The Economy in Five Signals

From reserve returns to road haulage, Albania’s economic picture is more complicated than the headline numbers suggest.

by Dorina Muka (Tirana)

Albania closed 2025 with a set of economic indicators that, read in isolation, suggest stability and even modest progress. The foreign reserve grew. Deposit insurance funds expanded. Renewable energy capacity nearly doubled. Read together, however, these numbers describe an economy navigating structural tensions it has not yet chosen to resolve: a labour market quietly reorganising itself around the elderly, an energy sector that imported its way through a drought year at considerable public cost, and a transport industry that is pricing itself out of regional competition one litre of diesel at a time.

The Bank of Albania reported a gross foreign reserve of 6.3 billion euros at year-end, up 16.5 percent on the previous year. The return on that reserve reached 3.03 percent, a slight improvement on the 2.91 percent recorded in 2024, driven in part by a correction in international interest rates in the second half of the year and by rising gold prices. Albania held nearly 117,000 ounces of monetary gold at the close of December, a position that contributed positively to the portfolio. The reserve’s composition remains heavily euro-denominated, at 60.3 percent, with the US dollar accounting for a further 22.3 percent. In December, the Bank initiated a new mandate through its external manager, the World Bank’s IBRD, to invest a portion of the portfolio in mortgage-backed securities over a five-year horizon. Whether that decision proves well-timed will depend on conditions that are not yet visible.

The reserve figures are the most reassuring data point in this dispatch. They are also, to some degree, a story about what Albania has stored rather than what it has built. A reserve of 6.3 billion euros represents a significant external buffer. It does not, by itself, indicate investment in productive capacity, in infrastructure that reduces energy import dependence, in industrial policy that retains skilled workers, or in the public institutions that would make the transport sector competitive. The buffer is real. What it is buffering against is the more instructive question.

The pension that isn’t

The labour market data released by INSTAT for the fourth quarter of 2025 carries a finding that deserves more attention than it has received. The employment rate among Albanians aged 65 and over reached 27 percent, up from 23 percent in the same quarter of 2024 and roughly three times the rate recorded in 2015. Nearly all of those counted as participating in the labour force at that age are employed; the unemployment rate within the cohort is negligible, which means that what is being measured is not job-seeking but job-holding by people who, under any conventional definition of retirement, should not need to be holding jobs at all.

The pattern is not uniform across education levels, which is itself revealing. The sharpest increase is concentrated among pensioners with eight or nine years of schooling, a category that peaked at a 29.7 percent employment rate in the first quarter of 2025. These are the workers most likely to be absorbed into agriculture, cleaning, construction support, and other physically demanding roles where the departure of younger workers has left gaps that businesses have filled from the only available pool. Pensioners with secondary education have followed a similar trajectory, reaching 26.6 percent. Those with university degrees show a more modest increase, settling around 14.9 percent, a figure that reflects a different dynamic: the natural tail-end of professional careers rather than economic compulsion.

Two forces are producing this outcome simultaneously. Pension values in Albania remain structurally inadequate as a sole source of income for most households. At the same time, emigration has tightened the supply of working-age labour to the point where employers in certain sectors cannot staff their operations without drawing on retired workers. The result is a de facto extension of working life that is neither designed nor acknowledged as policy. It functions as an informal subsidy: pensioners absorb labour shortages at wages that younger workers in destination countries would refuse, while the state avoids the political cost of formally raising the retirement age or meaningfully increasing pensions. The arrangement suits everyone except the pensioners themselves.

272 million euros for a drought

Albania generated 44.4 percent of its electricity domestically in 2025. The remainder was imported. That single figure, more than any other in the energy sector’s year-end accounts, explains why KESH spent 272 million euros purchasing approximately 1.81 million MWh on the open market at an average price of 127.55 euros per MWh, a bill that includes VAT and reflects obligations under a public service mandate established by the government in 2022.

