AlbaniaFrom command to market economy

by Ditjona Kule , October 2014

Geographic position

The Organization and Performance

of Albanian’s command economy

• From shortly after WWII (1945) to April of 1992, Albania operated under a

command economy.

• The government organized the price system and planed what and how to

produce.

• In a command economy the price system does not provide accurate and

timely information to producers and consumers.

• Producers and consumers are not motivated to change their behavior

because the government set price changes are infrequent.

Albanian’s command economy

• Albania imposed the Stalinist System.

• The government adopted new laws that provided for the implementation of strict state regulation of all industry and trade.

• The Stalinist leaders pushed for the development of heavy industry ignoring Albania's comparative advantage in agriculture and light industry.

• By early 1947 the Soviet accounting system was introduced throughout Albania. Party adherents and professors began teaching the population the economic catechism of Marxism-Leninism.

Albanian’s command economy

• Albania's factories became dependent on Soviet technology.

• New elements of the Stalinist economic system and basic elements of soviet

fiscal system , were adopted.

• Unfortunately, the economy turned downward rapidly. This clearly showed

that the Stalinist strategy failed to provide growth.

Albanian’s command economy

• Albania's leaders then began promoting a system of autarky.

• Albania suffered two of its worst years in 1984 and 1985. By the late 1980s

Communist governments in Eastern Europe were being demolished slowly.

• The government fell and in 1992 the Albanian Democratic Party took over

the government, and introduced their economic reforms based on market

economics.

Albanian’s market economy

• Albania is nowadays a middle-income country that has made enormous

strides in establishing a credible, multi-party democracy and market

economy over the last two decades.

• Following graduation from the International Development Association (IDA)

to the International Bank for Reconstruction and Development (IBRD) in

2008, Albania has generally been able to maintain positive growth rates and

financial stability, despite the ongoing economic crisis.

Albanian’s market economy

• Before the global financial crisis, Albania was one of the fastest-growing economies in Europe, enjoying average annual real growth rates of 6%, accompanied by rapid reductions in poverty.

• After 2008 average growth halved and macroeconomic imbalances in the public and external sectors emerged.

• The pace of growth was also mirrored in poverty and unemployment: between 2002 and 2008, poverty in the country fell by half (to about 12.4%) but in 2012 it increased again to 14.3%.

Albanian’s GDP per capita

• The GDP per Capita in Albania is equivalent to 32 percent of the world's

average.

• GDP per capita in Albania averaged 2277.06 USD from 1980 until 2013,

reaching an all time high of 4087.08 USD in 2013 and a record low of 1131.02

USD in 1992.

GDP per capita ( 2004 – 2014 )

Unemployment Rate in Albania

• Unemployment Rate in Albania decreased to 13.45 percent in the second

quarter of 2014 from 13.86 percent in the first quarter of 2014.

• Unemployment Rate in Albania averaged 14.79 Percent from 1993 until 2014,

reaching an all time high of 22.30 Percent in the fourth quarter of 1993 and a

record low of 12.10 Percent in the fourth quarter of 1996.

Unemployment Rate

Albanian’s market economy

• The recovery to growth rates above 3% in 2011 moderated in 2012 and 2013,

reflecting the deteriorating situation in the Eurozone and the difficult

situation in the energy sector.

• Real Gross Domestic Product (GDP) growth dipped to a low point of -2.3%

in the third quarter of 2013. A rebound is expected in 2014, but growth is also

expected to stay below the country’s potential over the medium term.

Albanian’s market economy

• The Gross Domestic Product (GDP) in Albania was worth 12.90 billion US dollars in 2013.

• The GDP value of Albania represents 0.02 percent of the world economy.

• GDP in Albania averaged 5.41 USD Billion from 1984 until 2013, reaching an all time high of 12.90 USD Billion in 2013 and a record low of 0.71 USD Billion in 1992.

GDP from 2004-2014

Albanian’s market economy

• Albania’s labor market has undergone some dramatic shifts over the last decade, contributing to productivity growth.

• Formal non-agricultural employment in the private sector more than doubled between 1999 and 2013, fuelled largely by foreign investment.

• Emigration and urbanization brought a structural shift away from agriculture and toward industry and service, allowing the economy to begin producing a variety of services - ranging from banking to telecommunications and tourism.

Albania’s market economy

• Agriculture is the main source of employment and income –

especially in the country’s rural areas – and represents around 20% of

GDP while accounting for about half of total employment.

• Albania’s agricultural sector continues to face a number of challenges,

however, including small farm size and land fragmentation, poor

infrastructure, market limitations, limited access to credit and grants,

and inadequate rural institutions.

Inflation Rate

Albania’s inflation rate

• The inflation rate in Albania was recorded at 1.50 percent in

September of 2014. Inflation Rate in Albania averaged 3.29 Percent

from 1995 until 2014, reaching an all time high of 42.08 Percent in

December of 1997 and a record low of -2.11 Percent in March of 2000.

Albanian’s market economy

• Looking toward the future, Albania is focused on supporting economic recovery and growth in a difficult external environment, broadening and sustaining the country’s social gains, and reducing vulnerability to climate change – particularly through improved water resource management.

• Key challenges for Albania going forward include early resumption of fiscal consolidation and strengthened public expenditure management, regulatory and institutional reform, reduction of infrastructure deficits, and improvement in the effectiveness of social protection systems and key health services.

References

• BBC News IMF Agrees in Principle to Fund Economic Reform in Albania. March 1998.http://www.news.bbc.co.uk/low/english/world/europe/newid-62000/62105.st

• IME. Institute for Ongoing Projects. http://ime–bg.org/projects.html

• Albania Country Profile http://gaia.usaid.gov/countries/al/alb.html

• UNDP Albania DP: UNDP Cooperation- Preparatory Process http://www.tirana.al/co-prog/prep.html

• Albania's System

• http://lcweb2.loc.gov/cgi-bin/query2/r?frd/cstdy:@field(DOCID+a10066)

• Economic Reform in Albania http://www.cipe.org/wp/alb.html

• USAID- Albania 1998 Congressional Presentation

• http://gaia.usaid.gov/countries/al/

• World Bank 2014

• INSTAD 2014