By Nikola Kedhi
Albania’s economic model, as highlighted by a recent study from the Albanian Conservative Institute, reveals alarming dependencies on illicit financial flows, undermining its democracy, stability, and regional security. The nation, an EU candidate and NATO member, faces a “mirage economy” where growth masks deep structural vulnerabilities.
In 2024, Albania’s GDP reached €24 billion, but productive sectors like industry and agriculture are in decline, while construction and services—sectors prone to money laundering—dominate the economy. The OECD EU Convergence Report ranks Albania last in business climate, with illicit inflows estimated at €4 billion annually, or 17% of GDP. Shadow economy activity accounts for 30–35% of GDP, far exceeding Europe’s average of 10%.
Bank of Albania data shows only 22% of construction projects are bank-financed, while cash in circulation stands at €4.5 billion—18% of GDP, double the EU average. Unexplained “net errors” in the Balance of Payments amount to €0.8 billion (3.1% of GDP), likely linked to illicit flows. Real estate foreign direct investment (FDI) has surged from 5.7% to 29% of total inflows since 2014, despite Albania’s lowest FDI growth rate in the Western Balkans.
Trade deficits persist, with goods trade at -25.3% of GDP in 2025. Exports have fallen for three consecutive years, and agriculture—employing 30% of the workforce—has contracted since 2021. Tourism, once a key revenue source, suffered its worst year in recent memory this year. Meanwhile, Albania’s population has dwindled by 40%, with 1.1 million citizens emigrating since 2014. Birth rates have declined for two consecutive years, and deaths now outpace births, with the UN ranking Albania first globally for demographic decline.
Social challenges worsen as poverty nears 20%, and 42% of the population faces social exclusion. Tirana’s overcrowded urban areas see 33–40% apartment vacancies, while air pollution has caused 100,000 premature deaths since 1990.
The Albanian Conservative Institute’s analysis warns that reducing illicit flows by 30% would shrink GDP by 0.85% and raise unemployment, underscoring the economy’s fragility. Without reforms, Albania risks becoming a destabilizing force for NATO and European security.
The institute proposes dismantling illicit networks through stronger customs enforcement, modernized intelligence, and an independent anti-laundering task force. It also urges tax cuts, regulatory reforms to boost production, and measures to reduce government corruption. The goal: transforming Albania into a competitive export-driven economy anchored in free markets and institutional integrity.
For the U.S. and EU, Albania’s fate is critical. A stable, prosperous Albania could serve as a Western bulwark, while an unsustainable model threatens regional security.
