Albania is preparing a Medium-Term Revenue Strategy (MTRS) to finance its development spending of an estimated 2.2–3.0 percent of GDP over five years. Revenue mobilization will be supported by comprehensive tax policy and administration reforms. International and regional comparisons suggest that there is room for additional revenues as well as improvement in the composition of tax revenues. This report presents options for tax policy reform to raise at least an additional 1.34 percent of GDP in revenues over five years and to improve the quality and efficiency of the tax system, that will enable the mobilization of further domestic revenues.
An economic recovery is underway on the heels of the authorities’ large and timely policy response. By 1Q2021, GDP exceeded its pre-crisis level and growth in 2021 is expected to reach 6.5 percent, supporting a smaller-than-expected fiscal deficit. Headline inflation increased above the 4.5 percent upper limit of the target band in September and October. Regulated energy prices for consumers are not expected to change until next spring, but electricity prices for corporates are set to increase. A new pandemic wave that started in late-July persists though activity seems to have decoupled from infections. With a gradual normalization of demand and supply conditions, growth is projected to reach 4.5 percent in 2022. Inflation is expected to revert to the lower half of the inflation tolerance band in 2H2022 as the effects from this year’s drought wane and energy prices stabilize.