Economy of Albania

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Albania's economy has improved substantially over recent years and has outperformed many other countries in the region. However, it is still considered one of the poorest countries in Europe. According to the Bank of Albania, per capita income was $4,070 in 2009, and was expected to reach $4,200 in 2010. According to preliminary data by the World Bank's Poverty Assessment Program, 12.4% of the population lived below the poverty line in 2008, marking a considerable improvement from 25.4% in 2002; this decline in poverty levels was due mainly to higher per capita GDP. The official unemployment rate is 13.75%, with almost 60% of the workforce employed in the agricultural sector, although the construction and service industries have been expanding recently. Tourism has been boosted significantly by ethnic Albanian tourists from throughout the Balkans. GDP is comprised of services, including trade, hotels, and restaurants (21%), transport (5.5%), and communication (4.5%); agriculture (19%); construction (14%); industry (10%); and remittances (9%).

The Albanian economy has been partially sheltered from the global financial crisis and the economic downturn. Albania’s economy grew 2.8% in 2009, according to International Monetary Fund (IMF) data. However, a reduction in remittances from Albanian workers abroad and in demand for its exports has constrained economic activity.

During the global financial crisis, bank deposits shrank considerably and lower liquidity pushed commercial banks to tighten lending. While current bank deposits have reportedly surpassed pre-crisis levels and bank liquidity has improved, the demand for credit is still low. In December 2009, the growth rate of loans dropped to 10% from 35% in 2008. In general, the banking sector remains viable, well capitalized, and able to further finance the economy, as the ratio of loans to deposits, approximately 65%, is still low compared to Western standards.

Albania is trying to attract foreign direct investment (FDI) and promote domestic investment. Increasing FDI is a top priority for the Albanian Government, especially in light of the steady decrease of remittances. The Government of Albania has embarked on an ambitious program to improve the business climate by undertaking fiscal and legislative reforms and by improving infrastructure.

The recent investment in energy generation through new transmission lines and the privatization of the electrical distribution arm will address the lack of reliable energy supply, which was a major concern for businesses following power shortages during 2005-2007.

Heavy investments in the country’s main road corridors have contributed to improved transportation conditions. Completion of the 106 miles (170 km) of highway linking Durres with Kosovo will provide a major transportation corridor connecting markets in the central Balkans through Kosovo to the port of Durres. Similar large-scale infrastructure investments are needed to further improve Albania’s road transportation corridors and limited railway system and to expand the capacity of its sea ports and airports.

SOURCES: The World Factbook, U.S. Department of State

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