Key Messages

Albania had transitioned to a market-oriented, middle-income economy by 2008, but the economic slowdown in the wake of the global crisis led to a reversal in poverty reduction. The crisis led to several key economic reforms, not all of which have been sustained after the recovery.

The World Bank Group made a substantial contribution over the last decade to many reforms relevant to the country’s development priorities, drawing effectively on both lending and nonlending instruments. However, the discontinuation of the Living Standards Measurement Survey instrument from 2012 to 2019 has undermined the assessment of progress in reducing poverty and promoting shared prosperity, including the Bank Group program’s contribution.

Project implementation was often difficult because design, at times, was insufficiently attuned to implementation capacity and political economy factors. Nevertheless, the Bank Group made significant contributions to fiscal management, the financial sector, waste management and irrigation, and social protection, including the pension system. Bank Group support was less consequential in improving conditions for private sector development, the quality and management of energy and roads, land and property registration, and health and water and sanitation services. Although the program was extensive, it was responsive to opportunities, particularly those presented by the initial reform ambitions of the government that took office in 2013.

The Independent Evaluation Group notes the importance of continuing to improve portfolio implementation, being more selective in new lending, and ensuring that design adequately accounts for political economy and capacity constraints.

A priority for the World Bank is to encourage authorities to publish the results of future Statistics on Income and Living Conditions surveys promptly and regularly, given how critical data availability and quality are to designing and assessing efforts to support poverty reduction and boost shared prosperity. The World Bank can build on its efforts to use advisory services and analytics to articulate and build consensus and capacity for reform options.

This Country Program Evaluation (CPE) reviews the effectiveness of the World Bank Group’s partnership with Albania during fiscal years (FY)11–19, assessing the extent to which relevant objectives were achieved.

Country Context and Bank Group Program

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 because of strong economic growth. However, growth slowed going into the evaluation period. Poverty, which had been in decline up to 2008, rose again by 2012, but recent trends are uncertain. Access to many social services—including education, health, and water and sanitation—has improved rapidly, but inequities and quality issues persist.

Albania’s politics are extremely polarized and engendered a constitutional crisis recently, but successive governments have pursued a common vision of promoting strong, inclusive, and sustainable economic growth and European Union (EU) membership. The country made progress toward the latter goal. Several dimensions of governance and the business climate have improved, though most continue to lag regional comparators. The Foreign Affairs Council of the EU has now approved the opening of accession negotiations with Albania (to be confirmed by the European Council), subject to further progress on strengthening governance.

Two strategy documents guided Bank Group support to Albania during the evaluation period: the FY11–14 Country Partnership Strategy (CPS) as adjusted by a 2013 CPS Progress Report, and the FY15–19 Country Partnership Framework (CPF), revised and extended to FY20 in a November 2018 Performance and Learning Review.

The Bank Group delivered a sizeable program, which included International Bank for Reconstruction and Development financing commitments of about $1.1 billion for 19 operations (accounting for about one-third of official development assistance) in addition to an inherited portfolio of about $300 million for 15 operations. Advisory services and analytics (ASA) activities—many financed by trust funds—made up an important part of the World Bank’s program. International Finance Corporation (IFC) investments and Multilateral Investment Guarantee Agency guarantees diminished over the second phase of the evaluation period, even though IFC continued to remain involved with advisory projects.

Overall Assessment of the Program

The program had broad coverage and aligned with national priorities and major World Bank diagnostics, including the Systematic Country Diagnostic. The Bank Group engaged at the policy and strategy level in most cases, capitalizing on strong knowledge work.

The Bank Group consistently supported Albania’s EU accession goal through a program rooted in the government’s National Strategies for Development and Integration. The Bank Group showed agility in responding to the global and European financial crises. It also seized an opportunity presented when a new, reform-oriented government took office in 2013 by adjusting its program to match government reform ambitions.

Results framework quality improved over the evaluation period. The CPS results framework was excessively complex. The CPF results framework was more streamlined, though it needed substantial adjustment at the Performance and Learning Review stage. Although challenging, given Albania’s absorptive and implementation capacity, the program was generally an appropriate and well-sequenced blend of financing and ASA that contained important synergies among components, such as those between the World Bank’s work on fiscal consolidation and on pensions. In a few cases (notably land administration), coverage did not include areas essential to achieving strategic objectives.

