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Poverty Reduction and Economic Management

Albania has enjoyed strong economic performance in the last five years, growing at an average of above 7 percent annually for most of the period. Inflation remained at levels of 4 percent less, exports and imports grew steadily, and both the current account and the domestically financed deficit improved significantly. Several structural reforms have also been carried out in the last five years, and have involved banking, land reform and privatization. Almost all small and medium enterprises have been privatized and significant progress has been made in the privatization of strategic sectors, like telecommunications. Regulation in the financial sector as well as core public sector functions has been strengthened, and the Government has adopted a new bankruptcy law and deposit insurance scheme. Significant steps have also been taken in the area of public administration, and a comprehensive civil service law has been adopted. Legal and judicial capacities have been strengthened, accountability rules have been tightened, and anti-corruption action plan is under implementation. Despite the impressive performance of the economy, poverty in Albania has remained high and per capita income, at around US$1,230 in 2002, one of the lowest among transition economies.

Poverty in Albania has marked spatial and regional dimensions, with rural areas in the Mountain region being consistently poorer than the rest of the country, according to all definitions of poverty. Poverty headcount in rural areas is 66 percent higher than in Tirana, and 50 percent higher than in other urban areas. Per capita consumption in rural areas, at 7,224 Leks, is about four-fifths of the consumption levels in urban areas. Households in the most remote districts in the Mountain region in the north and northeast of the country do not fare well in terms of poverty, and almost half of residents in this area are poor, and more than a fifth live in extreme poverty. Also, the depth of poverty in this area is much more pronounced than in any of the other regions, with a poverty gap index of over 11 percent. Average consumption in the mountainous region is two-thirds of consumption levels in Tirana, and about 20-30 percent lower than the rest of the country. Poverty rates and depth in all other regions are around or below the national averages.

The preparation of Albania's Poverty Reduction Strategy Paper, known in Albania as the National Strategy for Social and Economic Development (NSSED) was the first national development strategy that explicitly addressed poverty - outlining medium-term actions to reach long-term goals. THe NSSED, which was completed in November 2001, rests on two pillars: governance and strong economic growth. It also emphasizes policy interventions to improve education, healthcare, and infrastructure, while calling for stronger public accountability and increased public participation in decision making to empower the poor. The NSSED creates a better environment for advancing reforms and reducing poverty, by strengthening country onwership of the reform program; reinforcing a long-term vision; focusing on results; and encouraging partnerships.

Albania's prospects for growth, development and poverty reduction, however, are good, especially in view of a more favorable and stable political climate in Southeastern Europe and enhanced prospects for a closer association with the European Union. In the medium term, economic growth is projected to remian strong, with GDP growing by about 5 percent a year. An increase in exports and private sector activities is expected to lead growth in the next three years. Albania's strong growth should contribute to attracting more investment, generating income-earning opportunities and reducing poverty.

In support of Albania's NSSED, the World Bank has launched, implemented and continues to prepare projects geared towards poverty reduction and economic development.

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