Albania

ISO3
ALB
Date of publication
June 2013
Geographical focus

The study reviews the performance of
four transition countries - Albania, Azerbaijan, the Kyrgyz
Republic, and Moldova - in the areas of private, and
financial sector development, identifying both their
achievements, and challenges, to extract beneficial reform
efforts, and alternative approaches, setting the pace for
sustainable growth. These countries were selected because
they are among the poorest in the region, whose problems are
seemingly intractable, and have been largely detached from
the international marketplace until the transition began.
Thus, in terms of history, resource endowment, and proximity
to markets they are viewed as "late reformers" in
economic development, and competitiveness, despite policy
reforms. Enterprise arrears, and soft budget constraints
have been a significant problem in many transition
economies, more often than not, manifested as some fiscal
tightening occurred to offset budget constraints. Hence, a
core challenge of the transition is to reduce the role of
government from all encompassing presence, towards a
professionally managed model, and one which provides high
service delivery, strengthens civil institutions, and plays
an effective regulatory role in a market economy. This
requires improved financial discipline, reasonable fiscal
policy, and structural adjustment, while privatization that
promotes concentrated outsider ownership, and foreign
participation, should be favored.

Date of publication
August 2013
Geographical focus

This qualitative assessment of poverty
in Albania seeks to deepen the understanding of poverty in
the country, first, by involving poor Albanians in a process
of exploring the causes, nature, extent of poverty, and how
it affects their livelihoods. Second, it is intended to
support the Growth and Poverty Reduction Strategy Paper
(PRSP); third, it supports preparation of the Country
Assistance Strategy (CAS), and the Living Standards
Measurement Survey (LSMS) process; and, fourth, it supports
ongoing research on formal, and informal institutions in the
country that are relevant to poverty, and it identifies as
well, emerging areas of concern. Findings suggest that
poverty in the study sites, developed as a result of a weak
economic base at the beginning of reform (as of 1990),
worsened as the reforms continued, and accelerated during
the 1997 financial crisis. From household interviews, it is
perceived that the causes of poverty are a result of
unemployment, insufficient and low quality of land, absence
of formal institutions, and marketing mechanisms to support
industrial and agricultural development, and, the
government's inability to respond to infrastructure,
and basic needs. The study further examines the factors
depressing, and/or precluding (sector wide) the potential to
compete, sustain livelihoods, attain employment, and receive
economic, and social assistance. And it rightly identifies
the contribution from migrant remittances, accounting for a
significant percentage of GDP. Policy implications spell out
the need to improve administration of social security, and
services, by decentralizing legal and regulatory frameworks,
and equitably mobilizing fiscal revenues.

Date of publication
July 2013
Geographical focus

In 1989, Albania's rigid political
and socioeconomic structure shattered beyond repair.
Turbulence soon invaded every domain of life. As the state
imploded, so did the state-run economy. This review explores
ongoing consequences of this difficult transformation that
took place since 1989 and of policy initiatives to mitigate
or ameliorate its effects. Albania has been much studied;
the review addresses important information gaps. It
establishes, from the representative 2002 Living Standards
Measurement Survey (LSMS), which kinds of families receive
public income transfers and private income flows in what
amounts and from what sources. It estimates the impact that
these public and private income flows have in mitigating
pre-transfer and post-transfer poverty among households. It
does this by type of family and source of income flow, for
all Albanian households and for various subsets of them.
This review analyzes the relative importance of pensions and
social assistance in alleviating poverty among rural
households with aged members. This review also documents and
links data on expenditures under social programs with data
on program beneficiaries for recent years and it identifies
current tradeoffs among the multiple objectives of social
safety net policies, including those relating to coverage,
adequacy, work incentives, equity, and effective government
spending. Finally, it suggests options for future
development of social safety net policies, including ways to
strengthen overall policy linkages and programmatic
coordination among social programs.

