In the margins of the meeting of the Economic and Finance Affairs Council, on 13 May,   the current and two incoming presidencies (Poland, Denmark and Cyprus) as well as the Commission, the ECB, Western Balkans partners, Türkiye, Moldova and Ukraine as an observer discussed together in the annual economic and finance dialogue about economic developments, challenges and policy plans.

Participants of the dialogue adopted joint conclusions with targeted policy guidance for each participating partner.

Below are conclusions on Albania.

Albania submitted its Economic Reform Programme (ERP) 2025–2027 on 17 January 2025. The implementation of the policy guidance set out in the conclusions of the Economic and Financial Dialogue of 14 May 2024 has been partial. 

Albania's economic growth continued to be strong at close to 4% in 2024, driven by robust domestic demand, strong tourism performance and sustained construction activity. The rise in household consumption was supported by increasing real wages amid slowing inflation, and by accelerating credit growth. Job creation in the services sector supported employment growth. Exports of services expanded, while goods exports declined due to an unfavourable external environment and the appreciation of the lek. After falling to a historic low in 2023, the current account deficit widened in 2024. Albania's ERP projects real GDP growth to maintain the same robust pace of around 4% over 2025–2027 on the back of surging investments and growing private consumption. Continuing growth in services exports, particularly tourism, is expected to offset the impact of rising imports. The current account deficit is projected to average around 3% of GDP over 2025–2027, much below its long-term average, pointing to structural improvements. A higher labour force participation rate is expected to remain the main driver of labour supply, given the projected decline in population. The ERP's baseline growth forecast is in line with recent economic performance but faces some downside risks, including recurring underspending on public investments and a challenging external environment. 

Fiscal consolidation accelerated in 2024 with the general government budget deficit narrowing to 0.7% of GDP, overperforming the 2.3% target. Revenues performed well in line with the budget target, while expenditures were lower than planned, marked by under-execution of capital spending. The ERP projects the budget deficit to widen to 2.6% of GDP in 2025 on the back of higher expenditure, in particular on investment. Revenue growth is set to be supported by the implementation of the recently approved medium-term revenue strategy. A falling expenditure-to-GDP ratio is projected to help decrease the budget deficit to 1.9% of GDP in 2026 and further to 1.6% of GDP in 2027. The public debt ratio fell more than expected to below 55% of GDP in 2024, reflecting a positive primary balance, a favourable snowball effect and the appreciation of the exchange rate. It is projected to continue its downward path over 2025–27, but at a more moderate pace than in recent years.

Despite some increase in recent years, Albania's government revenue-to-GDP ratio remains low compared to peer countries. Revenues could be boosted further by comprehensively reviewing tax expenditures and revising tax policies. Fiscal risks continue to stem from loans and guarantees to state-owned enterprises (SOEs), public-private partnerships and the build-up of arrears. Additional risks come from potentially large state guarantees for the National Development Bank, which will be a deposit-taking institution according to the recently adopted law on its establishment. Against this background and in view of high gross financing needs and the short maturity structure of public debt, it remains crucial to continue strengthening fiscal risks monitoring. Any pension reform initiative should be built on a proper assessment of the long-term cost of ageing and the sustainability of the pension system. Despite some preparatory steps there is no independent fiscal institution in place yet. Enhancing the operationalisation of the recent public investment management (PIM) legislation is important in view of plans to increase capital spending. 

Inflation fell steadily throughout 2024, dropping from 3.4% in January to 2.1% in December, below the 3% target. Disinflation was mainly driven by lower food and oil prices and the appreciation of the lek. The latter was driven by capital inflows from tourism, remittances and FDI, prompting the Bank of Albania to intervene in the foreign-exchange market to counter the strong appreciation pressures. Despite a tight labour market and rising wages, domestic inflationary pressures remained contained. The ERP projects average annual inflation to converge to the target by 2025. The Bank of Albania cut the policy rate twice in 2024, lowering it from 3.25% to 2.75%, and keeping it unchanged since November 2024. Favourable financing conditions and strong demand supported a significant acceleration in lending to the private sector, with mortgages and real estate loans registering robust growth. In June 2024, the Bank of Albania raised the countercyclical capital buffer from 0% to 0.25%, marking the first such increase since its introduction, followed by a second hike to 0.5% in December 2024. The banking sector remained stable, well-capitalised and liquid, while banks' profitability continued to improve. The non-performing loan (NPL) ratio stood at 4.6% in October 2024, down from 5.1% a year ago; the reduction was driven by sustained credit growth while credit risks remain. Banks' exposure to sovereign debt together with unhedged foreign loans are sources of risks. Good progress has been made in collecting data on banks' exposures to the real estate sector and in monitoring credit standards for real estate loans. Albania joined the Single Euro Payments Area (SEPA) in November 2024. Once operational, SEPA will reduce settlement time and cost for euro payments, and facilitate trade, remittances, and other cross-border activity.

