Commitment to structural reforms and toeconomic stabilization has enabled high rates of grossdomestic product (GDP) growth in Albania since the start oftransition, and consequent reductions in poverty. The crisiscaused by the collapse of 'pyramid' investmentschemes in late 1996 and early 1997, the Government began toimplement a stabilization and reform program which hasresulted in rates of economic growth averaging more thanfive percent annually between 1998 and 2007. Strong growthhas in turn made possible a 6.8 percentage point decline inthe poverty headcount, a higher drop than in most countriesin the (Eastern) Europe and Central Asia (ECA) region. Theseachievements have been underpinned by prudent fiscal andmonetary policies. Budget deficits have been kept undercontrol, declining from an average of around 10 percent ofGDP in the late 1990s to less than 4 percent since 2005. Inparallel, a monetary targeting regime has ensured pricestability, with inflation remaining at around 3 percent inrecent years. This report discusses how Albania can improveits long term competitiveness and growth by facilitatingfirms' ability to employ technology and skills and byclosing the gap between formal regulations and actualenforcement. The second chapter sets the stage by presentingthe macroeconomic setting, as well as key structuralfeatures of the Albanian economy. The third chapter providesan overview of investment climate constraints on firmperformance. The crucial pillars of the investment climatethat affect firm performance that is to say: (i) access toand adoption of knowledge by Albanian firms, and (ii) thegap between formal and informal regulation are treated inchapters four and five respectively. Chapter six concludesand summarizes policy recommendations.
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