As a small, open economy, Albania is highly exposed to external shocks, such as a recession in the European Union (EU) or further tightening of financing conditions in international capital markets. Access to finance for households and small and medium enterprises (SMEs) is well below the needs of the economy.
Targeted reforms are needed to enhance the country’s financial resilience and inclusion. Building on its longstanding relationship with Albania’s financial sector authorities, the World Bank has been strategically leveraging complementary trust funds financed by the Swiss State Secretariat for Economic Affairs (SECO) and the Austrian Federal Ministry of Finance (BMF) to take the country’s financial sector to the next level.
These trust funds have been instrumental in supporting the government’s reforms to address multi-dimensional challenges in the sector, playing a vital role in bolstering the government’s efforts. The programs financed by these grants are making significant contributions to Albania’s growth while supporting its EU" "integration agenda.
Resilience to shocksAlbania is highly exposed to global and domestic shocks and needs to ensure its financial buffers can continue to absorb them. Albania’s small, open economy has weathered the 2019 earthquake, COVID-19 pandemic, and effects of Russia’s war on Ukraine. However, tighter global financial conditions, an economic slowdown in Europe, and climate change continue to pose threats to economic development. According to the World Risk Index 2024, Albania has the highest level of disaster risk in the Western Balkans region, ranked 76th in the world. Yet the country remains under-prepared financially to meet these disaster-related contingent liabilities (World Bank 2020).
Access to financeLimited access to finance and challenges with capital market instruments, insurance, and private pensions is impeding Albania’s business growth and productivity. Albania has the lowest level of access to finance compared to other countries in the region. In 2023, Albania's domestic credit to the private sector was 30.6 percent of gross domestic product (GDP), the lowest in the region. Less than one-fifth of smaller rural enterprises have a bank loan or line of credit (World Bank 2022), and 21 percent of micro, small, and small businesses report access to finance as a major constraint (World Bank 2020). The country’s capital markets legal framework (2020) lines up with EU legislation, but changes are needed in insurance and private pensions to better align with EU’s evolving regulatory framework.
Usage of digital financial servicesTrust remains an obstacle for expanding supply and demand for digital financial services (DFS), which would increase financial inclusion and resilience. The Albanian economy heavily relies on remittances, fluctuating around 10 percent of its GDP. In addition, data shows that in 2018, cash usage was deeply rooted in the payment habits of most Albanian consumers and businesses, with few adults holding accounts, scarce access points and acceptance of electronic payments, low financial literacy, and high informality (World Bank 2018).
— Vahe Vardanyan, Task Team Leader
Albanian authorities, with the support of the World Bank and development partners, have taken a multi-pronged and complementary approach to address these challenges and focus on systemwide reforms. During the last decade, the Financial Sector Advisory Center (FinSAC), funded by the BMF, has been the World Bank’s prominent vehicle to support financial stability and resilience in Albania. Reform priorities were coordinated and implemented with the wider World Bank engagement in the country, including through World Bank operations. In parallel, through SECO funding, the World Bank supported Albania in strengthening supervision of capital markets, insurance, and private pensions between 2016–22. These reforms have paved the way for more small businesses to access finance. In boosting the country’s financial inclusion, the regional Western Balkans Remittances and Payments Program Phase 1 (RPP 1.0), funded by SECO, was instrumental. Delivered during 2015–22, RPP 1.0 helped to establish and upgrade legal and regulatory frameworks for retail payments in line with the EU frameworks.
FinSAC cooperation to support financial stability and regulatory standards, delivering 17 tailored technical assistance projects on crisis response and recovery and resilience over next 10 years
BoA establishes National Payment System Committee
Western Balkans RPP begins to modernize retail payments
National Strategy for Development and Integration 2015–20
World Bank publishes assessment of the remittances market
BoA and World Bank publish baseline survey on remittance beneficiaries’ financial behaviors
BoA adopts National Retail Payments Strategy 2018–23
BoA launches Project Greenback to enhance financial literacy
Parliament approves Law on Payment Services (Transposition of PSD2), Law on Capital Markets, and Law on Collective Investment Undertakings
AFSA and the World Bank organize conference, “Diversifying the Financial System through Capital Market Reform”
AFSA and World Bank organize conference, “Green Finance – Green Opportunities for the Financial Sector in Albania”
CPF 2023–27 supports greener and more resilient and inclusive growth
Start of F4D Western Balkans RPP 2.0 grant to continue boosting usage of digital financial services
AFSA adopts a five-year strategy (2023–27) for its supervisory and regulatory functions and market development
Council of Ministers adopts new strategy on capital market development
AFSA adopts all bylaws of Capital Markets and Investment Funds laws
BoA adopts bylaws of the Payment Services Law, and government adopts new Private Pension Law
F4D grant to develop green finance and strengthen AFSA
MoF, AFSA, and World Bank organize conference, “Insurance Sector Development – Opportunities and Challenges in Southeastern Europe”
BoA with FinSAC creates Medium-Term Green Strategy 2023–25
BoA and World Bank host forum, “Climate, Macroeconomy, and Finance: Navigating Risks and Driving Impacts”
F4D FinSAC grant to continue enhancing regulatory frameworks and build institutional capacities
BoA adopts first Financial Inclusion and Education Strategy (2024–27)
BoA and World Bank organize conference on Albania's path to the Single Euro Payments Area integration, financial inclusion, and education
BoA and World Bank pilot Money Smart exhibition in Tirana, which will travel around Albanian cities
Resilience to shocks
Access to finance
Usage of digital financial services
Building on strong progress made in the last decade, today, three complementary trust funded-programs are collectively taking the country’s financial sector to the next level.
Recognizing the importance to enhance climate resilience, the Financial Resilience and Development Project is strengthening Albania’s resilience to climate risks while developing innovative and green finance for farmers and small businesses to access. The project is collectively financed by the F4D Umbrella Trust Fund and the Risk Finance Umbrella (RFU) Trust Fund, both funded by SECO. The FinSAC program joined the F4D Umbrella in 2023 with continued strong support and contributions from the BMF. The program builds upon its previous and productive engagements in Albania and further strengthens the country’s financial stability with the priority of aligning with the EU directives and regulatory framework. Building resilience to climate risks is critical for this program as well. Finally, the Western Balkans RPP 2.0, now funded by F4D with SECO’s contribution, is advancing the success of the first phase and enhancing its efforts in financial inclusion in Albania as part of the regional program, with a priority focus on usage of digital financial services by merchants and consumers. This continuation of RPP is creating an enabling environment for delivering and using digital financial services among banks, non-banks, and the broader population. Along policy support, awareness-raising activities have also continued.
The financial sector agenda in Albania is multi-faceted, with various components that are interrelated and mutually influential. By delivering strategic support through these complementary trust funded- programs, the World Bank can expedite results and maximize impact. Each program benefits from the strong involvement of collaborative partners within Albanian authorities, leveraging high-level leadership and engagement of ministries, as well as the technical expertise of financial regulators, to advance policy reforms effectively. Lessons learned from these programs are shared through knowledge management platforms managed by the trust funds and learning events delivered by the World Bank.
