In the margins of the meeting of the Economic and Finance Affairs Council, on 5 May, representatives of the EU Member States, the Regional partners, the European Commission and the European Central Bank, as well as representatives of the central banks of the regional partners met for their annual economic policy dialogue.
Participants discussed together in the annual economic and finance dialogue about economic developments, challenges and policy plans, and adopted joint conclusions with targeted policy guidance for each participating partner.
Below are conclusions on Albania.
Albania submitted its Economic Reform Programme (ERP) 2026–2028 on 15 January 2026. The implementation of the policy guidance set out in the conclusions of the Economic and Financial Dialogue of 13 May 2025 has been partial.
Albania's economic growth remained robust at an estimated 3.7% in 2025, supported by strong domestic demand. The latter was driven by increased public spending, steady investment growth and robust private consumption, bolstered by continued strong real wage growth and rising employment, particularly in the services sector. Albeit slowing down, tourism continued supporting services exports while goods exports declined, partly reflecting the continued appreciation of the lek. Nevertheless, net exports contributed positively to growth as imports expanded at a more moderate pace. The ERP projects real GDP growth to remain stable at around 4% over 2026–2028, driven primarily by domestic demand, especially private consumption and investment, with a modest positive contribution from net exports. The current account deficit is expected to widen to above 3% of GDP over 2026–2028, but would remain below its historical average and would continue to be fully financed by net foreign direct investment inflows. The ERP's baseline growth outlook is broadly in line with recent economic developments but faces some downside risks, including those stemming from a challenging external environment. Domestically, demographic pressures such as emigration and an ageing population could exacerbate labour shortages, further tighten labour market conditions, push inflation higher and dampen growth prospects.
The fiscal deficit widened to 1.8% of GDP in 2025 but remained below the budget target of 2.4%. The better-than-planned outcome was mainly due to the under-execution of capital spending, while revenues were supported by robust economic activity, measures to curb informality and the continued implementation of the Medium-Term Revenue Strategy (MTRS). On the expenditure side, spending increased notably on wages and social insurance. The ERP projects the budget deficit to widen to 2.3% of GDP in 2026 before narrowing gradually to 1.6% in 2027 and 1.3% in 2028. The public debt ratio fell more than expected to 53% of GDP in 2025 and is projected to continue declining over 2026-2028, supported by non-negative primary balances and favourable nominal growth dynamics. Despite some improvements, the short maturity structure of public debt and high gross financing needs continue to pose challenges.
Despite some increase in recent years, Albania's government revenue-to-GDP ratio remains low compared to peers, reaching 28.6% of GDP in 2025. Sustaining revenue mobilisation and reducing tax evasion therefore requires the continued implementation of the MTRS, alongside progress with tax policy reforms, notably the adoption of the property tax law and the finalisation of the fiscal cadastre. Temporary measures, such as the forgiveness of old tax and customs debt, might generate short-term gains but create potential long-term risks for tax compliance. Despite some preparatory steps, there is still no independent fiscal institution in place. Fiscal risks continue to stem from loans and guarantees to state-owned enterprises (SOEs) and public-private partnerships (PPPs), although the stock of guarantees slightly decreased in 2025. Fiscal risk monitoring and reporting should be further strengthened, including through the systematic assessment of risks related to ageing and climate change. Enhancing the operationalisation of the National Single Project Pipeline, including the need to improve project preparation, prioritisation and the integration of PPPs, remains important in view of plans to increase capital spending. In this regard, swift implementation of capital projects remains essential, while continuing ongoing work to ensure sound governance through active anti-corruption policies. Any pension reform initiative should be based on a thorough assessment of the long-term sustainability of the pension system. Additional risks arise from the establishment of the National Development Bank, which requires strong governance and oversight to mitigate fiscal and financial risks stemming from its planned deposit-taking role without falling under the supervisory remit of the Bank of Albania or the deposit insurance scheme.
