Albania is steadily advancing toward a fully functioning market economy and EU membership, having recently achieved upper-middle-income status. To sustain and accelerate growth, a new World Bank Public Finance Review emphasizes the importance of strengthening public finances to attract quality jobs, invest in critical sectors like education, healthcare, and infrastructure, and respond effectively to demographic shifts.
Recent tax reforms have improved Albania’s system, but revenue collection remains below potential due to factors such as wage underreporting, informality, broad exemptions, and enforcement gaps. Priority measures include formalizing short-term rentals, introducing market-value-based property taxes, implementing a carbon tax on coal, and aligning tobacco taxes with EU standards. These reforms could raise up to 0.9% of GDP annually, with further gains possible from reviewing exemptions and sustaining tax administration improvements.
Albania’s budget is currently concentrated on pensions and capital investment, while spending on health, education, and social protection is relatively modest. Opportunities exist to improve efficiency and value for money in these sectors, translating public spending into better outcomes for citizens.
Demographic pressures are rising, with projections indicating that by 2060, 29–34% of the population will be above retirement age. Pensions currently replace only 32% of wages—the lowest in the region. The review recommends reforms to broaden coverage, incentivize longer contributions, raise benefits, improve fairness, introduce defined contribution plans for young workers, and simplify pension formulas.
Investing in the future workforce is also crucial. Access to early childhood education and care remains limited, with only 10% of children under age three enrolled in public crèches and 18 municipalities offering no services. Expanding access and quality in early education will support labor force participation, reduce gender disparities, and strengthen human capital.
Overall, implementing these reforms while maintaining fiscal discipline and building financial buffers is essential for Albania’s long-term development, enhancing efficiency, equity, and convergence with EU income levels.
