2014 Index of Economic Freedom

Albania

overall score66.9
world rank54
Rule of Law

Property Rights30.0

Freedom From Corruption30.4

Limited Government

Government Spending75.6

Fiscal Freedom92.7

Regulatory Efficiency

Business Freedom78.1

Labor Freedom49.7

Monetary Freedom80.0

Open Markets

Trade Freedom87.5

Investment Freedom75.0

Financial Freedom70.0

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Quick Facts
  • Population:
    • 3.2 million
  • GDP (PPP):
    • $26.1 billion
    • 1.3% growth
    • 3.7% 5-year compound annual growth
    • $8,052 per capita
  • Unemployment:
    • 15.0%
  • Inflation (CPI):
    • 2.0%
  • FDI Inflow:
    • $957.0 million
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Albania’s economic freedom score is 66.9, making its economy the 54th freest in the 2014 Index. Its overall score has increased by 1.7 points, with notable improvements in investment freedom and trade freedom. Albania is ranked 25th among the 43 countries in the Europe region, and its overall score is above the world average.

Over the 20-year history of the Index, Albania has advanced its economic freedom score by about 17 points, a top 20 improvement. With score increases in nine of the 10 economic freedoms, Albania has risen gradually into the “moderately free” category. Notable structural reforms have included trade liberalization, privatization, implementation of competitive flat tax rates, and modernization of the regulatory environment. Along with the effective maintenance of low inflation, greater monetary stability has also been achieved.

The judiciary remains subject to political interference, and deeper institutional reforms to eradicate lingering corruption and increase judicial independence are critical to ensuring greater economic freedom in Albania. Rising fiscal deficits in recent years have increased public debt to above 60 percent of GDP, the legal limit set in 2008.

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Background

Communist rule in Albania ended in 1992. Socialist Edi Rama was elected prime minister in June 2013, defeating conservative incumbent Sali Berisha, who had been prime minister since 2005. Rama campaigned on a promise to secure European Union candidacy status within a year. Albania achieved full membership in NATO in April 2009 and continues to make a small contribution to the NATO-led mission in Afghanistan. Despite some reforms, Albania is one of Europe’s poorest countries. Transportation and energy infrastructure are poor by European standards. The economy is dominated by agriculture and services, including tourism.

Rule of LawView Methodology

Property Rights 30.0 Create a Graph using this measurement

Freedom From Corruption 30.4 Create a Graph using this measurement

A weak regulatory environment, opaque government procurement rules, a culture of impunity, and political interference make it difficult for the judiciary to deal with high-level and deeply rooted corruption in Albania, a major transit country for human trafficking and illegal arms and narcotics. Protection of intellectual property rights is weak, and Albania still lacks a clear property rights system, particularly for land tenure.

Limited GovernmentView Methodology

The top individual income and corporate tax rates are 10 percent. Other taxes include a value-added tax (VAT) and an inheritance tax. The overall tax burden has fallen slightly to 23 percent of total domestic income. Government expenditures stand at 28.5 percent of GDP. The slowing domestic economy has put internal pressures on public finances, pushing up public debt to 61 percent of GDP.

Regulatory EfficiencyView Methodology

The efficient regulatory framework supports business formation. The number of days needed to start a business has been cut to four, with no minimum capital required. Despite efforts to increase flexibility in the labor market, relatively rigid employment regulations hinder productivity growth and dynamic job creation. Price controls and state subsidies distort domestic prices for electricity, water, and railroad transportation.

Open MarketsView Methodology

Albania’s average tariff rate has improved significantly from 5.1 percent to a relatively low 1.3 percent. The country officially welcomes foreign investment, but red tape and insufficient protection of property rights discourage investment. The financial system remains relatively well-developed and stable despite the challenging external environment. The banking sector is well-provisioned, but the share of non-performing loans has been rising.

Country's Score Over Time

Bar Graph of Albania Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Albania to other economic country groups

Regional Ranking

rank country overall change
1Switzerland81.60.6
2Ireland76.20.5
3Denmark76.10.0
4Estonia75.90.6
5United Kingdom74.90.1
6The Netherlands74.20.7
7Luxembourg74.20.0
8Germany73.40.6
9Finland73.4-0.6
10Sweden73.10.2
11Lithuania730.9
12Georgia72.60.4
13Iceland72.40.3
14Austria72.40.6
15Czech Republic72.21.3
16Norway70.90.4
17Belgium69.90.7
18Armenia68.9-0.5
19Latvia68.72.2
20Macedonia68.60.4
21Cyprus67.6-1.4
22Spain67.2-0.8
23Poland671.0
24Hungary 67-0.3
25Albania66.91.7
26Slovakia66.4-2.3
27Malta66.4-1.1
28Bulgaria65.70.7
29Romania65.50.4
30Turkey64.92.0
31Montenegro63.61.0
32Portugal63.50.4
33France63.5-0.6
34Slovenia62.71.0
35Italy60.90.3
36Croatia60.4-0.9
37Serbia 59.40.8
38Bosnia and Herzegovina58.41.1
39Moldova57.31.8
40Greece55.70.3
41Russia51.90.8
42Belarus50.12.1
43Ukraine49.33.0
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