EUROPEAN COMMISSION Brussels, 9.11.2016 SWD(2016) 364 final COMMISSION STAFF WORKING DOCUMENT Albania 2016 Report

Accompanying the document Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions 2016 Communication on EU Enlargement Policy {COM(2016) 715 final}



Table of Contents 1. INTRODUCTION 1.1. Context 1.2. Summary of the report 2. POLITICAL CRITERIA 2.1. Democracy 2.2. Public administration reform 2.3. Rule of law 2.4. Human rights and the protection of minorities 2.5. Regional issues and international obligations 3. ECONOMIC CRITERIA 3.1. The existence of a functioning market economy 3.2. The capacity to cope with competitive pressure and market forces within the Union 4.ABILITY TO ASSUME THE OBLIGATIONS OF MEMBERSHIP 4.1. Chapter 1: Free movement of goods 4.2. Chapter 2: Freedom of movement for workers 4.3. Chapter 3: Right of establishment and freedom to provide services 4.4. Chapter 4: Free movement of capital

4.5. Chapter 5: Public procurement 4.6. Chapter 6: Company law 4.7. Chapter 7: Intellectual property law 4.8. Chapter 8: Competition policy 4.9. Chapter 9: Financial services 4.10. Chapter 10: Information society and media 4.11. Chapter 11: Agriculture and rural development 4.12. Chapter 12: Food safety, veterinary and phytosanitary policy 4.13. Chapter 13: Fisheries 4.14. Chapter 14: Transport policy 4.15. Chapter 15: Energy 4.16. Chapter 16: Taxation 4.17. Chapter 17: Economic and monetary policy 4.18. Chapter 18: Statistics 4.19. Chapter 19: Social policy and employment 4.20. Chapter 20: Enterprise and industrial policy 4.21. Chapter 21: Trans-European networks 4.22. Chapter 22: Regional policy and coordination of structural instruments 4.23. Chapter 23: Judiciary and fundamental rights 4.24. Chapter 24: Justice, freedom and security

4.25. Chapter 25: Science and research 4.26. Chapter 26: Education and culture 4.27. Chapter 27: Environment and climate change 4.28. Chapter 28: Consumer and health protection 4.29. Chapter 29: Customs union 4.30. Chapter 30: External relations 4.31. Chapter 31: Foreign, security and defence policy 4.32. Chapter 32: Financial control 4.33. Chapter 33: Financial and budgetary provisions Annex I – Relations between the EU and Albania Annex II – Statistical Annex

1. INTRODUCTION 1.1. Context In June 2014, the European Council granted Albania candidate status. The Stabilisation and Association Agreement (SAA) has been in force since April 2009 and Albania has implemented smoothly its obligations. Regular political and economic dialogue between the EU and Albania has continued through the relevant structures under the SAA. The government engaged in EU-related reforms and continued to make progress in meeting the objectives set out in the five key priorities for the opening of accession negotiations. 1.2. Summary of the report As regards the political criteria, overcoming previous polarisation, the Parliament of Albania has adopted by unanimity constitutional amendments to launch a deep and comprehensive justice system reform and the exclusion of criminal offenders from public offices. In view of the next general elections to be held in 2017, Albania is expected to adopt in due time amendments to the electoral code and related reforms. These should address in particular the lack of impartiality and professionalism of the electoral administration. Adoption of the law establishing the national council for civil society provided the framework for more structured consultations with civil society organisations. Albania is moderately prepared in what concerns the reform of its public administration. The implementation of more transparent recruitment procedures of civil servants, as well as the implementation of the public administration reform and public financial management reform strategies have continued. Further progress is key to consolidate achievements towards a more efficient, depoliticised, and professional public administration. Albania's judicial system has some level of preparation. Constitutional amendments related to the organisation and functioning of the justice system were adopted. This paves the way for a comprehensive and thorough justice reform. Work on related implementing legislation also advanced: a law on the re-evaluation (vetting) of judges, prosecutors and legal advisors, as well as a set of key laws providing for the institutional reorganisation of the judicial structures were adopted. In addition, around 40 other legislative texts are at various stages of preparation. Further progress is needed to adopt and implement this legislation. Administration of justice continued to be slow and inefficient; corruption remained prevalent across the sector. Albania has some level of preparation in the fight against corruption. A law on whistleblower protection was adopted. Prosecutors and police gained increased access to national electronic public registries, with a view to exchanging sensitive information and increasing the efficiency of investigations. Further progress is needed to establish a solid track record of investigations, prosecutions and convictions. More efforts are needed to tackle corruption at high level. Proactive investigations, systematic risk assessments and interinstitutional cooperation need to be improved. Corruption remains prevalent in many areas and continues to be a serious problem. The country has reached some level of preparation in the fight against organised crime. Some progress was made, in particular on identifying and destroying cannabis plantations. The police was modernised and international police cooperation intensified, especially with Europol. However, cooperation between police and prosecution needs to be further strengthened to dismantle criminal networks more effectively. The number of final convictions in organised crimes cases is still low, marking only a slight increase in recent years. Financial investigations related to organised criminal groups are not used systematically and effectively. The track record of freezing and confiscating illegally acquired assets remains very low. The legal framework for the protection of human rights is broadly in line with European standards. Albania has ratified most international human rights conventions. However, enforcement of human rights protection mechanisms remains to be strengthened. As regards freedom of expression, Albania has some level of preparation / is moderately prepared. The overall environment is conducive to the freedom of expression, but better implementation of the legislation is needed. The