Date of publication
June 2012
Geographical focus

Recent trends in Albania suggest that it
has the potential for a modern and competitive agricultural
sector, provided there is sufficient private investment and
the right policy environment. This chapter looks at the role
of agriculture in the economy and the current status of the
sector, and outlines the implications of modernization and
transformation of agriculture for rural areas. It also
identifies trends and sources of growth for agriculture, and
concludes by presenting the key policy challenges for the
sector. The rest of this report analyzes the challenges
facing the agricultural sector and recommends policies for
addressing them. These challenges are analyzed in greater
detail, and more specific policy recommendations are given
in the following chapters, which focus on strengthening
supply chains, improving food safety, and ensuring that
reforms are carried out in compliance with EU legislation.
The final chapter looks at how well public expenditures in
agriculture are managed in order to achieve these policy objectives.

Date of publication
August 2013
Geographical focus

This qualitative assessment of poverty
in Albania seeks to deepen the understanding of poverty in
the country, first, by involving poor Albanians in a process
of exploring the causes, nature, extent of poverty, and how
it affects their livelihoods. Second, it is intended to
support the Growth and Poverty Reduction Strategy Paper
(PRSP). Third, it supports preparation of the Country
Assistance Strategy (CAS), and the Living Standards
Measurement Survey (LSMS) process. Fourth, it supports
ongoing research on formal and informal institutions in the
country that are relevant to poverty, and it identifies as
well, emerging areas of concern. Findings suggest that
poverty in the study sites, developed as a result of a weak
economic base at the beginning of reform (as of 1990),
worsened as the reforms continued and accelerated during the
1997 financial crisis. From household interviews, it is
perceived that the causes of poverty are a result of
unemployment, insufficient and low quality of land, absence
of formal institutions, and marketing mechanisms to support
industrial and agricultural development, and the
government's inability to respond to infrastructure and
basic needs. The study further examines the factors
depressing and/or precluding (sector wide) the potential to
compete, sustain livelihoods, attain employment, and receive
economic and social assistance.

Date of publication
July 2013
Geographical focus

Despite the impressive performance of
the economy in the last five years, however, poverty in
Albania has remained high, and per capita income, at around
US$1,230 in 2002, has remained one of the lowest among
transition economies. In an effort to adopt policies to
share widely the benefits of growth, and reduce poverty, the
Government outlined a poverty alleviation strategy in the
2000 Interim Poverty Reduction Strategy Paper (I-PRSP), and
developed it in detail two years later in the Growth and
Poverty Reduction Strategy (GPRS), the precursor to the
current National Strategy for Socio-Economic Development
(NSSED). However, in recognition of the data limitations,
the first round of a five-year Living Standards Measurement
Survey (LSMS) program was launched in 2002. This survey
provides valuable information on a variety of issues related
to living conditions in Albania, including details on income
and non-income dimensions of poverty in the country, and,
forms the basis of the present assessment of poverty in
Albania. The poverty line used for this assessment is the
first absolute poverty line based on nationally
representative, household level expenditure data ever
estimated for Albania, and is based on an actual consumption
data. Poverty in Albania has marked spatial and regional
dimensions, with rural areas and the Mountain region being
consistently poorer than rest of the country, stipulating
the depth of poverty in the Mountain area is much more
pronounced than in any other region, with a poverty gap
index of over 11 percent. The study reviews the determinants
of poverty, through the main characteristics of poor
households, and labor market characteristics of the poor,
noting widespread unemployment rate in urban areas. It then
examines the non-income dimensions of poverty, health and
education inequalities, and reviews the role of social
transfers, determining pensions - and remittances from
Albanian relatives - are the largest sources of transfer
income. The results of the analysis point priority areas,
namely, that coverage under health insurance needs to be
increased; secondary school enrollments need to be
increased, and quality of education at this level improved;
provision of basic services and infrastructure should be
improved, including access to quality health and education
services and to basic sanitation services; and, it is
imperative that the Government develops a rural development
strategy focused on poverty reduction in the short run,
since a large number of the poor live in rural areas.
Agriculture is the key income generating activity in these
areas, thus locally adapted rural extension service should
be provided. In terms of future growth, attention must
necessarily shift to the manufacturing sector, for
stimulating the manufacturing sector could potentially
create increased employment opportunities, while another
area that deserves great attention is tourism.