The design of many projects—particularly those approved before the evaluation period—included multiple components across multiple sectors. In addition, project selection and design in several cases (for example, in health and land administration) did not sufficiently account for political economy challenges, such as frequent turnover of ministers. As a result, portfolio implementation was challenging, and the World Bank responded by extending or restructuring more than half of the investment project financing (IPF) operations in the portfolio.

The program’s ASA were an important Bank Group contribution, underscoring its comparative strength in knowledge work. ASA were of good technical quality and helped articulate options for reform (which were carried through successfully in some cases) and build the capacity to implement them, notably in the financial sector and pensions. Important analytical contributions were also made through regional vehicles to complement Albania-specific ASA; these proved an efficient channel for high-caliber ASA. The long transition from the Living Standards Measurement Survey, to which the World Bank provided analytical support, to the Statistics on Income and Living Conditions survey (concluded only recently) impeded poverty monitoring and design of reforms after 2012, leaving policy makers and development partners without a crucial tool not only to track poverty head count and distributional gains and losses but also to understand poverty determinants, essential for evidence-based policy making.

There were several cases of effective collaboration and complementarity across Bank Group institutions, especially in the program’s support for financial sector and business climate reforms.

The architecture for government-donor coordination evolved over the evaluation period. The effectiveness of these coordination mechanisms varied widely across sectors and deteriorated over the evaluation period. Nevertheless, Bank Group coordination and division of labor with other partners was often strong, making efforts complementary. In most sectors, coordination between the Bank Group and government officials was good, positioning the Bank Group to contribute at the policy and strategy level. However, its leadership was less evident on business climate, infrastructure, and urban water and sanitation.

The Bank Group contributed to developing institutional capacity in Albania and, to a lesser extent, improving gender equity. Institutional capacity was a major constraint, aggravated by Albania’s small population and high outmigration, the decentralization drive, and the high standards to which EU accession requires aligning. However, the Bank Group clearly contributed to building capacity in specific areas, notably financial sector regulation and supervision, insolvency, energy, and pensions and social protection. Finally, both the CPS and CPF emphasized a social inclusion agenda, with the poorest and most vulnerable groups including women, youth, and ethnic minorities. World Bank ASA helped diagnose gender inequities, and project support for improving access to and delivery of social services focused on vulnerable groups likely contributed modestly to reducing gender vulnerability and obstacles to inclusion. However, the lack of comparable data makes it hard to be definitive on the World Bank’s contribution.

Engagement and Results in Specific Areas

Under each area of Bank Group intervention, the CPE reviews specific Bank Group objectives and their relevance, instruments deployed, design quality, and program implementation and contribution to results sought in the CPS and CPF results frameworks.

Strengthening Macrofinancial Management and Public Service Delivery

In fiscal management and public service delivery, the specific objectives—strengthening public financial management, consolidating the fiscal stance, and reforming delivery processes for many public services to improve access and convenience—were highly relevant. The World Bank’s program was an appropriate mix of lending and technical assistance, strengthened by relevant analytical work. The support helped make advances in key areas. In public financial management, it strengthened several aspects of expenditure management, including the medium-term budgeting process and the financial management information system. Progress was also made toward fiscal consolidation, notably through the World Bank’s support for an arrears clearance and prevention strategy and for pension reform.

Overall, however, the fiscal situation remains fragile. Although fiscal consolidation of about 4 percentage points of gross domestic product was achieved over 2014–17, arrears have begun accumulating again (if more slowly than before). Inadequately regulated off-budget public-private partnerships in roads have multiplied, giving rise to opaque contingent liabilities. Shortcomings in public financial management and fiscal consolidation derived largely from a difficult political economy environment. Nevertheless, good progress is being made toward improving the delivery of public services to make processes more transparent and citizen friendly. On balance, the achievement of objectives in the fiscal management and public service delivery area is rated moderately satisfactory.

In the financial sector, an initial focus on credit expansion shifted to safeguarding stability. These objectives, including the shift in focus, were relevant and well aligned with prevailing conditions and government priorities. The Bank Group’s program (in which IFC and the Multilateral Investment Guarantee Agency were actively involved) combined financing and guarantees, technical assistance, and analytics in a coherent and flexible package. ASA—including an important FY14 Financial Sector Assessment Program update and capacity-building support for the Bank of Albania and the Albania Financial Services Authority—was a crucial part of the package. With Bank Group support, significant progress was made in strengthening the legal and regulatory framework that governs bank and nonbank financial institutions, and steps were taken to address the significant nonperforming loans that had accumulated early in the evaluation period. As a result, most indicators of financial soundness and stability have improved in recent years. Overall, achievement of objectives in the financial sector is rated satisfactory.

