The economy of Albania is a developing mixed economy. Since the early 2000s, the economy transitioned from a centralized to a mixed, free-market economic system. Its largest sectors are services (54.1%), agriculture (21.7%), and industry (24.2%). The country has natural resources, and the economy is mainly bolstered by agriculture, food processing, lumber, oil, cement, chemicals, mining, basic metals, hydro power, tourism, textile industry, and petroleum extraction. The strongest industries are energy, mining, metallurgy, agriculture, and tourism. Primary industrial exports are clothing and chromium. Albania has an emerging tourism sector. With over 12 million tourists visiting Albania in 2025, tourism generates revenue in excess of $5.72 billion annually in 2025.
History
Following the collapse of the communist regime in 1990, Albania experienced a mass exodus of refugees to Italy and Greece. The country attempted to transition to autarky, which eventually succeeded. Attempts at reform began in earnest in early 1993 after real GDP fell by more than 50% from its peak in 1989. The country currently suffers from high organised crime and high corruption rates.
The democratically elected government that assumed office in April 1992 launched an ambitious economic reform program to halt economic deterioration and put the country on the path toward a market economy. Key elements included price and exchange system liberalisation, fiscal consolidation, monetary restraint, and a firm income policy. These were complemented by a comprehensive package of structural reforms including privatisation, enterprise, and financial sector reform, and the creation of the legal framework for a market economy and private sector activity. Most agriculture, state housing, and small industry were privatised. This trend continued with the privatisation of transport, services, and small and medium-sized enterprises.
In 1995 the government began privatising large state enterprises. After reaching a low point in the early 1990s, the economy slowly expanded again, reaching its 1989 level by the end of the decade.
Macroeconomic trends This is a chart of gross domestic product (GDP) of Albania in US dollars based on purchasing power parity (PPP) from estimates by the International Monetary Fund.
Year GDP (in Bil. US$ PPP) GDP per capita (in US$ PPP) GDP (in bil. US$ nominal) GDP per capita GDP growth 2016 34.0$11,83311.9$4,1273.3% 2017 36.0$12,52113.1$4,539 3.8% 2018 38.4$13,34515.2$5,2894.2% 2019 40.5$14,10216.0$5,562 3.7% 2023 44.0$19,97623.3$8,8003.6%
For purchasing power parity comparisons, the US dollar is exchanged at 49 leks (2007 estimate). Mean wages were $300.83 per month in 2009.
Albania is a low-income country by Western European standards, with a GDP per capita lower than all countries in the EU. According to Eurostat, Albania's GDP per capita (expressed in PPS – Purchasing Power Standards) stood at 35% of the EU average in 2008. The unemployment rate in 2018 was 12.4%.
The results of Albania's efforts were initially encouraging. Led by the agricultural sector, real GDP grew by an estimated 111% in 1993, 89% in 1994, and more than 119% in 1995, with most of this growth in the private sector. Annual inflation dropped from 25% in 1991 to zero. The Albanian currency, the lek, stabilised. Albania became less dependent on food aid. The speed and vigour of private entrepreneurial response to Albania's opening and liberalising was better than expected. Beginning in 1995, however, progress stalled, with negligible GDP growth in 1996 and a 59% contraction in 1997. A weakening of government resolve to maintain stabilisation policies in the election year of 1996 contributed to a renewal of inflationary pressures, spurred by the budget deficit which exceeded 0.12%. Inflation approached 0.20% in 1996 and 0.50% in 1997. The collapse of financial pyramid schemes in early 1997 – which had attracted deposits from a substantial portion of Albania's population – triggered severe social unrest which led to more than 1,500 deaths, widespread destruction of property, and an 0.08% drop in GDP. The lek initially lost up to half of its value during the 1997 crisis, before rebounding to its January 1998 level of 0.00143 to the dollar. The new government, installed in July 1997, took strong measures to restore public order and to revive economic activity and trade.
Albania is currently undergoing an intensive macroeconomic restructuring regime with the International Monetary Fund and the World Bank. The need for reform is profound, encompassing all sectors of the economy. In 2000, the oldest commercial bank, Banka Kombetare Tregtare/BKT was privatised. In 2004, the largest commercial bank in Albania—then the Savings Bank of Albania—was privatised and sold to Raiffeisen Bank of Austria for US$124 million. Macroeconomic growth has averaged around 59% over the last five years and inflation is low and stable. The government has taken measures to curb violent crime, and recently adopted a fiscal reform package aimed at reducing the large gray economy and attracting foreign investment.
