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The race of (bad) governance/ Even today, poor people, with salaries and pensions 30% lower than the region!

2025-05-04 08:18:06Politikë SHKRUAR NGA REDAKSIA VOX

The race of (bad) governance/ Even today, poor people, with salaries and

A minimum wage of 500 euros/month, an average wage of over 1,000 euros/month, doubling pensions, etc., are the basis of the programs of political parties that will seek the vote of the electorate in the parliamentary elections on May 11.

Still, after 35 years of transition, they are basing their campaign on promises that ultimately guarantee the minimum living standard of an individual or pensioner, and should not even be up for discussion today!

The Socialist Party has been in power since 2013 and is aiming for a fourth consecutive term, having previously been in power from 1997 to 2009.

The Democratic Party governed the country from 2005 to 2013, having previously been the leading force in the early 1990s in the transition from a centralized to a market economy. Smaller parties have failed to gain ground, often becoming a free electron that drifts left or right, without being decisive factors in governance.

The Socialist Party has been in power for 20 years and the Democratic Party for 13 years. Albania is undoubtedly much better off today than it was in the early 1990s. Gross Domestic Product (GDP) reached 25 billion euros in 2024, up from around 2.2 billion dollars in 1995.

Per capita income has reached $9,600 in 2024, according to the International Monetary Fund (IMF), up from $250 in 1992 and $900 in 1995.

But is it where it should be?! Comparative data with the region and Europe show that it is not.

The division of power between left and right has not managed to remove Albania from the list of the poorest and most corrupt countries in Europe, per capita income according to purchasing power is one-third of the European Union, salaries are 30% lower than the average in the region (excluding Kosovo), while its citizens continue to be the unhappiest in Europe (with the exception of Turkey) and are still emigrating at rates similar to the early 1990s and the highest in the world, in relation to the population.

"Monitor" brings a panorama of the economic performance of the last three decades. The Democratic Party has the "chance" of not being in power since 2005, avoiding responsibilities, while the Socialist Party has the burden of the failures, or the credit for the achievements of the last 12 years.

The division of power between left and right has not managed to remove Albania from the list of the poorest and most corrupt countries in Europe, per capita income according to purchasing power is one-third of the European Union, salaries are 30% lower than the average in the region (excluding Kosovo), while its citizens continue to be the unhappiest in Europe (with the exception of Turkey) and are still emigrating at rates similar to the early 1990s and the highest in the world, in relation to the population.

WAGE COMPETITION LOST, EVEN TODAY THEY ARE 30% LOWER THAN THE REGION

Wages in Albania have historically been the lowest in Europe and the region (excluding Kosovo), a reflection of the non-productivity-oriented economic model and the high level of informality in the private sector.

INSTAT reports the average wage in the economy only from 2014. Until 2021, their level remained unchanged, and in some years even negative, if indexed with inflation.

About three years ago, Prime Minister Rama launched a feverish race to equalize salaries with countries in the region, which at the time were 30-40% higher.

The chosen form was the easiest, using the budget to change the salary structure in public administration.

With this move, the prime minister intended to encourage the private sector to act as well. What actually happened was that salaries in the state increased at a faster rate than in the private sector.

Even the latter's reaction was more a result of the pressure of the lack of labor, the emigration of qualified personnel, or formalization after the action initiated by the Tax Authority.

At the end of 2024, the salary in the state exceeded the limit of 100 thousand lek per month (about 1 thousand euros) for the first time, being 30% higher than in the private sector (76 thousand lek), from 20% which was the difference at the beginning of 2022.

Have we made progress in our competition with the region? The data from 2024 shows that we have not. With the exception of Kosovo, wages in Albania remain about 30% lower than in other countries in the region, which did not stay in place during this time.

In Albania, the average monthly salary for 2024, according to INSTAT, was 77 thousand lek (about 770 euros), compared to 1020 euros in North Macedonia, 1083 euros in Montenegro, 1090 euros in Bosnia and Herzegovina and 1155 euros in Serbia, according to data that "Monitor" processed from the relevant statistical agencies.