Improving the Conditions for Private Sector Development

Regarding business climate improvements, the related objectives displayed continuity with a tourism-related objective explicitly introduced under the CPF. The objectives were relevant given Albania’s need to mobilize private investment and the tourism sector’s potential as a source of growth. Bank Group support for business climate improvements blended several instruments into a credible package that capitalized on World Bank–IFC collaboration and complementarity.

Bank Group contributions enhanced the quality of business regulations, but challenges remain. Despite some improvements, foreign direct investment has concentrated in less productive segments of the economy, including energy, construction, and mining, and has remained broadly stagnant, whereas private investment as a share of gross domestic product declined steadily over the evaluation period. Despite Bank Group support, the conditions for accelerated private sector growth—an explicit higher-order objective under the CPF—are not yet in place. On balance, achievement of objectives related to the business environment and tourism development is rated moderately unsatisfactory.

Bank Group objectives to improve land and property registration and its gender inclusiveness were highly relevant because poorly defined property rights constrained economic activity, and a high gender gap in land ownership prevailed. The World Bank directed an appropriate mix of financing and ASA at land registration objectives, but lending instruments proved too complex. In addition, genuine progress, which hinged on the adoption of a legal framework definitively resolving informal settlements and property restitution and compensation claims, was beyond the reach of World Bank instruments.

World Bank support helped increase property registration, but with major caveats concerning records quality and coverage. It also helped reduce transaction times, thus lowering business compliance costs and (with other partners) strengthening the institutional setup. Given this shortcoming, the achievement of objectives for land registration is rated moderately unsatisfactory.

In the energy sector, objectives spanned virtually the entire sector, displaying broad continuity and alignment with Albania’s needs and plans. The Bank Group deployed a wide range of instruments that built on World Bank–IFC complementarities.

Bank Group support for improving electricity production had mixed results. A thermal plant developed under a World Bank project (FY04–11) remains off-line several years later. Progress in other areas has also been mixed. The efficiency of supply and cost recovery has improved significantly, but energy losses remain high and intercompany arrears above target. Important progress has been made on institutional reforms, EU accession, and the establishment of the Albania power exchange, but market liberalization is still behind schedule. Achievement of objectives in the energy sector is rated moderately unsatisfactory.

A shift in emphasis in road sector objectives increased the focus on maintenance and expenditure controls under the CPF, in line with new World Bank analytical work and government priorities. A mix of World Bank IPF and ASA with IFC advisory services evolved—appropriately—from an initial focus on road construction to maintenance, regional trade facilitation, and sector policy. The World Bank’s support for secondary and local roads helped improve access for communities. World Bank support also contributed to improving the quality of the public investment program in the roads sector and to increasing capacity for road sector institutions, road safety, and resilience issues, although significant results have not yet materialized in some areas. The achievement of objectives in the roads sector is rated moderately satisfactory.

Improving the Management of Land, Water, and the Environment

Focus shifted over the evaluation period from reducing climate change vulnerability to increasing the productivity and sustainability of land use. The mix of instruments deployed was adequately geared to the objectives, supporting both investments and policy development.

The World Bank has been broadly successful in reducing erosion and enhancing carbon sequestration. In disaster mitigation, much of the success has been reactive to natural disasters such as severe flooding in 2013. Productivity improvements through irrigation were also achieved, though with delays caused by institutional change. In solid waste management, expected results were achieved but with extended delays. Bank Group program achievement of objectives under this pillar is rated moderately satisfactory.

Improving the Quality of Service Provision in the Social Sectors

In education, Bank Group strategy shifted from supporting country education reform strategies to focusing on skills and the labor market. During the CPS period and in collaboration with other partners, the World Bank carried out a balanced mix of lending and ASA highlighting key sector challenges. The Bank Group ended its support to education, given the government’s view that it no longer required World Bank funding for education. Instead, the CPF supported an analytic program on skills and the labor market. Although not flagged in the Systematic Country Diagnostic or 2003 Enterprise Survey as a major constraint on the private sector, interest in this issue increased during the CPF period. The results framework did not include any specific outcomes in this area.

