Albania: 2023 Article IV Consultation-Press Release and Staff Report

The 2023 Article IV Consultation discusses that the Albanian economy has shown remarkable resilience in the face of consecutive shocks. Returning inflation to target will likely require some further increases in the policy rate. The rising role of tourism has boosted confidence in the country’s prospects, a factor partly reflected in the steady appreciation of the lek. Elevated gross financing needs and a moderate debt level call for a credible consolidation starting in 2024 and anchored by a sound Medium-Term Revenue Strategy. Revenue measures should be accompanied by spending reallocation to greater outlays on climate adaptation, and education. Further progress in fiscal structural reforms will strengthen the management of public finances, investment, and fiscal risks. With real rates negative and below neutral, there is scope to further increase policy rates to ensure inflation converges to target by early 2025, but high uncertainty calls for a flexible and data-driven approach to policy settings. Supply-side policies that tackle corruption develop and retain human capital, boost female labor force participation and close infrastructure gaps would amplify gains from sound and prudent policies and bolster long-term growth.