Even if converted at the 2022 exchange rate, to avoid inflation from the exchange rate, the average salary in the economy in 2024 was 650 euros, again 40% lower than the regional average.

Separate data for the private and public sectors are only available for Albania and Serbia. They show the “distortion” of the market in Albania, with a difference of 30%, while in Serbia, both the state and the private have the “power” to pay equally.

In Serbia, the private sector pays an average of 1,100 euros per month, while in Albania 690 euros, for the year 2024.

The last three years have shown that wage increases by administrative order are destined to be a failed practice. The best way to increase wages in the economy is to increase productivity.

This means that wages increase in line with improving employee skills and efficiency, bringing real gains in production and higher profits for the company, rather than being administratively increased without any improvement in performance.

The economic model that drives this sustainable wage growth is based on productivity and inclusive development.

In this model, investments in technology, education, and innovation lead to increased employee efficiency and improved production processes, which creates more added value and higher profits for companies, which are then distributed in the form of better wages.

In Albania, which is oriented towards construction and services, this is not happening, leaving us once again last in the region.

ALSO PENSIONS, THE LOWEST IN THE REGION

Not only are salaries, but pensions are also the lowest in the region. In 2024, a pensioner received an average of 180 euros, less than half of the countries in the region, with Montenegro holding the record at 450 euros per month.

According to Eurostat, the purchasing power of an Albanian pensioner is the lowest in Europe. Albanian pensioners also rank among the last in Europe in terms of the ratio of pensioner to income at the end of their career.

This means that if an individual aged 50-59 has earned 500 euros, they will only receive 37% of that payment in retirement.

Old-age pensions have grown at a slower pace than wages, widening the gap every year. Last year, the average pension was 24.6% of the average gross monthly wage. Ten years ago, the average pension was 32% of the average gross monthly wage.

Pension increase policies are different from wages. The Social Security Law only allows for indexation of pensions with inflation to keep the deficit of the tax-financed public social security scheme under control.

The purchasing power of pensioners is being further eroded by the widening gap between wages and pensions. The growing gap between the average wage and the average pension deepens the inequality between pensioners and the rest of society.

The increase in the number of old-age pensions accelerated in 2023, at the highest rates in the last six years. According to data from the Social Insurance Institute, 590,649 people received old-age pensions in 2023, with an annual increase of 3.1%.

In 2023, there were 1.17 contributors for every pensioner, up from 1.3 in 2009. When the ratio falls below 2:1, the scheme begins to face serious financial pressure, as is currently the case in many countries, including Albania.

The decline in this ratio usually occurs due to population aging, emigration, and informal work and puts the pension system at risk without structural reforms.

For the time being, government spending has been "saved" by the fact that most of those retiring do not meet the conditions for full payments, as a result of high informality in the labor market. The new 2023 pensions were significantly lower than the average pension.

Official data from the Social Security Institute (ISSH) indicates that those who retired last year received an average of 15,560 lek per month, a value at least 15% lower than the average national pension of over 18,300 lek per month.

On the other hand, the increase in the minimum wage and overall wages in both the public and private sectors has positively impacted contribution revenues.

Increased revenues and curbed spending caused the budget subsidy for the insurance scheme to drop to 14.6 billion lek in 2023, only 0.8% of GDP, from 23 billion lek in 2022.

The state budget subsidizes the costs of the public pension scheme that are not covered by insurance. But since the new pensions are coming out lower than the average pension in the country, budget subsidies for the pension scheme are decreasing.

This momentary salvation is not a long-term solution, as the population is aging rapidly and the average age according to the last Census has reached 42.5 years (from 31.5 years in 2011) and the young population continues to leave.

The old-age dependency ratio (the ratio of the number of individuals over 65 years of age to the number of individuals of working age, 15-64 years of age), increased to 30.4% from 16.7% in 2011.

