This Country Program Evaluation (CPE) reviews the effectiveness of the World Bank Group’s partnership with Albania during fiscal years (FY)11–19. The report discusses the appropriateness of the Bank Group’s strategic focus in the country context and in relation to national goals, including joining the European Union (EU). It discusses the progress made in the various areas of the Bank Group’s focus and the extent to which the Bank Group’s program contributed substantively to that progress through its various instruments and activities, including financing, advisory services and analytics (ASA), policy dialogue, and coordination with other development partners. It also assesses whether the program as a whole made a tangible contribution to Albania’s development goals during the period.
Albania emerged from the collapse of isolationist communism in the early 1990s as one of the poorest countries in Europe, but the country transitioned to a middle-income, market-oriented economy by 2008. Albania made significant development progress by opening its economy and achieved significant socioeconomic development and integration into the EU. Over 2002–08, the economy grew strongly by 5.5 percent on average per year.
Increased polarization among political parties has made governance more challenging. Since the 1990s, Albania has made good progress in establishing multiparty democracy. The 2013 parliamentary elections have been judged free and fair, and the government changed hands as a result. The government effectiveness indicator rose from 48 to 56 between 2011 and 2017. But sharp political polarization culminated in opposition parties boycotting local elections at the end of June 2019. Albania continued to perform less well on control of corruption, and its index ranking stood at 42 in 2017, despite some progress from the 2011 ranking of 27.
Successive governments have pursued a common vision of promoting strong, inclusive, and sustainable economic growth and integration within the EU. In 2007, the government’s National Strategy for Development and Integration (NSDI) for 2007–13 (NSDI 1) articulated this vision and updated it in May 2016 for 2015–20 (NSDI 2; Albania 2007, 2016). These documents provide a comprehensive medium-term strategy for long-term growth and poverty reduction that is consistent with EU integration. This strategy is implemented through a medium-term budget program that requires ministries to achieve their medium-term plans consistent with the objectives of the government’s strategy.
Historically strong growth slowed going into the evaluation period, prompting reform to varying degrees. Rapid growth was cut short in the aftermath of the global financial crisis. By 2014, economic growth had slowed to less than 2 percent. Moreover, serious fiscal pressures and rising public debt threatened fiscal stability. The financial sector was showing increasing signs of stress, including a sharp jump in nonperforming loans (NPLs). Over 2014–17, a new government implemented several important reforms that helped reduce macroeconomic imbalances and public sector arrears, moderate the growth of public debt, and strengthen financial sector stability. Economic growth revived to 3.8 percent in 2017 and an estimated 4.2 percent in 2018, moderating to 2.2 percent in 2019. However, the pace of reforms in key areas has slowed since 2017, and new areas of concern have emerged that threaten fiscal and macroeconomic stability, including opaque but potentially large contingent liabilities from public-private partnerships (PPPs).
Recent poverty trends are uncertain. Albania’s achievement of middle-income status by 2008 led to reduced poverty of 12.5 percent in that year (measured against a national poverty line) compared with 25.4 percent in 2002. However, poverty increased after the slowdown starting in 2008 and was estimated at 14.3 percent in 2012. Trends since then are difficult to assess because survey data after 2012 (which were published only recently) are not comparable. However, poverty is projected to have declined with the renewal of economic growth in recent years.
Access to many social services—including education, health, and water and sanitation—has improved rapidly, but inequities and quality issues persist. For example, access to all levels of education has increased and now compares favorably with regional peers, but enrollment rates and educational attainment remain considerably lower for the bottom 40 percent of the population. Moreover, learning outcomes remain low compared with most Europe and Central Asia countries and the average for Organisation for Economic Co-operation and Development countries. In health, outcomes such as life expectancy at birth, infant and maternal mortality rates, and child malnutrition have improved in recent years, and the population is relatively healthy by regional standards. Health outcomes also compare favorably with those for peers in the Western Balkans. However, health gains have been much smaller for the poorer population and those living in rural areas.
