The country has made considerable progress in income growth and poverty reduction. A competitive trade regime supported by a relatively efficient regulatory framework has encouraged the development of a growing entrepreneurial sector.
Albania continues on a path of gradual economic recovery, confronting challenging external conditions, but more reform is needed to ensure the growth of economic freedom and encourage vibrant economic development. The judicial system remains inefficient and vulnerable to political interference, and corruption is still perceived as widespread. Expansionary government spending has led to budget deficits and growing public debt in recent years, but the deficits have been narrowing.
Rule of Law
Development of property legislation has been piecemeal and uncoordinated. Real estate registration procedures are cumbersome. The judiciary, although constitutionally independent, is subject to political pressure and intimidation and has limited resources. A 2015 law bars convicted criminals from holding public office, but public administration continues to be plagued by inefficiency, incompetence, and widespread corruption.
Government Size
The top individual income tax rate is 23 percent, and the top corporate tax rate is 15 percent. Other taxes include a value-added tax and an inheritance tax. The overall tax burden equals 23.6 percent of total domestic income. Government spending has amounted to 30.3 percent of total output (GDP) over the past three years, and budget deficits have averaged 4.9 percent of GDP. Public debt is equivalent to 71.9 percent of GDP.
Regulatory Efficiency
Business start-up procedures have become less costly, and there is no longer a minimum capital requirement for setting up a company. Labor demand in the formal economy, which has a high level of self-employment, is significantly influenced by the public sector. The government is on course to phase out many subsidies and price controls for electricity, water, agricultural products, and railroad transportation.
Open Markets
Financial Freedom 70.0 Create a Graph using this measurement
Trade is important to Albania’s economy; the value of exports and imports taken together equals 71 percent of GDP. The average applied tariff rate is 1.1 percent, and bureaucratic barriers deter international trade and investment. Most banks are foreign-owned. The banking system has benefited from increased competition and remains stable, but the number of nonperforming loans hinders credit growth.