independence of the regulatory authority and public broadcaster must be further strengthened, and transparency of state advertising in the media remains to be enhanced. Albania has taken measures to address the restitution of or compensation for property confiscated during the communist era. A new law providing for the setting up of a national mechanism for compensation is now in place. The process of property registration also needs to advance. Living conditions for Roma and Egyptians need to be improved. Additional efforts are needed to develop a track record of anti-discrimination cases. Institutional mechanisms to protect the rights of the child and to tackle gender-based violence remain poor. The legislation on juvenile justice remains to be brought in line with international standards. Albania has continued to have a constructive and proactive role in regional cooperation and maintains good neighbourly relations in line with its commitments under the Stabilisation and Association Agreement. As regards the economic criteria, Albania is moderately prepared in developing a functioning market economy. Some progress was made in improving the budget balance, fighting informality and reforming the electricity sector. Economic growth accelerated and the labour market situation improved, but unemployment is still high. Public debt is high and has not yet started decreasing, while the recurrent underexecution of government spending on investments persists. The financial sector is stable. However, the banking sector is still burdened with non-performing loans and credit is growing slowly. Business-relevant regulations are cumbersome and shortcomings in the rule of law continue to deter investments. The ongoing justice reform is expected to have a material impact on the business environment. Albania has some level of preparation concerning its capacity to cope with competitive pressure and market forces within the Union. Some progress was made particularly as regards improving higher and vocational education. However, the quality of education needs to be raised at all levels to better equip people with skills and knowledge in line with labour market needs. Efforts have started for prioritising infrastructure investments, but gaps in transport, energy and digital infrastructure still hinder competitiveness and constrain trade. International trade is below potential and it is sectorally concentrated making the economy more vulnerable. Capacity for research, development and innovation remains low. Albania continued aligning its legislation to EU requirements in a number of areas, enhancing its ability to take on the obligations of membership. In many areas, the country is moderately prepared, such as in financial control, or has some level of preparation, including in the areas of public procurement and statistics. Albania will need to continue its efforts as regards the overall preparations for adopting and implementing the EU acquis. It should continue work on the development of the transport and energy networks, also with a view to improving connectivity throughout the region. The administrative capacity and professional standards of bodies charged with the implementation of the acquis need to be strengthened and the independence of regulatory bodies safeguarded. Enhancing transparency and accountability, in particular ensuring the effective, efficient and transparent functioning of the public procurement system and public finance management, remains essential. Albania has continued to fully align with all EU common foreign and security policy positions and declarations. The number of unfounded asylum applications lodged by Albanian nationals to EU Member States and Schengen associated countries has remained high. Albania should take immediate and determined action, including in the framework of the post-visa liberalisation monitoring mechanism, to effectively address this phenomenon. 2. POLITICAL CRITERIA 2.1.Democracy Elections Some progress was made over the past year with the establishment of an ad hoc parliamentary committee on electoral reform. This reform is expected to address outstanding recommendations of the OSCE's Office for Democratic Institutions and Human Rights (OSCE/ODIHR). It is important that the reform is finalised sufficiently ahead of the next round of general elections.

An ad hoc parliamentary committee was established in December to address shortcomings in the electoral system and address outstanding OSCE/ODIHR recommendations from the 2013 parliamentary elections and 2015 local elections. Shortcomings include lack of impartiality and politicisation of the electoral administration, transparency of campaign finances and electoral dispute resolution. The ad hoc committee is co-chaired by a representative from the ruling majority and the main opposition party and has members from all parliamentary groups. Assisted by party-appointed experts, the committee was tasked with drafting amendments to the electoral code using an inclusive approach. Its mandate was therefore extended in June. The committee has started to involve other relevant institutions, extra-parliamentary parties and civil society. It is important that the electoral reform is adopted sufficiently ahead of the next round of parliamentary elections to be held in 2017. Parliament Some progress in the functioning of parliament continued over the reporting period with the consensual adoption of constitutional amendments on justice reform and on the exclusion of criminal offenders from public office. Contacts with constituents were improved, as were the transparency and inclusivity of parliamentary activities. Cross-party work on key reforms continued, although on a number of occasions political dialogue was polarised. In December, cross-party consensus led to the adoption of constitutional amendments and a law on the integrity of elected and appointed officials, banning criminal offenders from holding and running for public office. Amendments passed in February and by-laws in March ensured that implementation could be launched within legal deadlines. Initial effects resulted in voluntary resignations and dismissals at local level. Both the majority and the opposition engaged in intense preparatory activities for justice and electoral reforms. The ad hoc committee for justice reform carried out an inclusive, transparent, expert-driven process, producing a comprehensive set of constitutional amendments and accompanying laws. Difficulties in achieving cross-party compromise caused