Albania's structural challenges relate to improving the business environment and developing further the private sector, including tackling the informal economy, advancing the digital transformation and green transition and developing human capital. The business environment remains affected by a weak rule of law, limited access to finance, and shortcomings in the oversight and governance of state- owned enterprises. The energy sector is volatile, with hydro-electricity production heavily dependent on rainfall. Ensuring the diversification of renewable sources of electricity production and the market integration of the energy sector into the EU single market remains a challenge. Infrastructure gaps, including low digital connectivity are obstacles to economic growth. Albania has a very high rate of low-skilled adults, high rates of early school leaving and low digital literacy. Overall, the education system needs to be modernised, with improvements in the labour-market relevance of acquired skills. These challenges are expected to be mainly addressed through key structural reforms identified in the country's reform agenda under the Growth Plan for the Western Balkans. 

Regarding statistics, Albania took part in the 2024 coordinated benchmark revisions of national accounts and carried out a partial benchmark revision, which resulted in the completion of annual and quarterly time series data for GDP by production and expenditure approaches, covering the period from 1995 onward. Albania made progress in excessive deficit procedure notifications, government finance statistics, short-term business statistics, and supply, use and input-output tables (including in balancing the three approaches to GDP), and made significant progress in international trade in goods statistics. Albania transmitted data on GBARD for the reference years 2022 and 2023, respectively in January 2024 and in December 2024. Albania does not provide labour market statistics, harmonised indices of consumer prices at constant tax rates and administered prices, monthly balance of payments and regional accounts. Data gaps still remain in the areas of national accounts, excessive deficit procedure and government finance statistics, foreign direct investment statistics, research and development statistics, short-term business statistics, international trade in goods statistics and the international investment positions. Albania still needs to align with the new requirements in short- term business statistics and improve the methodology, coverage and timeliness of excessive deficit procedure and government finance statistics. 

In light of this assessment, Participants hereby invite Albania to: 

1. Implement the Medium-Term Budget Plan (MTBP) and use any savings from capital expenditure under-execution to reduce the budget deficit. Implement the Medium-Term Revenue Strategy, adopt the property tax law, and based on the tax expenditure review prepare proposals to reduce tax expenditure, prioritising the elimination of exemptions lacking sound policy justification. Prepare the draft legislation for establishing a fiscal council, incorporating the European Commission's comments. 

2. Strengthen capacity in the Fiscal Risk Directorate in the Ministry of Finance to enhance fiscal risk assessment, including monitoring of SOEs, and publish the annual Fiscal Risk Statement based on 2024 data, covering a wide range of risks as well as mitigation measures. To strengthen long-term sustainability of public finances and underpin any pension reform, enhance evidence- based analysis and long-term projections using a pension modelling framework. Enhance the operationalisation of the public investment management framework, including the National Single Project Pipeline, and ensure that the projects entering the MTBP are mature and of good quality, in order to avoid under-execution of public investments. 

3. Continue to calibrate monetary policy appropriately to sustainably anchor inflation expectations at levels consistent with the target and ensure price stability. Strengthen further the reporting across the banking system, inter alia by consistently applying IFRS9 standards, and enhance risk-based supervision in line with best international and European practices, including by assessing and addressing eventual risks arising from exposures in the real-estate sector. Ensure that the national development bank has an operational framework that mitigates moral hazard and fiscal risks, and complies with best practices in terms of governance as well as appropriate supervision and regulation applicable to other deposit-taking institutions to ensure transparency, sound lending practices, adequate deposit protection and a level playing field in the banking sector. 

Also Read the full text of the conclusions:

Joint Declaration: https://data.consilium.europa.eu/doc/document/ST-8819-2025-INIT/en/pdf