Date of publication
May 2012
Geographical focus

In 1993, in response to persistent
unemployment, and rising poverty and social unrest, the
government of Albania introduced an anti-poverty program,
namely Ndihma Ekonomike; in 1995 it was extended to all poor
households. This paper estimates the separate effects of
participation in this income support program and the old-age
pension program on objective and subjective measures of
household poverty. The analysis uses the nationally
representative Albanian Living Standards Measurement Surveys
carried out in 2002 and 2005. Using propensity score
matching methods, the paper finds that Ndihma Ekonomike
households, particularly urban residents, have lower per
capita consumption and are more likely to be discontented
with their lives, financial situation, and consumption
levels than their matched comparators. In contrast,
households receiving pensions are not significantly
different from their matched comparators in reference to the
same set of outcomes. The paper finds that the negative
impact of Ndihma Ekonomike participation on welfare is
driven by a negative labor supply response among
work-eligible individuals. This negative labor response is
larger among women and urban residents. In contrast to
Ndihma Ekonomike, the receipt of old-age pension income
transfers does not significantly impact the labor supply of
prime-age individuals living in pension households

Date of publication
June 2012
Geographical focus

In view of its increasing importance,
and the dearth of information on return migration and its
impacts on source households, this study uses data from the
2005 Albania Living Standards Measurement Study survey and
assesses the impact of past migration experience of Albanian
households on non-farm business ownership through
instrumental variables regression techniques. Moreover,
considering the differences in earning potentials and
opportunities for skill acquisition in different destination
countries, the impact of household past migration experience
is differentiated by main migrant destinations, namely
Greece and Italy. The study also tests for the hypothesis of
the existence of migration cycles, by differentiating the
time spent abroad based on the year of return. The empirical
results indicate that household past migration experience
exerts a positive impact on the probability of owning a
non-farm business. While one additional year in Greece
increases the probability of household business ownership by
roughly 7 percent, a similar experience in Italy or further
destinations raises the probability by over 30 percent.
Although past migration experience for the period 1990-2000
is positively associated with the likelihood of owning a
household enterprise, a similar impact does not materialize
for the period 2001-2004. The latter finding seems
suggestive of the fact that more recent migrants are yet to
attain a target level of required savings and skills in
order to successfully establish a new business upon return.

Date of publication
June 2012
Geographical focus

This sector report claims that in the
three years between 2002 and 2005 alone, almost 235,000
people have moved out of poverty in Albania. Strong economic
growth and large inflow of remittances are at the center of
this impressive achievement. However, low productivity of
predominantly small family farms has put a drag on rural
growth prospects. Moreover, Ndihma Ekonomike (NE) program,
the means-tested income support program is small in scale,
and has a low coverage so that it has had only a modest
impact on poverty reduction. As a result of these
developments, the poor are mostly rural residents, low
skilled (measured as years of schooling completed) and large
families. The main conclusion of this report is that as
Albania looks ahead it faces the challenges of consolidating
and sustaining these improvements in living conditions and
narrow the widening rural and urban differences. To tackle
these challenges, Albania needs to maintain the high growth
path, raise rural productivity and improve the targeting
performance of its NE program

Date of publication
July 2014
Geographical focus

Albania has undertaken major reforms in
its system of local government finance since 2000. What had
been a system in which local functions were ambiguous and
financing was largely provided through tightly controlled
earmarked grants is now one in which functions are
relatively clear and local governments have more autonomy
over the allocation of funds. A new system of competitive
grants for infrastructure investment has been introduced.
Parliament has enacted a new law on local borrowing. Within
this framework, however, several controversies remain which
are addressed in this policy note. In the long term Albania
must also grapple with certain organizational issues. One is
the role of regional governments, which now lack any major
clearly defined function. While the Government's
decentralization strategy proposes a range of possible
functions for regional governments, most of these roles
could be carried out through other means. The other
organizational issue is the consolidation of small communes.
The Government's decentralization strategy proposes the
eventual consolidation of small local governments into
larger units. International experience, however, suggests
that the efficiency gains of consolidation are limited and
may not be sufficient to justify the political costs of
doing so. Efforts to consolidate local governments should
consider alternative solutions such as inter-municipal
agreements and joint service companies before proceeding.

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