The business climate has shown some improvement despite continuing challenges. The regulatory framework for business has improved in several ways, as indicated by the jump in the country’s Doing Business ranking from a low of 103 (of 190 countries) in 2013 to a high of 63 in 2018. However, the ranking dropped to 82 in 2019 (World Bank 2019, 2020). The private sector continues to face constraints such as corruption, weak institutions to enforce the rule of law, an inadequate framework for land titling and administration, unpredictability in the policy regime (especially taxation), and infrastructure weaknesses (especially in electricity supply and road transport connectivity). More recently, the quality and relevance of labor force skills have emerged as constraints for the private sector.
Albania has made good progress toward its goal of joining the EU, with the start of accession negotiations now approved in principle. The EU Council formally recognized Albania as an EU candidate country in June 2014. The legal and regulatory framework and business and governance practices have been progressively aligned with EU requirements. Following initial resistance from certain EU members in 2019, the EU Foreign Affairs Council has now approved the opening of accession negotiations with Albania (to be confirmed by the European Council), subject to further preconditions on the country, notably relating to electoral reform, the rule of law, and fighting corruption.
Albania has also made progress addressing some aspects of gender equity, but gaps remain. In partnership with the United Nations and the EU (as part of the accession agenda), the government developed strategies and policies to achieve gender equality, and progress has been made in establishing the legal and policy framework to mainstream gender. Government agencies have gradually prepared to implement policies and monitor progress, including under the NSDI 2 and the National Strategy on Gender Equality, Gender-Based Violence, and Domestic Violence (2011–15). However, traditional attitudes still prevail, and gender disparities can be found in most spheres of social and economic life.
The Bank Group’s Strategic Objectives
Two strategy documents steered Bank Group support to Albania during the evaluation period, beginning with the FY11–14 Country Partnership Strategy (CPS). The CPS sought primarily to address key challenges to the resumption of growth after the global crisis. It focused on three strategic objectives: (i) accelerating the recovery of Albania’s economic growth through improved competitiveness, (ii) broadening and sustaining Albania’s social gains, and (iii) reducing Albania’s vulnerability to climate change. The CPS Progress Report (CPSPR), prepared in FY13 when the fiscal and financial situation had substantially deteriorated, amended the CPS program to help Albania better manage risks arising from economic vulnerability (World Bank 2013a).
The FY15–19 Country Partnership Framework (CPF) was revised and extended to FY20 after the November 2018 Performance and Learning Review (PLR). The CPF is organized around three broad strategic objectives: (i) restoring macroeconomic balances, (ii) creating the conditions for accelerated private sector growth, and (iii) strengthening public sector management and service delivery. It also has two cross-cutting themes: gender and EU accession. The PLR extended the CPF to allow most objectives to be achieved, given the stall in reform momentum during a prolonged period leading up to and after the 2017 parliamentary elections and challenges in implementing an ambitious lending program (World Bank 2018b). The PLR made some adjustments in the proposed lending program and acknowledged that the International Finance Corporation (IFC) investment targets would not materialize, given the low levels of foreign direct investment expected.
Consolidated Framework for the Evaluation Period
A mix of CPS and CPF objectives covers FY11–19, with some variation in significance over time. This CPE uses four interlinked pillars to cover the entire evaluation period (table 1.1). These four pillars structure the assessment of the Bank Group program’s relevance and efficacy in (i) addressing macroeconomic instability and improving financial stability, (ii) improving the business climate (including land and property registration) and infrastructure services in energy and transport, (iii) supporting water management (notably through irrigation and land and waste management), and (iv) improving the quality of service provision in education, health, social protection, and water and sanitation. This taxonomy organizes the presentation and does not represent a retrofitting of strategic objectives (that is, progress against relevant CPS, CPSPR, CPF, and PLR objectives during the respective periods remain the substantive basis for the assessment), and it does not capture the evolution of program priorities and emphasis over the evaluation period. There are interlinks and overlaps across the four pillars, and some areas of Bank Group intervention respond to subobjectives under different pillars.