delays in finalising the reform package. The amendments to the constitution were approved by a unanimous vote in July. Work continues for the adoption of a series of related legislative acts. The mandate of the ad hoc committee for justice reform was extended until the end of 2016. The ad hoc committee on electoral reform was established in December and its mandate has also been prolonged to the end of 2016. Parliament adopted 14 laws requiring a qualified majority, including amendments to the criminal code and the labour code. Of all laws adopted during the reporting period, around one third received the support of the opposition (in the previous reporting period only 16 out of 173 received cross-party support). However, political polarisation remained high, hindering both political dialogue and technical processes. Partial, short-lived opposition boycotts occurred on a number of occasions. Parliamentary ethics do not meet regulatory provisions and public expectations. The code of ethics, which has been in parliamentary procedure since early 2016, is pending approval. In March and April, the parliament filed requests to review whether three members of parliament (MPs) from the ruling majority had complied with the constitutional rules governing their mandate. The mandate of one MP was lifted as a result of a Constitutional Court ruling. The Constitutional Court has yet to issue decisions on the other two MPs. One MP from a smaller party lost his mandate after being imprisoned, while another MP from the majority resigned in October in response to accusations of having a criminal background. Two MPs await High Court rulings. Two members of the Central Election Commission were elected in December and one member of the Financial Supervisory Authority Board was appointed in January. Four members of the Audiovisual Media Authority and one member of the Supervisory Council of the Bank of Albania were elected in July. The parliament rejected five presidential decrees returning laws for parliamentary review (law on international agreements, the audio-visual media law, the law on property, the law on higher education and the law on tourism). Parliamentary rules of procedure are yet to reflect the law on the role of parliament in the EU integration process, adopted in March 2015. The capacity of the National Council for European Integration was boosted with the addition of a dedicated support unit. The Council is yet to fully assume its role as a forum for broad involvement and consultation on EU integration issues. Parliament’s overall capacity to monitor the implementation and compliance of new legislation with the acquis remained limited. Despite some efforts, coordination with the executive branch needs to be further improved. The mandates of two parliamentary inquiry committees were extended in February, April and June, and two new ones were established in April. Three of these inquiry committees were initiated and are led by the opposition. The work of inquiry committees remained highly conflictual and lacked results. Other oversight mechanisms remained underused. Parliament conducted a more structured process of review of annual reports of independent institutions and adopted 16 resolutions. However, a comprehensive follow-up and monitoring system of recommendations by parliament and independent institutions has yet to be developed. Constituency offices were opened in five regions (Fier, Kukës, Shkodër, Gjirokastër, Korçë) and equipped with parliamentary staff. The office in Korçë functions on a cross-party basis. Coverage of all 12 regions has yet to be ensured. Transparency and inclusiveness in parliament's work continued to follow an upward trend. A new parliamentary website launched in March significantly improved access to parliamentary documents. However, more transparency is needed at committee level. Parliamentary committees continued consultations with relevant stakeholders, but improvements are required on early notification and follow-up. A law on the establishment of the National Council on Civil Society was adopted in November. Expert capacity was strengthened in February and increased budgetary allocations for training were adopted, but research and analytical capacity remained limited. Governance The government continued to work on the reform agenda, which mainly focused on addressing the five key priorities for the opening of accession negotiations and stabilising the economy. Some progress was made on policy coordination and at local government level, with the adoption of the new law on the organisation and functioning of local governance. However, substantial efforts are needed to increase the administrative capacity of local government units to carry out their expanded competencies and provide them with the necessary financial resources. The government remained committed to EU integration and pursued the reform agenda, which included addressing the five key priorities for the opening of accession negotiations; strengthening the rule of law; and tackling the informal economy. In May, the government approved the 2015-2020 national strategy for development and integration, setting the strategic milestones for the five years ahead. A board on European Integration, composed of the Ministers in charge of the five key priorities, was established in November to upgrade coordination in view of future opening of accession negotiations. There is still a need for closer cooperation and coordination at all levels of government with parliamentary and civil society platforms dealing with EU integration matters. Policy coordination improved with the establishment of integrated policy management groups in pilot sectors. However, more efforts are needed to improve the capacity of the management groups, their technical secretariats and the Department of Development, Financing and Foreign Aid, which is the main coordinating body. There have been no Constitutional Court rulings since October 2015 on the functioning of state institutions. Several ministries are implementing transparency programmes and the government set up a transparency website. However, further efforts are needed to communicate more effectively the benefits of key reforms, in particular those with major social impact and those related to the EU integration process. The need for more transparency and accountability applies also to independent institutions. The ruling coalition remained stable. The government cabinet saw three changes of ministers, but there were no political reshuffles.

