Albania has achieved upper-middle-income status and is progressing toward a fully functioning market economy as it advances its European Union candidacy, according to a new World Bank Public Finance Review (PFR) released today. The report highlights the need for Albania to focus on strengthening public finances in order to accelerate growth, attract quality jobs, and invest in key sectors such as education, healthcare, and infrastructure.
“Albania’s growth prospects depend on enhancing human capital, upgrading infrastructure, and advancing climate policy to accelerate convergence—particularly in the context of demographic shifts,” said Massimiliano Paolucci, World Bank Group Country Manager for Albania. “Albania can boost investment in its people and strengthen its economy by increasing domestic revenue and spending more efficiently.”
The review notes that recent reforms have improved Albania’s tax system but revenues are still below potential. Challenges include wage underreporting, informality, broad exemptions, and enforcement gaps. The PFR recommends measures such as formalizing short-term rentals, introducing property taxes based on market value, implementing a legislated carbon tax on coal, and aligning tobacco taxes with EU standards. These steps could raise up to 0.9% of GDP annually. Additional gains may come from reviewing exemptions and sustaining improvements in tax administration.
Currently, Albania allocates much of its budget to pensions and capital investments while spending relatively little on health care, education, and social protection. The report suggests there are opportunities to improve efficiency across these sectors so that existing resources deliver better outcomes for citizens.
Demographic changes present further challenges: by 2060 an estimated 29–34% of Albanians will be over retirement age. The average pension replaces only 32% of wages—the lowest rate in the region. To address this issue, the PFR proposes reforms including incentives for longer contributions to broaden coverage; raising benefit levels; improving fairness; adding a defined contribution plan for younger workers; and simplifying benefit formulas.
The review also emphasizes expanding early childhood education and care (ECEC), noting that access remains limited with only 10% of children under three enrolled in public crèches and no ECEC services available in 18 municipalities. Improving access is seen as important for labor force participation, reducing gender disparities, and developing human capital.
The World Bank concludes that these reforms—alongside fiscal discipline and building financial buffers—are essential for supporting Albania’s long-term development goals as it seeks closer alignment with EU income levels.