  - Public Investment Management: February 2022, May 2022, June 2022; joint work with FAD: June 2022, July 2023.
  - Strengthening PPP Legal Framework: July 2023.
- MCM (Monetary and financial sector):
  - NPL Resolution: April 2015; November 2015.
  - Central Bank Accounting and Official Foreign Exchange Transactions: October 2018.
  - Banking Supervision and Regulation: July 2015, May 2018.
  - Long-Term Resident Advisor on Monetary Policy: September 2015-August 2018.
  - Financial management and accounting policy framework: September 2018.
  - Monetary Policy Design and Implementation: January 2016, September 2016, December 2016, February 2017, September 2017, September 2018.
  - Long-Term Resident Advisor on Banking Supervision and Financial Stability: September 2017-July 2020.
  - Foreign Exchange Market Development: December 2019.
  - Cash, debt and liquidity management (joint with FAD): June 2020.
  - Crypto Asset Regulatory Framework: May 2021 (V).
  - Risks Management Framework for Investment Funds: June 2022.
  - Annual Borrowing Plan: October 2022.
  - IFRS 9 Implementation and capital structure review: February 2017, January 2018, November 2018, October 2025.
  - Regulatory Framework for Investment Funds: June 2022.
  - Application of IFRS and Revaluation of Reserves: October 2023.
  - Strengthening Supervision of E-Money Institutions: March 2024.
  - Local Bond Market Development: November 2025.
- STA, Government Finance Statistics, National Accounts, Monetary and Financial Statistics:
  - External Sector Statistics: January 2016, April–May 2017.
  - Government Finance Statistics: May 2015, May–June 2016, November 2016, May 2017, June 2017, September 2017, April 2018, May 2018, November 2018, April 2019, May 2019, June 2019, July 2020 (V), June 2021 (V), Sept–Oct 2021 (V), March, May, 2022.
  - National Accounts Statistics: May 2015, April 2017, September 2017, March 2018, November 2019.
  - Enhanced General Data Dissemination System: April 2017.
  - Monetary and Financial Statistics: July 2017, April 2019.

*Prepared by European Department in consultation with other departments; information dated December 8, 2025 (Annex and Fund Relations sections include entries as of November 30, 2025 and December 3, 2025).*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1albea2025003-source-pdf.pdf_