On local government, implementation of the territorial reform continued, although financial and administrative consolidation of the newly created municipalities was slow. Full application of the law on civil servants at local government remains to be ensured. Adequate resources are needed to implement training plans for the staff in the new municipalities. The decentralisation process was supported by the establishment of an inter-institutional coordination group under the integrated policy management group for good governance. The decentralisation strategy's medium-term financial sustainability has yet to be ensured. The new law on the organisation and functioning of local governance entered into force in January. The law decentralises a high number of new competences to municipalities. The establishment of a consultative council between the central and local governments is pending. One stop shops for public services were piloted in five municipalities. On fiscal decentralisation, the proportion of resources allocated to local government units increased from 2.2 % of GDP in 2015 to 3.2 % in 2016, which is the largest budget ever allocated to local government in Albania. However, considering the powers transferred to local level, the 2016 budget does not represent a net increase in municipalities' resources. Adoption of a new law on local finances and local taxes is needed, based on the principles of predictability and transparency of funds allocation, providing a financial equalisation mechanism and favouring local revenues, tax collection and access to loans and credits. Transparency in local government finances improved with the publishing of local government budgets online. A citizens' budget for the local government budget has yet to be produced. On territorial planning, an electronic one stop shop system for applying for building permits was introduced as of September and is expected to increase the transparency of the decisionmaking process in the institutions involved. The capacity of local government units to prepare local development plans remained limited and their adoption was slow. The 2016 state budget funds earmarked to support the drafting of local development plans are sufficient only for 26 out of the 61 municipalities. Since his appointment in 2011, the Ombudsman has actively promoted the rights of vulnerable groups, including by submitting special reports and recommendations. However, the work of the Ombudsman's Office continued to be limited by a lack of funding and personnel and its central and local offices need to be upgraded so that staff can carry out their work satisfactorily. In 2016, the budget allocation of the Ombudsman's Office increased, allowing for the recruitment of Commissioners on Children's Rights and the Prevention of Torture, but the actual officials are yet to be appointed. Most complaints submitted to the Ombudsman's Office continued to relate to social rights and failure by the state administration to act within the legal deadlines. Civil society Some progress was made towards implementing the institutional framework for consultation with civil society following the approval of the law establishing the National Council for Civil Society. The fiscal framework regulating the activity of civil society organisations (CSOs) was still not conducive to their development and needs to be revised. An empowered civil society is a crucial component of any democratic system and should be recognised and treated as such by the state institutions. Albania's legal and regulatory framework on the right of freedom of association is generally in line with international standards. However, the registration process at the First Instance Court in Tirana remained cumbersome due to the high financial cost of registration, lengthy procedures and lack of specialised judges dealing with CSOs' legal issues. In April, the law on volunteerism was enacted by parliament, fulfilling one of the nine priorities identified in the government road map towards a more enabling environment for civil society development. In November, the parliament enacted the law on the establishment and functioning of the National Council for Civil Society (NCCS), with the aim of institutionalising cooperation between the government and civil society. Chaired by the Minister of Social Welfare and Youth, the Council is composed of 13 government and 13 civil society representatives, with the Agency for Support to Civil Society acting as a technical secretariat. The selection process for NCCS civil society representatives was not clearly set out in law and was concluded only in June with international assistance. Information sessions were organised across the country to present the NCCS and how it was set up. Civil society representatives participated in all meetings of the National Council of European Integration, but their role remained passive overall. Effective implementation of the laws on the right to information and public consultations remained a challenge, especially at local level. Following the entry into force of the new national accounting standards for non-profit organisations in January, the legal and regulatory framework on the tax regime for CSOs needs to be further improved and tax inspectors' capacity strengthened. The current procedure for VAT reimbursement of expenses under Instrument for Pre-accession Assistance (IPA) funded grants is not functional and no such reimbursement has taken place. Public funding remained limited and is not legally regulated at central and local level. The current legislation does not provide for any tax incentives for individual or corporate donations to CSOs. 2.2. Public administration reform Albania is moderately prepared with the reform of its public administration. Some progress was made on public administration reform, especially with more transparent recruitment procedures for civil servants. Steady implementation of the public administration reform and public financial management reform strategies continued. In the coming year, Albania should in particular: → further align the annual budget and the medium-term budget programme with one another and with the ongoing reform strategies and the priorities of the government; → strengthen the capacity of human resources managers and selection committee members to further improve the recruitment process; and enable data exchange between the human resources management information system and the treasury; → complete alignment of relevant sector legislation with the code of administrative procedures and adopt relevant by-laws to ensure its coherent implementation. Policy development and coordination Albania has the necessary legal and institutional set-up for a good policy-making system. However, alignment between the strategic documents and the medium-term budget programme is still insufficient and cost-analysis needs to be further developed. Implementation of all strategies requires continuous monitoring and reporting focused on results. Despite delays, the European integration coordination system was strengthened by increased number of staff in EU integration units of line ministries. Coordination in preparing the National Plan for European Integration has further improved, but needs to be better integrated in the overall policy planning system.

