The 2020 pandemic lockdowns hit Albania, a nation still struggling to cope with the effects of a once-in-a-century earthquake from just the year before, extremely hard. The impact of COVID-19 on poverty in Albania resulted in acute economic and social challenges but targeted fiscal policies and international aid suggest a hopeful future for the Balkan state.
Impact on the Most Vulnerable Sectors
Albania’s economy relies heavily on micro, small and medium enterprises (MSMEs), which comprise more than 85% of the private sector’s formal employment. Its reduced size increased its fragility in the face of the earthquake and the pandemic made it difficult for MSMEs to access loans and use insurance policies. MSMEs’ hardships meant a significant drop in tax returns for the government and increased unemployment in the lower socio-economic sectors.
In 2019, one-third of the Albanian population lived on less than $5.50 a day, making it the nation with the highest rate of poverty out of all the Western Balkan states. COVID-19 ended up increasing the poverty rate by 4%, which is equivalent to additional 112,000 people living in poverty.
The impact of COVID-19 on poverty in Albania is especially hard for women. Not only did more women face an increase in unpaid domestic labor compared to men, but 97.5% of women-led firms are in the MSME category, Financial Protection Forum reports. In addition, a 2020 U.N. Women report found that women between 25-44 years old living in urban areas were at the highest risk of unemployment.
This dual economic and social blow to women’s livelihoods required urgent action to prevent this vulnerable group from falling into long-term unemployment. The United Nations Development Program (UNDP) addressed the issue of the impact of COVID-19 on poverty in Albania through a series of small projects for women in Tirana and other municipalities. The projects also targeted the promotion of equal family gender roles along with measures to combat domestic violence and offer psychological support to victims.
The UNDP aided other at-risk groups as well. From teletherapy services for disabled persons to employment promotion for ethnic minorities, the UNDP provided localized efforts to address problems raised by the pandemic.
The French Agency for Development (AFD) also continued its projects to increase Albanian women’s access to economic opportunities and further the fight for gender equality. The AFD’s foreign aid is part of an initiative to lead Albania towards fulfilling the social criteria needed for entry into the EU.
Albania’s cultural sector also needs help to recover from the impact of COVID-19. Lockdowns and travel restrictions gravely damaged the industry as it relies heavily on events and tourism. Along with MSMEs, the cultural sector plays a significant role in the economy, generating 2.95% of Albania’s GDP.
These severe impacts on two of Albania’s most lucrative sectors, MSMEs and culture, needed to be curbed as soon as possible while addressing the state’s high pre-pandemic poverty rate. The Albanian government thus implemented a fiscal stimulus of about 3.5% of its gross domestic product (GDP). Through welfare support, tax relief and credit schemes the government alleviated the burden on the private sector and policies on credit installments curtailed impacts on new businesses.
Only 18% of Albanian firms reported using digital platforms to adapt to the pandemic, suggesting that the government efforts were the primary aid to alleviate the pandemic’s impact. The cultural sector, however, stands out. The Ministry of Culture founded the National Digitalization Center. Apart from that, 87.5% of institutions and enterprises in the cultural sector reported moving part of their business to virtual platforms, UNESCO reported.
The government also alleviated the impacts of the fall of the euro. The Bank of Albania promoted the lek’s stability and increased transparency in transactions involving foreign currencies. The European Commission and European Central Bank contributed financial aid to stabilize the banking system and provide euro support, LSE reported.
These sweeping measures were effective in helping the nation bounce back in the post-pandemic period. Despite rising inflation levels and supply chain disruptions, both the real wage and the minimum wage increased in 2021. Most significantly, the poverty rate dropped to 22% in 2021.
In 2021, the Council of Europe Development Bank (CEB) agreed to loan Albania €60 million to “mitigate the effects of COVID-19.” The loan aims to aid individuals especially vulnerable to the pandemic and help close the €570 million gap created in 2020. The loan and government measures may thus offset the impacts of COVID-19 on poverty in Albania through sustainable growth.
The impacts of COVID-19 on poverty in Albania were challenging, touching the most vulnerable sectors of the economy and exacerbating social challenges for women. However, the government’s wide-reaching economic reforms successfully curbed the pandemic’s economic impact on the industries and continued decreasing the nation’s poverty rate. International aid from the UNDP, EU and CEP was crucial in helping complement the government efforts by addressing the pandemic’s social impacts. This continued aid can continue to help Albania lower its poverty rate.
– Elena Sofia Massacesi