As the end of the year approaches, Albania has been ranked by The Heritage Foundation, along with 185 other countries in terms of its economic freedom. Placing at number 65 globally on the 2018 Index of Economic Freedom, the country was judged on its Rule of Law, Government Size, Regulatory Efficiency, and Open Markets, noting an improvement of 0.1 point from 2017.
With an overall score of 64.5 points, this makes its economy as the 65th freest in this year’s index. Improvements have been seen in fiscal health which have offset disappointing scores in judicial effectiveness, tax burden indicators, and business freedom. Ranking 32nd out of 44 countries in the European geographical region, it is below the regional average but above the global average.
Albania’s gradual transition to a more flexible and open economic system has been enabled by over a decade of restructuring. Increases in income growth and poverty reduction have been considerable despite the fact that they remain low. Furthermore, a competitive trade regime has encouraged the development of entrepreneurs but more reforms are needed in the Rule of Law and Business Freedom areas to encourage true economic development.
Other issues highlighted in the report include a low GDP per capita, sluggish economic growth, a large informal economy, weak energy and transport infrastructure, high unemployment, little opportunity, and high migration.
Rule of Law
With property rights issues still being resolved and even established after the fall of communism, the report highlights difficulties in acquiring clear and legal titles. Whilst Government Integrity has increased slightly, Judicial Effectiveness fell to just 25.4 out of a possible 100, citing endemic corruption that fails to hold anyone accountable and allows political pressure and intimidation to completely infiltrate the legal system.
The top-end individual income tax rate sits at 23% with the top corporate rate at 15% but there are issues in enforcing these and collecting the amounts due. Other taxes include VAT and inheritance tax with the overall tax burden equating to 27.2% of the total domestic income. Government spending has gone up to 30.1% of the GDP and budget deficits sit at 3.7% of the GDP.
In 2016, new construction was facilitated by the reintroduction of building permits. Regulations and laws governing business activity are changed regularly without any input from the business community. The rate of informal employment is high. The government liberalized the power sector in 2017 by permitting businesses to buy electricity at market rates instead of forcing them to buy from the state-owned distribution authority.
Trade is a very important part of Albania’s economy with the combined value of exports and imports totaling 74% of its GDP. The average applied tariff rate is 1.1% whilst non-tariff barriers impede some trade. The government are general open to foreign investment whilst the financial system is relatively stable.