There were some improvements in access to secondary and higher education, but caveats were significant regarding quality improvement. Most notably, implementation of reforms to strengthen performance incentives has lagged. World Bank analytical work on skills and the labor market was well received and useful to the government, but it is too early to assess its impact.

Nevertheless, based on the modestly positive results, achievement of objectives in education is rated moderately satisfactory.

In health, Bank Group objectives on access and health system efficiency supported government priorities, with the focus shifting from primary health care during the CPS period to hospital management under the CPF. The World Bank deployed a balanced mix of ASA with development policy financing and IPF, and IFC supported a medical laboratory public-private partnership aimed at improving diagnostic service quality. These had the right focus but did not sufficiently factor in capacity and political economy constraints. Project implementation was slow and difficult, yielding very modest results, although progress was made (among other areas) in unifying health financing mechanisms and in improving some physical and financial access to health services. Achievement of health-related objectives is rated moderately unsatisfactory.

Regarding social protection, World Bank objectives sought to help improve access and the equity and efficiency of Albania’s system. The objectives were closely aligned with national strategies. World Bank support was a well-sequenced and balanced mix of ASA and lending, with ASA serving to build ownership for the reform agenda. Steady financing through the period supported ambitious reforms of the social assistance programs Ndihma Ekonomike and Disability Allowance. In addition to multiyear technical assistance, development policy financing was deployed to support pension reforms aimed at reducing the fiscal burden and to strengthen incentives and gender equity. Pension reform has successfully reduced the fiscal burden, although challenges remain. Regarding social assistance reforms, World Bank support helped Albania improve coverage, targeting, and efficiency, but reform implementation has faced significant challenges. The rollout of the new system has been slower than anticipated, partly because of significant errors of exclusion given the lack of updated household welfare data. The achievement of objectives in social protection is rated moderately satisfactory.

Finally, in urban water supply and sanitation, Bank Group objectives broadened over the evaluation period (from a sole focus on sanitation under the CPS to include water supply under the CPF). The focus was on key infrastructure at the municipal level.

Good progress was made toward sewerage infrastructure development and service improvement targets. Water supply services in Durres also improved, though with delays, but the institutional capacity of the city’s water utility remains a challenge. Beyond Durres, Albania’s water and sanitation utilities continue to underperform in the context of weaknesses in the policy framework, although there has been some recent performance improvement from a low base. In general, World Bank lending in the sector was focused on infrastructure development, providing only limited support for institutional capacity building. Achievement of objectives for access to water and sanitation is rated moderately satisfactory.

Conclusions and Suggestions

Overall, the extent to which the Bank Group program achieved its objectives is rated moderately satisfactory. The overall rating is based on a synthesis of pillar-level ratings, with a greater weight given to the rating for pillar 1, where lending during the evaluation period was concentrated. In addition to the results to which the program contributed and the relevance of its objectives, the rating recognizes certain positive features of program design and implementation, including its agility in responding to shocks and in capitalizing on opportunities in the partnership, and its strategic use of knowledge work. In hindsight, there are certain things the Bank Group could have done differently, such as streamlining the program, simplifying project design, and more proactively supporting efforts to mitigate the capacity and political economy risks identified ex ante.

Based on the CPE findings, it is suggested that the Bank Group consider the following:

• Use ASA to engage government authorities, citizens, and other stakeholders to articulate and build support and consensus and capacity for reform options in the sectors and thematic areas that the Bank Group considers essential to reducing poverty and promoting shared prosperity and where there is stakeholder demand.
• Be more selective in new lending, given the implementation challenges over the evaluation period, by deploying it to support reforms and investments for which consensus has been established, ensuring that efforts are made to proactively mitigate capacity and political economy constraints.
• Encourage authorities and other stakeholders to ensure that results of future rounds of the Statistics on Income and Living Conditions survey are published regularly and promptly, now that data are available and given the long period experienced when data were unavailable. Household survey data are a critical enabler of effective project design and implementation in support of the World Bank’s twin goals. The fact that such data were not published or made available to major development partners between 2012 and 2019 was a serious shortcoming that warranted priority attention from the World Bank.