Department of Strategy and Donor Coordination

3.2 Market economy
Consolidation of measures taken compounded with ambitious reforms, low inflation and macroeconomic
stability, resulted in 2008 in sustained economic growth of 7–8 per cent and enlarged market freedom.
Economic growth was mainly driven by domestic demand and was favoured by consolidated macroeconomic
stability and the positive impact of a series of structural reforms. Inflation remained within the target range
of 2–4 per cent and a real exchange rate maintained its balance. Despite fluctuations in demand and supply,
generated respectively by high credit growth and price increases in global commodities markets, internal
and external balances of the economy were maintained. There was improved performance of industrial and
agricultural production, growth in the services sector, exports and FDIs.
The fiscal position remained stable reflecting the appropriate harmonization to other macroeconomic policies
in general and monetary policy in particular. Increased public investment inflow in 2008 oriented towards
large infrastructure projects, had a positive effect in increasing productivity and reducing production and
trade costs.
Fiscal revenues performed quite well, public debt maturity was lengthened, privatization of public assets was
concluded successfully and public debt financed by domestic sources was systematically reduced. These factors
account for the moderate pressure of fiscal policy over domestic demand, general price level and the internal
financial market.
Budget revenue increased progressively and reached 26.8 per cent of GDP in 2008, compared to 25.1 per cent in
2005, because of fiscal reform, flat tax, decrease in social insurance rate, etc. Fiscal reforms and introduction of
online tax payment made the Albanian tax system more favourable and encouraging for business development
than other countries in the region and generated positive results in reducing tax evasion and in the fight
against corruption. Business promotion through fiscal and administrative facilitations contributed to its good
performance. With respect to administration and taxation, the most important legislative development was the
adoption of the new law on tax procedures. This law harmonised best international practices to the Albanian
tax procedures through considering the characteristics of our system, and it aims at reducing informality and
improving the business environment. In Customs, the automated ASYCUDA system used world-wide, which
helps in the modernization and simplification of procedures, is now fully operational.
Increased FDI was reported for the sectors of energy, mining, infrastructure, manufacturing, banking and
insurance. Reforms implemented to improve the business climate in Albania focused on: establishment and
smooth functioning of the National Registration Centre (NRC), approval of six industrial parks, installation
and functioning of the online tax payment system, online procurement procedures, and significant reduction
in procedures for permits and licences.
Successful privatisation of ARMO and AMC and advancement in that of Distribution System Operator (DSO)
are successful structural reforms of government.
Important steps were taken and good results achieved with regard to integration of the Albanian market into the
EU market, through policies aiming at market opening and proper implementation of SAA and CEFTA 9 , thus
leading to intensified trade exchanges between the regional countries. Export weight was boosted by diversification
of Albanian exports in recent years both in new products and markets. Consequently, foreign demand has had a
considerable impact on Albania’s economic growth.
9 Central European Free Trade Agreement
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