Policy and legislative development is not yet sufficiently inclusive and evidence-based. Impact assessment methodology needs to be adopted to ensure better quality of regulatory and fiscal impact assessments and their systematic implementation. Horizontal procedures for acquis alignment are in place and the tables of concordance are compulsory, but the impact of alignment is not properly analysed and implementation costs are not always duly forecasted. Institutional capacity for policy coordination, review and monitoring needs to be further strengthened. Public consultation is regulated by law and a website for public consultation was launched in September. The quality of the consultation process still needs to be improved. Public scrutiny of government work is still limited. Government reports on strategic documents are submitted to parliament on an annual basis, but reporting often covers only implementation of activities. Public financial management The government published the first monitoring report of the 2014-2020 public financial management (PFM) reform strategy in May. Despite some delays, there was progress in most areas, e.g. in arrears clearance; revision of the budget system law, internal control and financial inspection; online access to the treasury system; the financial management information system; the fight against informality campaign; and external audit manuals. A more robust result indicator matrix for the PFM strategy monitoring has been prepared and awaits adoption. Following a functional review, the structure of the Ministry of Finance was substantially modified, increasing staff from 250 to 293. A new unit was set up in the Ministry of Finance to monitor PFM strategy implementation. At the same time, in August there were 80 open vacancies in the Ministry of Finance, having an impact on its capacity. The reforms in the next period should focus on implementing the revised organic budget law; improving budget planning and management, prevention of reoccurrence of arrears; compliance with financial management and control standards in ministries; improving public procurement review function and compliance with procurement rules; giving online access to the treasury for more institutions; ensuring better tax collection and voluntary compliance; improving investment planning and management; and filling the remaining posts at the reorganised Ministry of Finance and the customs and tax administrations (see also chapters 5, 16, 29 and 32). Steps were taken to improve budget transparency, but they need to be further intensified. A transparency roadmap has been implemented since 2015 and was updated for 2016 to address the findings of the transparency code assessment and the open budget index assessment. The 2016 budget, the citizens' budget for the 2016 draft budget, and the list of public investments under the medium-term budget programme have been published. The annual government finance statistics for 2014 and 2015 were also published, while the 2015 budget implementation report was published with a delay. However, its structure does not allow for comparison and analysis against the original budget and reporting on state assets is weak. Inyear reporting is available, but no separate mid-year report is produced. Citizens' participation in the budget process is still weak. Public service and human resources management The law on Civil Servants provides a clear scope for civil service, but institutions that deliver services directly to citizens are excluded from its scope. This needs to be addressed and common standards for a professional and merit-based administration need to be ensured. The law establishes procedures for merit-based recruitment and promotion. Despite a high number of applicants, approximately 40 % of announced vacancies remained unfilled in 2015. The practical organisation of recruitment procedures needs further improvement e.g. through better planning and training of selection committee members. Further recruitment of senior civil servants through the in-depth training programme at the Albanian School of Public Administration should be put in place in accordance with the law. The 2014 amendments to the law broadened the grounds for dismissal of civil servants. The Department of Public Administration needs to closely monitor application of these amendments to ensure that fair and transparent dismissal procedures are maintained. High turnover of staff at local government level requires appropriate follow-up. In October 2015 an order was issued clarifying the procedure and responsibility for implementation of final court cases related to appeals by civil servants. It needs to be applied effectively to improve the enforcement of final judgements. The capacity of the Department of Public Administration (DoPA) to lead the management of human resources was improved thanks to staff increase to 53 members. However, its coordination, oversight and assistance role should be further strengthened. The human resources management information system is in place, but technical issues are preventing exchange of data with the treasury system. DoPA should ensure finalisation of data entry and develop procedures to ensure regular update and quality of data. Public institutions demonstrated good cooperation with the Commissioner for Oversight of the Civil Service. The annual report of the Commissioner was discussed in the parliament and was published. Adequate resources need to be allocated to the Commissioner to allow full exercise of its mandate. The remuneration system of public servants is in principle transparent and is based on a job classification system. However, the implementation of the new system based on job evaluation is pending. Introduction of salary bonuses for civil servants working on EU integration shall be duly assessed as it risks compromising the coherence of the overall remuneration system. Professional development is recognised as a right of every civil servant. Training is provided by the Albanian School of Public Administration and the quality and quantity of available courses has improved. The budget, however, is not sufficient to cover the high number of trainees, including at local level. A new performance appraisal system, with general appraisals taking place every six months, has been developed. DoPA needs to monitor its implementation and take the necessary corrective measures in case the new system creates an unnecessary burden on the administration and leads to discretionary dismissal decisions. Increased awareness raising and training of managers is required to ensure its application. A new law on the integrity of persons exercising public functions was adopted in December 2015. In accordance with the law in April the Department of Public Administration collected 24 000 self-declarations. Their verification led to the dismissal of 24 public employees. The perception of corruption remains high and more efforts are needed in this regard. Accountability of administration The legal framework on organisation of the state administration requires modernisation. Accountability lines and reporting between institutions are regulated, but inconsistencies between different types of subordinated bodies persist. Also, the number of bodies that report directly to parliament is too high. Delegation of responsibility is provided for by the code of administrative procedures. The state administration is subject to oversight by independent institutions (see chapter 32). The number of unanswered Ombudsman's recommendations and requests for information remained significant, compromising citizens' right to good administration. Although the right to access public information is regulated by law since 2015, the rate of response to citizens' requests remained low. Transparency programmes have been adopted in most institutions, but their quality and implementation should be further improved. The capacity of the Commissioner for the Right to Information and Protection of Personal Data needs to be increased so that the implementation of the law is properly monitored.