Albania today is based on the first pillar of pensions, the one with mandatory contributions (pay as you go - pensions for the elderly and people unable to work depend on the contributions of the active generation in the labor market), while the second pillar (a legally mandatory contribution to a private pension fund chosen by the contributor himself - which does not yet have a legal framework) and the third (contribution to a private pension fund, but on a voluntary basis of the system, which is at very low levels) or the mandatory and voluntary supplementary insurance schemes have not been developed.

The current government has meanwhile launched a new reform of the pension scheme, where it is being discussed that the retirement age of 67 will occur before the current deadline of 2056, the second column will be developed; the formula for calculating benefits for a fairer benefit in relation to the contributory life developed by the individual in the context of obtaining a sufficient level of income; the contribution level for the employee or employer categories.

THE COUNTRY HAS STUCK IN THE CONVERGENCE PROCESS, REMAINING AMONG THE POOREST IN EUROPE

In 1990, Albania was the poorest in Europe, according to IMF data on per capita income measured by purchasing power parity, with 2,948 international dollars [1]  (the unit that makes fairer comparisons of living standards and economic performance between countries, taking into account changes in prices and purchasing power).

The penultimate was Poland (6687 international dollars), followed by Romania (8134) and Bulgaria (9434). For the countries of the former Yugoslavia, the data is more recent, from 1997, but they were more or less at the same levels.

More than three decades later, the development in countries that transitioned from a centralized to a free market economy is very different, as can be seen in the graph below.

Poland grew rapidly, helped both by its strategic location near Western countries and by its faster accession to the European Union. Bulgaria and Romania also benefited from EU membership.

In 1990, Poland's income, in purchasing power parity terms, was 37% of the then European Union average, while in 2024 it was 82% of it, or 90% of the European average. Bulgaria's income is 62% of the EU average.

Albania has clearly remained in the convergence process, which implies faster growth than developed countries, with the aim of catching up with the European average within a period of time.

In 1990, per capita income, measured in purchasing power parity, was 16% of the European Union's, and in 2024, it is no more than 37% of what an average European citizen earns, and 34% of the European Union's.

While Eastern European countries had the geographical advantage and EU membership, Albania has lagged behind even in relation to the Western Balkans, ranking second to last, surpassed only by Kosovo.

Montenegro has the highest income, with 50% of the EU, followed by Serbia (46%), North Macedonia (42.9%), Bosnia and Herzegovina at almost the same level as Albania (34.3%) and lastly Kosovo, with 27%.

Eastern European countries have improved their economic performance thanks to deep structural reforms, large foreign investments, and rapid integration into European markets, increasing productivity and developing infrastructure.

On the other hand, the Western Balkans face institutional challenges, corruption and structural inequalities, which have hindered their economic growth. Successful models in the Balkans are Croatia and Slovenia, which have incomes of 78% and 88% of the EU average, respectively.

These countries, which have long been "detached" from the Balkans, have fared better because, having become part of European structures earlier, they have benefited from foreign investment, institutional reforms, and infrastructure development, which have created a more favorable climate for economic development.

Also, a more developed industrial base and a stronger focus on economic diversification and tourism have contributed to their growth compared to other Western Balkan countries.

For 2024, IMF data on per capita income ranks Albania ahead of North Macedonia and Bosnia and Herzegovina, with a strong jump to $9,598/capita, from $8,299 in 2023 and $6,870 in 2022.

North Macedonia and Bosnia lagged behind in 2024, with $8.6 and $8.2 thousand per capita, respectively.

But, more than an increase in the well-being of every Albanian, this is a statistical improvement due to two factors, firstly, the decline in currencies that automatically increases income converted to dollars, and secondly, the shrinking population following the New Census data.

This is confirmed by the fact that in terms of per capita income, measured by purchasing power, Albania continues to be among the last in Europe in 2024, leaving behind only Ukraine, Moldova and Kosovo. (see graph: Per capita income, by purchasing power, 2024)./Monitor


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