Press Release No. 25/442

Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation[1] with Albania and considered and endorsed the staff appraisal without a meeting on a lapse-of-time basis.[2] The authorities have consented to the publication of the Staff Report prepared for this consultation.[3]

Albania’s tourism-led growth and macroeconomic prospects are expected to remain robust. After averaging 4.3 percent in the post-pandemic period, real GDP is projected to grow by 3.5 percent in 2025, primarily driven by private consumption, and 3.6 percent in 2026 reflecting a modest acceleration in growth in key euro area trading partners. Direct effects from U.S. tariffs are minimal, while indirect effects from global trade measures and uncertainty also appear limited so far. Despite some moderation, tourism continues to provide steady support to economic output. Headline inflation is projected to gradually increase from 2.2 percent in 2025 to the 3 percent target in the second half of 2026, amid a tight labor market and rising wages. The current account deficit is projected at 2.8 percent of GDP in 2025 and to gradually widen to about 3.5 percent of GDP over the medium term as rising disposable income and public capital expenditure boost imports.

Risks to the outlook have shifted to the downside amid a more unsettled external environment. Geopolitical tensions, escalating trade measures, commodity price volatility, and prolonged uncertainty could affect Albania’s key trading partners and weaken external demand. Global financial market volatility and asset price corrections could reduce demand for Albanian sovereign debt and may lead to rollover risks. Domestically, a sharper-than-anticipated decline in the working age population could exacerbate labor shortages, fuel inflation, necessitate a tighter monetary policy stance, and dampen growth prospects. On the upside, the sustained implementation of the EU reform agenda could boost productivity and growth.

 

Executive Board Assessment

In concluding the 2025 Article IV Consultation with Albania, Executive Directors endorsed staff’s appraisal as follows:

Albania stands out as one of fastest growing economies in Europe, thanks to a broadly appropriate macroeconomic policy mix. Output is now well above its pre-pandemic trend thanks to a booming tourism sector. Fiscal discipline has led to a significant reduction in public debt while proactive monetary policy has helped bring headline inflation below target. At the same time, external imbalances have shrunk considerably amid strong foreign reserves, contributing to an external position that is assessed as stronger than implied by fundamentals. In this context, the government is advancing bold reforms to secure EU membership by 2030.

While the near-term outlook is positive, Albania’s goal of income convergence to the EU will require overcoming structural reform gaps. Productivity remains subdued, with income per capita at just a third of the EU level, and reform gaps in human capital, governance and business regulation are wide. These medium-term challenges are compounded by a more unsettled external environment and domestic pressures including rising wages and asset prices, all of which pose risks to the sustainability of tourism-driven growth.

Rising spending pressures—if not addressed now—could threaten fiscal sustainability. While Albania is projected to maintain non-negative primary balances in 2025-30, with public debt falling below 50 percent of GDP, the country faces fiscal challenges from demographic shifts, defense obligations and climate-related spending, particularly beyond 2030. To safeguard fiscal buffers, staff recommends growth friendly revenue reforms—streamlining tax expenditures, modernizing property tax systems, and enhancing tax administration—alongside improvements in spending quality and fiscal transparency. The “Fiscal Peace” Agreement, which offers debt cancellation and preferential revaluation of financial statements, risks undermining previous progress in tax administration and compliance. Well-targeted social assistance would more effectively support vulnerable households than the planned monthly pension bonuses.

The BoA should stand ready to quickly respond to evolving market conditions, while 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 monetary policy stance close to neutral is appropriate. However, the BoA should swiftly adjust its monetary stance, including if second round effects from wage increases are stronger than expected. As the sustained exchange rate appreciation is largely driven by fundamentals, the BoA should allow greater flexibility and rely on interest rates for price stability. The objectives of the central bank subsidized credit line can be better achieved through targeted fiscal policies and by tackling underlying structural issues.

Vulnerabilities from large-borrower, FX and sovereign exposures, and rapid growth of real estate lending require vigilant monitoring and proactive prudential policy making. Enhancing capital adequacy compliance and ensuring a smooth transition to IFRS should be a priority, while recent relaxations in risk-adjusted capital adequacy and large exposure frameworks for strategic transport infrastructure loans are not fully aligned with international standards and warrant reconsideration. The recently activated borrower-based measures for new residential real estate loans are an important structural tool, while data availability for commercial real estate lending should be improved. Financial stability could be further enhanced by moving toward a positive neutral rate for the countercyclical capital buffer and finalizing the systemic risk buffer framework. The new Albanian development bank requires strong governance and oversight.

Comprehensive reforms will be needed to revive productivity and foster income convergence with the EU. Policies should focus on improving skills through broader training coverage and education quality, creating high-quality jobs, boosting overall firm productivity, and enhancing the business environment through further governance reforms. Stronger preventive legislation and improved monitoring of public administration are essential for anti-corruption efforts, while SPAK’s operational independence and resources should be safeguarded.

It is expected that the next Article IV consultation will be held on the standard 12-month cycle.

 

Albania: Selected Economic Indicators, 2024–30

2024 2025 2026 2027 2028 2029 2030   Proj. Output               Real GDP growth (%) 4.0 3.5 3.6 3.4 3.2 3.2 3.2                 Employment               Unemployment rate (%) 1/ 9.4 9.3 9.2 9.1 9.0 8.9 8.8                 Prices               Inflation (%, end-period) 2.1 2.4 3.0 3.0 3.0 3.0 3.0                 General government finances               Revenues (% of GDP) 28.2 29.0 29.3 29.5 29.7 29.7 29.7 Expenditures (% of GDP) 28.7 30.6 31.3 31.8 32.0 31.9 31.9 Primary balance (% of GDP) 1.7 0.4 0.2 0.0 0.0 0.0 0.0 Fiscal balance (% of GDP) -0.4 -1.7 -2.0 -2.2 -2.3 -2.2 -2.3 Public debt (% of GDP) 54.5 52.7 51.6 50.8 50.0 49.3 48.7                 Money and credit               Broad money (% change) 4.9 6.5 6.0 6.5 6.3 6.3 6.3 Credit to the private sector (% change) 12.3 11.5 9.5 6.5 6.3 6.3 6.3                 Balance of payments               Current account (% of GDP) -2.5 -2.8 -2.9 -3.0 -3.2 -3.4 -3.5 FDI (% of GDP, net) -5.4 -5.1 -5.0 -4.9 -4.9 -4.8 -4.8 Reserves (months of imports) 7.0 7.5 7.4 7.3 7.2 7.1 6.9 External debt (% of GDP) 40.7 39.8 39.2 38.8 38.3 37.8 35.8                 Sources: Albanian authorities; and IMF staff projections and calculations. 1/ Unemployment rate = 15-64 years old

 

 

 

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.

[3] Under the IMF's Articles of Agreement, publication of documents that pertain to member countries is voluntary and requires the member consent. The staff report will be shortly published on the www.imf.org/Albania page.