The right to administrative justice is governed by the law on administrative disputes and the law on administrative courts. The overall capacity of the administrative court system to deal with the backlog of cases needs to be significantly improved. The legislation for protecting the right of citizens to seek compensation in cases of wrongdoing by public authorities is in place, but due to limited public awareness, court cases in this area are rare. Service delivery to citizens and businesses In May the government adopted a citizen-centred service delivery reform policy document to improve the quality of public services and enhance citizen feedback. Inter-institutional coordination was improved thanks to the establishment of thematic groups on digitalisation,

e-government and service delivery working as part of the integrated policy management group on good governance. A new law on the Delivery of Front Office Services entered into force in March. The law sets out the standards for public services and is intended to simplify administrative procedures together with the new Code of Administrative Procedures, which entered in force in May. However, due to the lack of a lead coordinating institution, work on adopting the necessary implementing legislation, reviewing the special administrative procedures and adjusting the relevant sector legislation has been limited. Strategic framework for public administration reform The first annual implementation report of the 2015-2020 public administration reform strategy was published and provided baselines for the selected performance indicators. The integrated policy management group for public administration reform (PAR), set up in September 2015, still needs to develop into a policy decision forum. Involvement of civil society and the business community in the monitoring process should be improved. Public administration reform is one of the priorities of the recently adopted National Strategy for Development and Integration, confirming continued political support to this area. The Office of the Minister of State for Innovation and Public Administration was increased by four additional staff members. Funding of the PAR strategy is reflected in the medium-term budget programme. However, the estimated financial gap for implementation of the PAR strategy remained at 29 %, causing concern for the sustainability of its implementation. 2.3.Rule of law Functioning of the judiciary Albania's judicial system has some level of preparation. Good progress was made in the past year, notably through the adoption of a set of constitutional amendments that paved the way for comprehensive and thorough justice reform. This work followed an intensive process of public consultation and close cooperation with the European Commission for democracy through law (Venice Commission) at the Council of Europe, which adopted an opinion on the constitutional changes. A law on the re-evaluation of judges, prosecutors and legal advisors was adopted. As part of measures to fight corruption and re-establish public trust in the judiciary, the law provides for the re-evaluation (vetting) based on 3 criteria: integrity through assets assessment, background assessment (inappropriate links with organised crime) and professional competence. Its application has been suspended by the Constitutional Court, which is reviewing its constitutionality and has requested an amicus curiae brief from the Venice Commission. Moreover, a set of organic laws, identified by the Albanian legislator as priority for the implementation of justice reform, were adopted. These regulate overall organisation of the judiciary, the prosecution office, status of judges and prosecutors, Constitutional Court, creation of specialised institutions for the fight against organized crime and anti-corruption. In addition to this legislative package, preparations for other 40 laws and by-laws relevant for justice reform are ongoing. There was no progress on meeting other recommendations identified last year, namely the filling of vacancies at the High Court and the administrative courts; the effective use of the unified case management system; and the publication in due time of all court decisions together with their grounds. In order to fulfil the key priority on the reform of the justice system, in the coming year, Albania should in particular: → advance implementation of the new constitutional provisions, also through the adoption and implementation of related legislation; → pursue sectoral reform in the framework of the recently adopted cross-cutting justice strategy 2017-2020 and its action plan, ensuring that adequate financial resources are consistently available to achieve the reform objectives; → establish working vetting bodies and have initial results in the process of re-evaluation of judges and prosecutors. Strategic documents The previous justice system reform strategy expired in 2013. A new strategy providing the framework to implement justice reform until 2020 has been adopted in November 2016. The 20152017 medium-term strategy for the Prosecution Office is in place. Management bodies Under the constitutional reform, the current governing body of the judiciary, the High Council of Justice (HCJ), will be replaced by a High Judicial Council (HJC), which will have greater independence from political influence and be less prone to corporatism and corruption. Currently, the HCJ’s role is limited to the appeal and first instance courts, while the HJC’s competence will extend to the High Court. The HJC will be composed of 11 full time members, namely six judges appointed by their peers and five lay members elected by parliament among highly-qualified jurists. Two lay members will be selected from the legal professions, two from among law professors and the School of Magistrates, and one member from civil society. The selection of lay candidates will be the responsibility of a subcommittee of the parliamentary committee for legal affairs, subject to the power of the parliament to approve the shortlisted candidates with 3/5 majority or reject such list with 2/3 majority. The President of the Republic will no longer chair or sit in the Council. Instead the chair will be elected from among the HJC lay members. The Minister of Justice will only sit in the Council when strategic or budgetary matters are considered. As with the HCJ, the HJC will be in charge of the evaluation, appointment, promotion and transfer of judges, as well as the imposition of disciplinary sanctions. However, disciplinary proceedings will no longer be initiated by the Minister of Justice but instead by a new High Justice Inspectorate. The structure of the current Council of Prosecutors, an advisory body to the General Prosecutor Office (GPO), will also change under the reform and give prosecutors increased independence from the GPO. A High Prosecutorial Council (HPC) will be established and have exclusive responsibility for managing the career of prosecutors and for disciplinary matters. The HPC will be composed of 11 members: six prosecutors appointed by their peers and five lay members, selected through the same procedure as HJC lay members. The HPC will propose to parliament the candidate for the position of General Prosecutor. Independence and impartiality The independence of the judiciary is enshrined in the constitution. In practice, it is undermined by the high politicisation of High Court and Constitutional Court appointments and the excessive margin of discretion enjoyed by the HCJ and the General Prosecutor in managing judges and prosecutors' careers. There are regular reports of political interference in investigations and court cases. The unified case management system to allocate cases to judges is only partly functional. Non-transparent practices such as assigning cases by drawing lots - occasionally even in the office of the head of court - are still common in some courts. The prosecution service's case management system is not yet fully operational throughout the country, except for case registration purposes. The civil, criminal and administrative procedure codes regulate the exclusion of judges from cases, but there is no systematic registration of such cases.

