Albania’s Economic Mirage: Illicit Flows Threaten Stability and Security

By Nikola Kedhi
Thursday, 02 October 2025 10:07 AM EDT

Albania’s economic model, as highlighted by the Albanian Conservative Institute’s recent study, reveals a precarious situation that demands urgent attention from policymakers in Tirana, Washington, and Brussels. Despite appearances of steady growth, the country—an EU candidate and NATO member—has become increasingly reliant on illicit money flows, endangering its democracy, stability, and regional security.

Albania’s GDP reached €24 billion in 2024, with an average annual growth rate of 4% over recent years. However, productive sectors such as 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, underscoring systemic challenges.

Illicit inflows are estimated at €4 billion annually, or 17% of GDP, according to combined data from journalistic sources and global authorities. The shadow economy accounts for 30–35% of GDP (€7–8 billion), the highest in Europe. Bank of Albania data shows only 22% of construction is financed by bank credit, with most projects fueled by unexplained capital. Cash in circulation stands at €4.5 billion, 18% of GDP—double the EU average—and unexplained “net errors” in the Balance of Payments amount to €0.8 billion (3.1% of GDP), likely linked to illicit activities.

Real estate foreign direct investment (FDI) has surged from 5.7% of inflows in 2014 to 29% today, while Albania’s FDI growth rate remains the lowest in the region. Trade data further illustrates fragility: a goods trade deficit of -25.3% of GDP in 2025, with exports at €4 billion and declining for three consecutive years. Agriculture, still employing 30% of the workforce, has contracted every quarter since 2021.

Albania’s currency, the lek, has appreciated 30% against the euro since 2015, despite tourism—20–25% of GDP—suffering its worst year in recent memory. The central bank intervened with €933 million in currency purchases last year, yet exchange rates remained stagnant, indicating massive illicit euro inflows.

Demographic collapse exacerbates the crisis. EUROSTAT reports 1.1 million citizens—40% of the population—have emigrated since 2014. Births fell 6.5% in the first half of 2025 after a 5% decline in 2024, with deaths consistently outpacing births since 2021. The UN ranks Albania first globally for natality decline. To address labor shortages, the government has imported workers from Asia and Africa, many intending to use Albania as a transit point to the EU and UK.

Social challenges are severe: poverty near 20%, 42% of the population facing social exclusion, and an average monthly wage of €838—lowest in Europe. In Tirana, 51,129 apartments remain vacant, with 33–40% vacancy rates, while air pollution has caused 100,000 premature deaths since 1990.

The Albanian Conservative Institute’s econometric model confirms the risks: reducing illicit flows by 30% would shrink GDP by 0.85% in the first year and raise unemployment. A full cutoff could contract GDP by 2.8% and collapse construction, highlighting Albania’s deep reliance on illicit money.

For the U.S. and Europe, Albania’s instability matters. As a NATO member on the Adriatic, it sits directly across from Italy. In a shifting global order, a weak link at NATO’s southern flank poses risks. The institute proposes reforms: dismantling illicit flows through stronger enforcement, cutting taxes to boost production, and reducing government favoritism.

The vision is clear: transform Albania into a competitive exporting economy anchored in free markets. A low-tax regime, limited government, and investment in innovation could double per capita GDP by 2030, addressing demographic decline. For the West, a stable Albania is critical—a bulwark against instability at NATO’s southern edge.