International Monetary Fund (IMF) staff mission to Albania said it projects the country's economy to grow by 3.5% in 2025, mainly driven by private consumption, up from the 3.4% forecast made in the October edition of the IMF's World Economic Outlook.

The staff also expects that Albania's economy will grow by 3.6% in 2026, reflecting an acceleration in key European trading partners, the IMF mission, led by Anke Weber, said in an end-of-mission statement on Wednesday.

The IMF warned that Albania could face negative economic outcomes if the government does not ensure the timely implementation of EU-aligned reforms.

"Significant reform gaps with the EU persist amid stagnant productivity, while a more volatile global environment - coupled with domestic pressures on wages and asset prices - poses risks to the sustainability of the tourism-led growth," the IMF said.

As the government is advancing on the implementation of reforms pivotal for its 2030 EU accession aspirations, the country is experiencing one of the highest growth rates in Europe, and also low inflation, declining public debt, and strong foreign reserves.

From reforms to strengthen the business climate and reduce informality to improving education, labour market participation, and judicial transparency, reforms are critical to sustain growth, preserve macroeconomic stability, and support Albania’s EU membership aspirations, the IMF said.

The IMF also urged Albania to safeguard fiscal buffers through sustained revenue mobilization, tax policy reforms, and improved spending quality.

According to the IMF, Albania’s tourism-led growth and macroeconomic prospects are expected to remain robust. Headline inflation is projected to gradually increase from 2.2% in 2025 to the 3% target in the second half of 2026, amid a tight labor market and rising wages. The current account deficit is projected at 2.8% of GDP in 2025 and to gradually widen to about 3.5% of GDP over the medium term as rising disposable income and public capital expenditure boost imports.

Risks to the outlook have shifted to the downside amid a more unsettled external environment. Geopolitical tensions, escalating trade measures, commodity price volatility, and prolonged uncertainty could affect Albania’s key trading partners and weaken external demand. Global financial market volatility and asset price corrections could reduce demand for Albanian sovereign debt and may lead to rollover risks. Domestically, a sharper-than-anticipated decline in the working-age population could exacerbate labor shortages, fuel inflation, necessitate a tighter monetary policy stance, and dampen growth prospects. On the upside, the sustained implementation of the EU reform agenda could boost productivity and growth.

The IMF also noted that the systemic risks in the financial sector appear broadly contained. The banking system overall remains well capitalized, liquid, and profitable. However, there are some vulnerabilities, stemming from banks’ large borrower exposures, FX lending (17 percent of bank assets), and sovereign holdings (28 percent of banks’ assets). Together with the rapid growth of real estate lending, their effect on systemic risks will require careful monitoring.

The IMF added that a comprehensive set of productivity-enhancing reforms will be key to sustainable growth.