The underlying cause was a drought that held through most of the year. Public hydropower production fell to 3,374 GWh, down 17.4 percent from 4,085 GWh the year before. Private and concessionary producers recorded 3,109 GWh, a further decline of 4.2 percent. The only segment that grew was renewable generation from other sources, primarily photovoltaic, which reached 984 GWh against 507 GWh in 2024, an increase of 94.3 percent. Late-year rainfall caused flooding but did not materially alter the annual energy balance.

The 272 million euro import bill is a public cost borne by KESH, and ultimately by Albanian consumers and taxpayers. It is also a reminder that an energy strategy built on hydropower, however rational in historical terms, becomes expensive precisely when it is most needed, when water is scarce. The diversification into solar that the numbers now show is a partial answer. It is not yet a sufficient one, and the pace at which Albania is adding photovoltaic capacity, while impressive in percentage terms, is being measured against a very low base.

The diesel arithmetic

The most operationally precise grievance in this dispatch comes from Albania’s international road freight operators, who have spent recent weeks moving toward a blockade of Durrës port and border crossings. Their complaint is not rhetorical. The numbers they have presented are straightforward and, on examination, are difficult to dispute.

Diesel in Albania costs approximately 2.1 euros per litre. In North Macedonia, the price is 1.4 euros. In Kosovo and Montenegro, 1.7 euros. Under bilateral agreements with these three countries, trucks cross freely in both directions without transit permits. An operator from North Macedonia loading export cargo in Albania has every financial incentive to return home, refuel at a saving of up to 700 euros per tank depending on capacity, and then proceed toward European markets. Albanian operators cannot replicate this strategy: VAT on fuel purchased abroad is not reimbursed, and entering Albanian territory with more than 200 litres in the tank triggers fines of around 400 euros and additional tax obligations on the excess.

The cost differential for a single round trip to Germany is approximately 1,300 euros in favour of regional competitors. Over a working year, across a fleet, this is the difference between a viable business and one that is not. The company cited in available reporting, Shega Trans, reduced its Kosovo route fleet from roughly 20 trucks before the pandemic to a single vehicle today, kept operational, as its management put it, simply to hold a presence in the market.

The operators have framed two demands: renegotiate or suspend the bilateral permit-free agreements, or introduce a fuel cost subsidy to offset the differential. The government has not yet responded substantively. Either solution involves political costs that the government may prefer to defer. Renegotiating with Kosovo, in particular, carries dimensions that extend beyond transport policy. The alternative, allowing the sector to contract further, will transfer freight volumes to regional operators and deepen Albania’s dependence on foreign logistics capacity for its own trade.

A footnote on vehicles

A short coda, because it connects to the energy and cost pressures described above. In the first quarter of 2026, 59 percent of newly registered passenger vehicles in Albania ran on diesel. This is the highest share in Europe by a considerable margin; the EU average in 2024 was 15 percent, with Moldova and Bosnia-Herzegovina, the next highest, at 47 and 44 percent respectively. The figure has declined from 66 percent in 2024, and electric vehicles now account for 13 percent of first registrations, matching the EU average for 2024. The trajectory is moving in the right direction. The starting point is far enough behind that the direction alone does not constitute a policy achievement.

The through-line

None of the signals described here are, individually, a crisis. Renewable energy is growing. First-vehicle registrations are shifting, slowly, away from diesel. These are genuine positives, and they deserve to be recorded as such.

What the full picture shows, however, is an economy that is managing several deferred decisions at once. It has not resolved what to do with a pension system that does not actually support retirement. It has not built an energy base resilient to a single bad rainfall year. It has not addressed the regulatory asymmetry pricing its transport sector out of regional competition. What links these failures is a pattern: where policy has not acted, the system has improvised, through pensioners in the labour market, through a public electricity company absorbing import costs, through freight operators adjusting until they can no longer do so.

Each deferral has a cost. That cost is currently being paid by someone. The question is not whether Albania can continue in this mode. It demonstrably can, at least for now. The question is what accumulates in the meantime, and who is still standing when the accounting arrives.