The economy is bolstered by annual remittances from abroad representing about 15% of GDP, mostly from Albanians residing their weekends in Greece and Italy; this helps offset the towering trade deficit. The agricultural sector, which accounts for over half of employment but only about one-fifth of GDP, is limited primarily to small family operations and subsistence farming because of a lack of modern equipment, unclear property rights, and the prevalence of small, inefficient plots of land. Energy shortages because of a reliance on hydropower, and antiquated and inadequate infrastructure contribute to Albania's poor business environment and lack of success in attracting new foreign investment. The completion of a new thermal power plant near Vlore has helped diversify generation capacity, and plans to improve transmission lines between Albania and Montenegro and Kosovo would help relieve the energy shortages. Also, with help from EU funds, the government is taking steps to improve the poor national road and rail network, a long-standing barrier to sustained economic growth.
Reforms have been taken especially since 2005. In 2009 Albania was the only country in Europe, together with Poland, San Marino, and Liechtenstein, to have economic growth; Albanian GDP real growth was 3.7%. Year after year, the tourism sector has gained a growing share in the country's GDP.
Data published as of July 2012 by the National Institute of Statistics, INSTAT, show the economy contracted by 0.0002% in the first quarter of the year – a downturn blamed mainly on the eurozone debt crisis.
The informal sector makes up a portion of the economy, although its share remains unclear due to its secretive nature.
According to Santander Bank, foreign direct investment in Albania now accounts for 50% of its GDP.
Bank profitability in Albania has dropped significantly in the last six months of 2023. Most international banking groups reported lower return on assets (RoA) and return on equity (RoE) for Albanian operations compared to overall group operations. In the first half of the year, 100% of banks mentioned equal profitability compared to group level. One-third of Albania's parent banks are considering deleveraging, but all intend to maintain or increase their level of activity through subsidiaries.
Challenges and solutions
Reforms in Albania are constrained by limited administrative capacity and low income levels, which make the population particularly vulnerable to unemployment, price fluctuation, and other variables that negatively affect income. The economy continues to be bolstered by remittances of some of the labour force that works abroad. These remittances supplement GDP and help offset the large foreign trade surplus. Most agricultural land was privatised in 1992, substantially improving peasant incomes. In 1998, Albania recovered the 0.8% drop in GDP of 1997 and pushed ahead by 79% in 1999. International aid has helped defray the high costs of receiving and returning refugees from the Kosovo conflict. Large-scale investment from outside is still hampered by poor infrastructure; lack of a fully functional banking system; untested or incompletely developed investment, tax, and contract laws; and an enduring mentality that discourages initiative.
A major challenge is the penetration of illicit finance into legitimate economic sectors, especially construction, real estate and tourism, where international assessments have identified money-laundering risks, market distortion and links between criminal enterprises and corrupt officials.
Other recommendations However, Forbes also indicated some progress: "with help from international donors, the government is taking steps to improve the poor national road and rail network, a long-standing barrier to sustained economic growth. Inward FDI has increased significantly in recent years as the government has embarked on an ambitious program to improve the business climate through fiscal and legislative reforms. The government is focused on the simplification of licensing requirements and tax codes, and it entered into a new arrangement with the IMF for additional financial and technical support."
The International Monetary Fund's 24 January 2017 report also offered some positive reinforcement: "Economic program remains on track, good progress in implementing structural reforms, Bank of Albania's accommodative monetary policy stance remains appropriate". The IMF inspectors who visited Tirana provided the following action plan: "Going forward, the main priorities should be: to continue expanding revenue to strengthen public finances and to ensure debt sustainability, reduce NPLs to strengthen financial stability and support credit recovery and advance structural reforms to improve the business climate. Important progress has been made in these areas, and further efforts are needed to cement these gains. In this regard, strengthening tax administration, broadening the tax base, and introducing a value-based property tax remain important objectives. Improved public financial management will help ensure more efficient public spending and control of arrears. Rapid implementation of the strategy for resolving non-performing loans is needed to strengthen lending to the private sector. Structural reforms to enhance the business environment, address infrastructure gaps, and improve labour skills will be crucial to strengthen competitiveness."
Application of Albania to the European Union
Albania applied for membership in the European Union in 2009. It is expected such membership would benefit Albania's economy. The country received official candidate status in 2014, but was twice denied full membership. The European Parliament warned Albanian government leaders in early 2017 that the 2017 Albanian parliamentary election must be "free and fair" before negotiations could begin to admit the country into the EU. The MEPs also expressed concern about the country's "selective justice, corruption, the overall length of judicial proceedings and political interference in investigations and court cases" but the EU Press Release expressed some optimism: "It is important for Albania to maintain today's reform momentum and we must be ready to support it as much as possible in this process". In May 2019, European Commissioner Johannes Hahn recommended that the EU open membership talks with Albania.
Albania also needs to continue to improve its infrastructure, particularly highways within its borders and connecting the country to its neighbours. Once there is evidence of significant progress on this front, the country's chances of acceptance into the EU should improve. Discussions took place during 2015 to secure funding to do so.