Accountability With a view to increasing the accountability of the judicial system, the constitutional reform grants exclusive inspection powers to the new High Justice Inspectorate, as well as exclusive powers to verify and investigate complaints against judges and prosecutors. Magistrates are currently held accountable through inspections by both the Ministry of Justice and the HCJ. Despite the memorandum of understanding between these two bodies, the risk of overlapping inspections remained. The 2000 code of ethics for judges has no concrete impact on their accountability, although professional ethics is one of the subjects covered by the initial training programme of the School of Magistrates. In-service training on ethics for prosecutors is provided, but compliance with the 2014 code of conduct is not part of their annual evaluation. There is insufficient monitoring of judges and prosecutors' observance of ethical standards and integrity. Under the reform, it is foreseen that respect of ethics will be part of the evaluation of judges and prosecutors. A separate code of ethics for lawyers is in place. Judges and prosecutors are obliged to declare their assets on an annual basis. Despite referrals from the High Inspectorate for Declaration and Audit of Assets and Prevention of Conflict of Interest (HIDAACI) over judges' failure to properly declare their assets, no disciplinary measures have been taken to date. The judiciary is perceived as being highly corrupt. Professionalism and competence The careers of judges, namely their recruitment, appointment, transfer, promotion and dismissal, are the responsibility of the HCJ. Professionalism and integrity are not sufficiently reflected in existing criteria for judges' appointments. The framework for evaluating judges remained weak and judges' careers are not fully transparent and not always based on merit and other objective criteria. High Court and Constitutional Court members are appointed by the President of the Republic with the backing of a simple parliamentary majority. This has led to politicisation and recurrent standoffs in the appointments process, with frequent rejection by parliament of presidential nominees. Three High Court vacancies remained unfilled. Under the reform, the High Court will be transformed into a cassation court whose members will be appointed by the President upon proposal of the HJC. In order to tackle politicisation of appointments to the Constitutional Court, the reform provides for the establishment of a Justice Appointments Council, which will be responsible for verifying the fulfilment of legal requirements, as well as the professional and moral criteria applicable to the candidates for seats in the Constitutional Court and for the new post of High Justice Inspector. Under the reform, the appointment of the General Prosecutor will be made upon proposal of the HPC and require the backing of a 3/5 majority of parliament; further, the General Prosecutor's mandate will be reduced from 9 to 7 years without the right of reappointment. The General Prosecutor is currently appointed by the President with the consent of a simple majority of parliament, which undermined the independence and accountability of the prosecutorial system. As part of measures to fight corruption and re-establish public trust in the judiciary, the reform provides for the re-evaluation (vetting) of all currently serving judges, prosecutors and legal advisers. Implementation of the relevant law has been suspended by the Constitutional Court, which is reviewing its constitutionality. Quality of justice Initial and in-service judicial training is provided by the School of Magistrates. It is partly donor-supported, despite an increase in the School's budget in 2016. Training on the EU acquis is limited. Since June, Albania is an observer in the European Judicial Training Network. The National School of Lawyers has been operational since 2013 and trained 660 candidates in the 2015-16 academic year, but does not provide in-service training for lawyers. Annual reports of courts' activities are published by the Ministry of Justice. All courts are expected to produce one, but not all are available. Some courts do not have a website. The budget for the overall justice sector in 2016 is 14 % higher than in 2015 at EUR 91.7 million, which represents 0.85 % of GDP and 2.83 % of the state budget. It covers the Ministry of Justice, the prosecution, the courts, the School of Magistrates, the HCJ and the Constitutional Court. Albania has 408 professional judges (14 per 100 000 inhabitants), 336 prosecutors (11.6 per 100 000 inhabitants) and 946 judicial administrative staff (2.31 employees per judge). There are also 1 880 practising lawyers (65 per 100 000 inhabitants). The planning and distribution of administrative and financial resources within the judiciary needs to be improved. The budgetary allocations for court infrastructure have increased but a number of premises are still inadequate. Additional courtrooms are needed. Hearings continue to be held in judges' offices, contributing to a lack of transparency and an increased risk of corrupt practices. A State Archive of the justice system was established in April to store and process information on court cases. The Archive is not yet operational. A case-law database exists, but publication of judicial decisions remains inconsistent and there are no effective research tools. The High Court handed down five rulings unifying case-law. The system for notifying parties and witnesses is inadequate. More frequent recourse has been made to an alternative dispute resolution mechanism under the law on mediation. Efficiency The efficiency of the court system remained a concern, due to insufficient financial and human resources, inadequate planning and a lack of sound legal provisions regulating the internal organisation of the courts. Backlogs remained high, in particular in administrative courts, appeal courts and at the High Court. The reform aims to diminish the workload of the High Court by narrowing the scope of its competences. The High Court will be transformed into a cassation court tasked with providing legal interpretation and unifying case-law rulings. Its current competence to handle criminal charges against the highest state officials will be transferred to a special first instance and appeal court also responsible for the adjudication of the criminal offences of corruption and organised crime. There is an overall lack of capacity to produce reliable statistical data. Only a few first instance courts use the standards of Article 6 of the European Convention on Human Rights to measure clearance rates and length of proceedings when preparing the yearly court performance reports. Although clearance rates have improved in some first instance courts, they remain highly problematic in administrative courts, appeal courts and the High Court. The overall length of proceedings is a cause of concern and is primarily related to a lack of capacity and the inadequacy of the relevant provisions of the codes of procedure. There is no effective, unified internal monitoring mechanism applied in all courts. Enforcement of judicial decisions is a cause of concern, in particular on property-related cases.

