Decentralization in Albania

What does Albania need to do to build a comprehensive social protection system?

Social protection plays a crucial role in providing health and income protection and reducing poverty in Albania. The two complimentary ILO reports recently developed under a UN Joint Programme address key policy challenges and financing options of the Albanian social protection system.

News | 18 June 2021

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As a result of the recent decentralization in Albania, large parts of social protection and social care services have been transferred from the central government to the 61 municipalities in the country with support from the central government institutions. The local governments now play the main role in planning and budgeting social protection benefits and social care services. Many local governments face a great challenge to ensure adequate level of resources from local sources and the state budget.

In this context, the United Nations in Albania has been implementing the UN Joint Programme “Catalyzing municipal social protection” to develop an integrated social protection system through increased policy and financial coordination between the state and municipalities. In the framework of this project, the ILO, in collaboration with UNICEF and UNWOMEN, carried out a review of the current social protection system and an analysis of creating fiscal space for financing social protection in Albania.
Albania spends on social protection (not including health) at only 9.3% of GDP, which is less than half of the EU average (19.1% excluding health, and 27.8% including health).
The review of the social protection system in Albania assesses the recent trends and performance of the current national social protection systems. The key observations are:
  • Albania spends on social protection (not including health) at only 9.3% of GDP, which is less than half of the EU average (19.1% excluding health, and 27.8% including health).
  • Amongst the existing benefits, the old-age pension has the widest beneficiary coverage and the most important impact in poverty reduction. Despite the recent pension reform to enhance the financial sustainability, the Social Insurance Fund has been in deficit at around 2% of GDP.
  • Apart from old-age pensions, the beneficiary coverage of the contributory scheme remain low. In particular, a large number of workers in the informal and non-standard forms of employment do not qualify for other contributory benefits in cases of unemployment, disability and employment injury and have to claim social assistance benefits.
  • As a result of the recent social assistance reform to improve the targeting of social assistance cash benefits, the number of beneficiaries of the economic assistance programme declined sharply from 15.1% in 2013 to 8.7% in 2019 and its expenditure decreased from 0.34% in 2013 to 0.21% of GDP in 2019.
In sum, the current Albanian social protection system should improve the benefits of the contributory system by covering the currently non-contributing population and enhancing the revenue structure. In addition, there is an urgent need to look into the impact of the social assistance reform with a view to assess whether the current system effectively allocates resources to the poorest and the most vulnerable in society.

What options are available for Albania to create fiscal space for a comprehensive social protection system?
The fiscal space analysis identifies possible options to mobilize additional financial resources for social protection in Albania. The key observations include:
  • The twin shocks due to the earthquake in November 2019 and the ongoing COVID-19 pandemic have had significant implications for public finance, deteriorating revenue collection and rising fiscal deficits.
  • The Table below summarizes the main options and their financial effects. The government, especially the Ministry of Finance and Economy should explore all possible fiscal scenarios and options, associated social impacts including gender issues, risks and trade-offs.
  • Among these options, Albania clearly needs to focus on extending the social security coverage by addressing tax evasion and the informal economy in order to raise more revenues and to further strengthen the contributory schemes. It is recommended to discuss these and other options in a national dialogue process.
Building upon these findings, the ILO and other UN organization will work with the Albanian government to develop feasible national budgetary framework for a more equitable and adequate financing for social protection under the Joint Programme “Strategic policy options for SDG financing”. The final objective of the support is to support Albania in achieving the SDG goals related to social protection. Future ILO interventions will focus on the assessment of targeting of social assistance, and the feasibility study of innovative financing mechanisms for long-term care benefits.

Table. Selected options to create fiscal space

Source: Table 7 of “Fiscal space for financing social protection in Albania”