Albania was the last of the central and eastern European countries to embark upon democratic and free market reforms. Further, Albania started from a comparatively disadvantaged position, due to Hoxha's catastrophic economic policies. Transition from a centrally planned economy to a market orientated system has almost been as difficult for Albania as the country's Communist period.

The democratically elected government that assumed office in April 1992 launched an ambitious economic reform program meant to halt economic deterioration and put the country on the path toward a market economy. Key elements included price and exchange system liberalization, fiscal consolidation, monetary restraint, and a firm income policy. These were complemented by a comprehensive package of structural reforms, including privatization, enterprise and financial sector reform, and creation of the legal framework for a market economy and private sector activity.

Results of Albania's efforts were initially encouraging. Led by the agricultural sector, real GDP grew, and Albania's currency, the lek, stabilized. The speed and vigor of private entrepreneurial response to Albania's opening and liberalizing was better than expected. Beginning in 1995, however, progress stalled. The collapse of the infamous pyramid schemes of the 1990s and the instability that followed were a tremendous setback, from which Albania's economy continues to recover.

Within recent years, the Albanian economy has improved, although infrastructure development and major reforms in areas such as tax collection, property laws, and banking are proceeding slowly. Between 1998-2002, Albania experienced an average 6.2% annual growth in GNP. Fiscal and monetary discipline have kept inflation relatively low, averaging roughly 4.2% per year between 2001-2003. Albaniaís public debt reached 67% of GDP in 2002, and the growing trade deficit was estimated at 22% of GDP in 2002. Economic reform has also been hampered by Albaniaís very large informal economy, which the IMF estimates equals 50% of GDP.

Albania's trade imbalance is severe. In 2002, Albanian trade was U.S. $1.8 billion in imports, and U.S. $350 million in exports. Albania has concluded Free Trade Agreements (FTAs) with Macedonia, Croatia, UNMIK (Kosovo), and Bulgaria. FTAs with Romania, Bosnia, and Moldova are at various stages of approval. However, combined trade with all these countries constitutes a small percentage of Albania's trade, while trade with EU member states (notably Greece, Italy, and Turkey) accounts for nearly 75%.) U.S. two-way trade with Albania is very low. In 2003, U.S. exports to Albania totaled $9.7 million making it the 183 ^rd overall destination for U.S. exports. U.S. imports, during the same time period, totaled $4.3 million, making Albania the 177 ^th overall source of U.S. imports. Major U.S. investment to date has been limited to large-scale infrastructure contracts with the government. The Albanian Government is currently negotiating a FTA with the EU, as part of its Stabilization and Association Agreement negotiations, which, when it comes into force, could significantly reduce revenue collected.

Albania is assiduously trying to attract foreign investment and promote domestic investment, but significant impediments exist. The Albanian government faces the daunting but essential task of rationalizing and uniformly applying business laws, improving transparency in business procedures, restructuring the banking and tax systems (including tax collection), reducing corruption in the bureaucracy, and resolving property ownership disputes.

Business growth is further retarded by Albania's inadequate energy and transportation infrastructure. The capital, Tirana, generally receives electricity most of the day, but constant power outages plague every other major city, small town and rural village. Although recent steps have been taken to improve the transportation infrastructure, Albania has a limited railway system and few domestic airports. Because of the mountainous terrain, goods traveling overland must spend hours traversing the relatively sparse network of switchback roads, many of them of poor quality, to reach destinations that are relatively close.