REPUBLIC OF ALBANIA COUNCIL OF MINISTERS ECONOMIC REFORM PROGRAMME 2021-2023 31 January 2021 Albania’s Economic Reform Programme 2021-2023 Table of contents List of abbreviations ................................................................................................................................................................................ 3 1. Overall policy framework and objectives .................................................................................................................................... 5 2. Implementation of the policy guidance ....................................................................................................................................... 8 Policy guidance 1 ............................................................................................................................................................................... 8 Policy guidance 2 ............................................................................................................................................................................... 9 Policy guidance 3 ............................................................................................................................................................................. 12 Policy guidance 4 ............................................................................................................................................................................. 13 Policy guidance 5 ............................................................................................................................................................................. 15 Policy guidance 6 ............................................................................................................................................................................. 18 3. Macroeconomic framework ...................................................................................................................................................... 20 3.1. Recent economic developments ....................................................................................................................................... 20 3.2. Medium-term macroeconomic scenario ............................................................................................................................ 25 3.3. Alternative scenarios and risks .......................................................................................................................................... 43 4. Fiscal framework ...................................................................................................................................................................... 45 4.1. Policy strategy and medium-term objectives ..................................................................................................................... 45 4.2. Budget implementation in 2020 ......................................................................................................................................... 48 4.3. Budget plans for the erp submission year ......................................................................................................................... 62 4.4. Medium-term budgetary outlook ........................................................................................................................................ 63 4.5. Structural balance (cyclical component of the deficit, one-off and temporary measures, fiscal stance) ........................... 71 4.6. Debt levels and developments, analysis of below-the-line operations and stock-flow adjustments .................................. 75 4.7. Sensitivity analysis and comparison with the previous program ....................................................................................... 77 4.8. Quality of public finances .................................................................................................................................................. 83 4.9. Fiscal governance and budgetary frameworks .................................................................................................................. 84 4.10. Sustainability of public finances .................................................................................................................................... 85 5. Structural reform priorities in 2020-2022 .................................................................................................................................. 87 5.1. Update on key obstacles to growth and competitiveness and inclusive growth ................................................................ 87 5.2. Summary of reform measures ........................................................................................................................................... 88 5.3. Analysis by area and structural reform measures ............................................................................................................. 89 5.3.1. Energy and transport market reform ............................................................................................................................. 89 5.3.2. Agriculture, industry and services ............................................................................................................................... 100 5.3.3. Business environment and reduction of the informal economy .................................................................................. 105 5.3.4. Research, development and innovation and the digital economy .............................................................................. 117 5.3.5. Economic integration reforms ..................................................................................................................................... 123 5.3.6. Education and skills .................................................................................................................................................... 126 5.3.7. Employment and labour markets ................................................................................................................................ 136 5.3.8. Social protection and inclusion, including health care ................................................................................................ 140 6. The cost and financing of structural reforms .......................................................................................................................... 147 7. Institutional issues and stakeholder involvement ................................................................................................................... 148 Annex i ................................................................................................................................................................................................ 149 Annex ii ............................................................................................................................................................................................... 187 2 Albania’s Economic Reform Programme 2021-2023 LIST OF ABBREVIATIONS AEO Authorised Economic Operator AKUM National Agency for Water and Wastewater Infrastructure ALL Albanian Lek AIDA Albanian Investment Development Agency AMTP Land Ownership Act ARTI Agency for Research, Technology and Innovation AShK Albanian State Cadastre Agency BoA Bank of Albania Bn Billion CEFTA Central European Free Trade Agreement CoM Council of Ministers of the Republic of Albania DCM Decree of the Council of Ministers EBRD European Bank for Reconstruction and Development EC European Commission EE Energy Efficiency EEA European Economic Area EIB European Investment Bank ERP Economic Reform Programme EPP Employment Promotion Program ESA European System of Accounts ETF European Training Foundation EU European Union EUD Delegation of the European Union EUR Euro FDI Foreign Direct Investment GDP Gross Domestic Product GoA Government of Albania Ha Hectare HPP Hydro Power Plant HSh Albanian Railway IMF International Monetary Fund INSTAT Institute of Statistics of the Republic of Albania IPA Instrument for Pre-Accession Assistance IT Information Technology Credit Institute for Reconstruction (Kreditanstalt für KfW Wiederaufbau) Km Kilometre Ktoe Kilotonne of oil equivalent LIS Land Information System LGA Local Government Authority MARD Ministry of Agriculture and Rural Development MEFA Ministry for Europe and Foreign Affairs MESY Ministry of Education, Sport and Youth MFE Ministry of Finance and Economy 3 Albania’s Economic Reform Programme 2021-2023 MHSP Ministry of Health and Social Protection MIE Ministry of Infrastructure and Energy Mn million MSME Micro, Small and Medium-Sized Enterprises MTE Ministry of Tourism and Environment MWh Megawatt hours NAIS National Agency for Information Society NASRI National Agency for Scientific Research and Innovation NCB National Business Centre NESA National Employment Skills Agency OECD Organisation for Economic Cooperation and Development OST Transmission System Operator OShEE Power Distribution Operator PFM Public Finance Management PISA Program for International Student Assessment PIU Project Implementation Unit PMO Prime Minister’s Office QTTB Centre for the Transfer of Agricultural Technology RDI Research, Development and Innovation, and Digital Economy RNM Republic of North Macedonia SAA Stabilisation and Association Agreement SEE Southeast Europe SILC