Report No. 36453-AL
Albania: Restructuring Public Expenditure to Sustain Growth. A Public Expenditure and Institutional Review.
(In Two Volumes) Volume I: Overview and Policy Options.
December 2006
Poverty Reduction and Economic Management Unit
Europe and Central Asia Region
Document of the World Bank

This report finds that Albania has a substantial opportunity to (a) improve the productivity of its public spending, providing both a complement to raise the productivity of private capital and as also an independent source of economic growth; and (b) to deepen the impact of this growth on poverty by improving the equity of public service delivery. Emerging concerns center on the need to sustain the momentum of growth and poverty reduction. The productivity gains from resource reallocation typical of the first phase of transition are slowing. Albania will need to create a better environment for private investment, further accelerate improvements in human capital, and stimulate new sources of productivity growth, including in the public sector. Public expenditure policy is at the heart of this challenge to sustain growth. This report finds that Albania's level of spending at 29 percent of GDP is broadly appropriate but that resource mobilization is distorted and spending remains inefficient. The report stresses that improving the efficiency and equity of public spending in Albania will not be possible without accelerating the institutional reforms aimed at restoring discipline and credibility in expenditure management. These reforms include rationalizing the pay system for public servants and strengthening the civil service management reforms to improve public sector performance and equity. The Albania Public Expenditure and Institutional Review (PEIR) contributes to this debate by examining the role of expenditure policy in enhancing future growth prospects while improving service delivery outcomes. Composed of two volumes, this report assesses outcomes from public expenditures in Albania over the past 5-10 years; discusses the current and future challenges facing the government in improving the efficiency of public spending and ensuring the sustainability of the fiscal stance; and proposes an agenda for a public expenditure strategy to address them, at both the aggregate and sector levels.