Inflation remained low in 2025, averaging 2.2%, and the ERP projects it to converge to the 3% target in 2026 and remain stable thereafter. Core inflation was hovering around 3% last year, as a tight labour market fed through to wage growth, while overall inflationary pressures remained contained. Imported inflation remained weak, reflecting low global commodity prices and the continued appreciation of the lek, which prompted non-regular foreign-exchange interventions by the Bank of Albania. In response to below-target inflation, the Bank of Albania lowered the policy rate by 25 basis points to 2.5% in July 2025 and has kept it unchanged thereafter. Favourable financing conditions and strong demand supported robust credit growth to the private sector, particularly in household lending and lek-denominated loans. Given the rapid growth in mortgage lending and rising residential real-estate prices, borrower-based measures were introduced in 2025, while the countercyclical capital buffer was doubled to 0.5% in December. The banking sector remained sound, well-capitalised and liquid, with the non-performing loan ratio declining further to below 4% in 2025.
Albania's structural challenges relate to improving the business environment, tackling the informal economy, advancing the green transition and developing human capital. The business environment remains affected by a weak rule of law, high informality leading to 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. 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 addressed through key structural reforms identified in the country's reform agenda under the Growth Plan for the Western Balkans.
Regarding statistics, Albania completed a benchmark revision of national accounts started in 2024, and improved its coverage of some accounts, but still needs to close significant data gaps and improve both timeliness and the length of time series in several areas of the accounts. Albania has continued to improve the application of the accrual principle in the excessive deficit procedure and in government finance statistics. The coverage of short-term business statistics has also improved. Albania started providing monthly balance-of-payments data and successfully implemented the new European business statistics data transmission format for international trade in goods statistics by invoicing currency. Albania does neither provide labour market statistics, nor harmonised indices of consumer prices at constant tax rates, nor statistics on international trade in goods by enterprise characteristics for any reference period. Outstanding issues include data confidentiality, and data gaps in the areas of research and development statistics, foreign direct investment statistics, international trade in goods statistics and the international investment position.
In light of this assessment, participants hereby invite Albania to:
1. Ensure compliance with fiscal rules by implementing the fiscal path set out in the ERP, adopt additional fiscal measures if needed, and advance the implementation of the Medium-Term Revenue Strategy (MTRS) to increase tax revenue structurally and fight tax evasion while avoiding reliance on temporary measures that might create unintended incentives. Finalise the fiscal cadastre and accelerate the adoption of the property tax law, including by considering shorter transition periods. Finalise and adopt the legislation for establishing a fiscal council, taking account of the European Commission's comments.
2. Strengthen the Fiscal Risk Directorate to improve monitoring and reporting of SOEs and PPPs, and enhance the Fiscal Risk Statement as a key fiscal transparency and policy tool by progressively integrating quantified fiscal risks, including long-term pension and climaterelated risks, into the medium-term fiscal framework and fiscal decision-making. Ensure the effective functioning of the National Single Project Pipeline, including the integration of PPPs, and reinforce project appraisal and prioritisation to ensure that projects entering the Medium-Term Budget Programme are mature and viable, in order to avoid under-execution of public investments. Review options for pension reforms based on a forthcoming report, also drawing on pension modelling analysis to assess their implications for the long-term sustainability of public finances.
3. Calibrate the monetary policy stance appropriately to sustainably anchor inflation expectations at levels consistent with the target and maintain price stability, and ensure that foreign-exchange market interventions are aimed at limiting excessive volatility. Continue strengthening reporting requirements across the banking sector and further enhance risk-based supervision, in particular by improving data reporting frameworks, including for borrowerbased measures and risks arising from the real-estate sector, and by enhancing macroprudential measures, including through the finalisation of the systemic risk buffer framework. Ensure that the National Development Bank operates under a transparent operational framework that mitigates fiscal and financial risks and moral hazard, applies robust governance standards and is subject to appropriate regulation and supervision to ensure sound lending practices 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-8860-2026-INIT/en/pdf