Table 1.1. Evaluation Pillars for the FY11–19 Country Program Evaluation
Pillar 2: Improving the Conditions for Private Sector Development
Pillar 3: Improving the Management of Land, Water, and the Environment
Pillar 4: Improving the Quality of Service Provision in the Social Sectors
1. Strengthening fiscal management and public service delivery
2. Strengthening the financial sector
1. Improving the business climate and developing sustainable tourism
2. Improving land and property registration
3. Improving access to and quality of infrastructure services
1. Reducing vulnerabilities to climate change, improving land productivity (erosion control and irrigation), and improving waste management
1. Improving access to and quality of education services and understanding labor market constraints
2. Improving access to and quality of health services
3. Improving the coverage, targeting, and efficiency of social protection services
4. Improving access to and quality of water and sanitation services
Source: Independent Evaluation Group
Bank Group Program Delivery
The World Bank has been an important, though not dominant, financer of Albania’s development. Official development assistance declined over the evaluation period, with levels as low as 1.2 percent of gross national income in 2017 compared with 2.9 percent in 2011. Average annual official development assistance was $277 million over 2011–17. The World Bank accounted for about one-third of this, with average annual International Development Association and International Bank for Reconstruction and Development (IBRD) disbursements of $95 million during the period. The EU was, on average, the largest donor over the period, with average annual funding of $105 million during the period. Major bilateral donors included Germany (12 percent of official development assistance), Switzerland (8 percent), and the United States (7 percent). Foreign direct investment inflows were broadly stable over the evaluation period at about 8 percent of gross domestic product (GDP).
Bank Group program delivery largely matched plans during the CPS period but saw challenges during the CPF period. Under the CPS, the World Bank’s total lending volume was $602 million, close to the CPS baseline scenario. Under the CPF, however, the World Bank’s actual lending volumes were $882 million, about 72 percent of planned lending. In total, financing commitments of about $1.1 billion for 19 IBRD operations were approved over FY11–19. There were 34 International Development Association and IBRD projects with a total commitment of $1.4 billion, including the ongoing projects approved before the evaluation period. ASA tasks, many of which were financed by trust funds, made up an important part of the World Bank’s program. IFC investments and Multilateral Investment Guarantee Agency (MIGA) guarantees declined over the review period. IFC support included about $221 million in commitments across eight investments, but no IFC investment was made during the CPF period, except for indirect financing of a highway PPP and trade finance for a local bank. MIGA activity consisted of four guarantees totaling $349 million—three in the banking sector and one in the power sector.
- Although the cutoff date for this Country Program Evaluation is end June 2019, it notes some important developments up to December 2019.
- Government effectiveness data are from the World Bank Worldwide Governance Indicators database at https://datacatalog.worldbank.org/dataset/worldwide-governance-indicators..
- Between 2014 and 2017, Albania had a 36-month arrangement under the International Monetary Fund’s Extended Fund Facility, which was a major driver for many key reforms.
- The Living Standards Measurement Survey (LSMS) household surveys to measure poverty and inequality were discontinued after 2012 (see chapter 2), making it difficult to assess trends since then (World Bank 2014d).
- Without household data, which are comparable over time, World Bank staff simulated poverty trends based on annual growth rates. Based on a poverty line of $5.50 per person per day at 2011 purchasing power parity, the poverty head count is estimated to have dropped from 39.1 percent in 2012 to 31 percent in 2017. The Statistics on Income and Living Conditions survey published in December 2019 shows that the poverty rate declined from 23.7 percent in 2017 to 23.4 percent in 2018.
- The Country Partnership Framework (CPF) supports 5 of the 12 priorities identified in the Systematic Country Diagnostic that are deemed fundamental to achieving the twin goals.
- According to the 2018 Performance and Learning Review (PLR), International Finance Corporation investment opportunities have been constrained by (i) a lack of suitable foreign direct investment opportunities, (ii) frequent changes in the legal and regulatory framework, (iii) a weak judicial system, and (iv) excess liquidity in the banking system coupled with depressed credit demand, resulting in limited prospects for International Finance Corporation financing for small and medium enterprises.
- For example, macrofinancial stability, a central objective, will be discussed under pillar 1, examining the package of World Bank Group support for strengthening macrofinancial management and public service delivery. However, it is closely tied to specific sectors (such as energy in pillar 2 and pensions in pillar 4) because they also had a major impact on fiscal sustainability.
- The data are from the Organisation for Economic Co-operation and Development at https://stats.oecd.org/..
- Appendix C provides a detailed description of the Bank Group’s operational program, including thematic decomposition.