Fight against corruption Some level of preparation has been reached in the fight against corruption. Some progress was made in the past year, notably through the adoption of the law on whistle-blower protection, the law on the creation of a specialised and independent anti-corruption body, and increased access to national electronic public registries for prosecutors and police. However, corruption remains prevalent in many areas and continues to be a serious problem. There was some progress on meeting two of last year's recommendations, namely making further progress with a view to establishing a solid track record of investigations, prosecutions and convictions, and stepping up efforts to ensure direct access to databases for prosecutors and police. No progress was made in amending legislation on interceptions and surveillance, time limits for investigations and admissibility of evidence before court. The independence and effectiveness of institutions in charge of the fight against corruption continued to be limited by political pressure and weak administrative capacity. In the coming year, Albania should in particular: → demonstrate further progress on establishing a solid track record of investigations, prosecutions and convictions in the fight against corruption at all levels, including asset recovery; ensure sound investigation and prosecution of cases referred to prosecutors by the High Inspectorate for the Declaration of Audits and Assets and Conflict of Interest and the High State Audit (HIDAACI); → amend legislation on interceptions and surveillance, time limits for investigations and admissibility of evidence before courts to make investigations in corruption cases more efficient, in line with European standards and best practices; → amend the legal framework on political party finances to establish an effective and accountable audit system; → further enhance access to national electronic public registries for prosecutors and police; expand the case management system in prosecution offices and ensure it is used efficiently. Track record Since 2010 there has been a positive trend in the number of investigations, prosecutions and convictions in the fight against corruption involving junior or middle-ranking officials, even though the track record remains low overall, especially regarding corruption cases involving high-level officials. Poor inter-institutional cooperation and exchange of information continued to hamper proactive investigation and effective prosecution of corruption. Financial investigations resulting in the confiscation of assets were very low. Penalties imposed in corruption cases tend to be overly lenient. Political influence on the institutions of the criminal justice system and corruption in the judiciary continued to be major causes for concern. Corruption and allegations of infiltration of the state by organised crime need to be further tackled. Asset declarations of officials are published. The number of asset declaration checks and indictments for falsification, concealment or non-declaration of assets has increased substantially since 2014. There are very few cases of conflict of interest violations, due to gaps in the legislation and lack of capacity to carry out proactive checks. There is no independent and accountable system in place to audit party financing and electoral campaign financing. In the public administration, control and inspection mechanisms remained weak and mainly targeted low-ranking public servants. The successful implementation of the law on access to information is hampered by the limited capacity of the Commissioner for Access to Information and Data Protection Office. Institutional framework The National Coordinator against Corruption (who is also the Minister of State for Local Issues) is responsible for the design, coordination and monitoring of anti-corruption policies. The independence and accountability of HIDAACI need to be strengthened to reduce the still high risk of political influence. The internal controls framework has yet to be streamlined to achieve better inter-institutional coordination and effectiveness. The scope of audits conducted by the High State Audit auditors and internal auditors overlap, while their findings often differ significantly. The role of the Council of Ministers' Unit for Internal Administrative Control and Anti-corruption has yet to be further clarified. Financial inspection needs to be stepped up to fight high-risk fraud, corruption and mismanagement of public funds. The capacity of all the bodies mentioned above needs to be substantially strengthened. Further efforts are needed to improve transparency of public administration; step up implementation of institutions' transparency programmes; and ensure the disclosure of information of public interest in a timely and efficient manner. There is no code of ethics for MPs and MPs' asset declarations are not published automatically. Training for public officials on good governance and anti-corruption is provided by the School of Public Administration. Complaints of corruption can be filled in on the online portal launched by the government in 2015. Corruption statistics are collected by an inter-institutional working group that includes the Ministry of Justice, the State police, the General Prosecutor's Office, the High Court of Justice, and the High Inspectorate for Declaration and Audit of Assets and Prevention of Conflict of Interest. There is no system of sectoral risk assessments implemented either at policy or law enforcement level. Corruption-proof methods in legislation drafting are not yet applied. The foreseen establishment of an anti-corruption body should streamline powers in the criminal justice framework and ensure specialisation to fight corruption across the law enforcement sector. HIDAACI, police and prosecutors still lack direct access to a number of registers and databases, hampering their capacity to build cases. Inter-institutional cooperation and exchange of information remained insufficient, as did human, technical and financial resources in law enforcement bodies. Training of law enforcement authorities and magistrates to deal with complex corruption, financial and economic crime cases has yet to be increased. Since the adoption of the law on the right to information in September 2014, 198 coordinators on the right to information have been appointed and 108 public institutions have approved and published transparency programmes. Legal framework Albania has ratified all relevant international conventions, but their implementation in practice remains uneven. Laws on the exclusion of criminal offenders from public posts and for the protection of whistle-blowers were adopted. The criminal procedure code is being revised in the framework of the justice reform, with a view to enhancing the efficiency of investigations. The country is party to the UN Convention against Corruption and has criminalised the refusal and concealment of assets and the falsification and non-declaration of assets of public officials. Strategic framework The national anti-corruption strategy (2015-2020) and action plan (2015-2017) were adopted in March 2015 after consultations with a wide range of stakeholders. A monitoring and reporting framework is in place and was implemented in 2015. The performance assessment framework and impact indicators have yet to be improved. Fight against organised crime The country has reached some level of preparation in the fight against organised crime. Overall, some progress was made, in particular on identifying and destroying cannabis plots. However, police and prosecution fail to identify criminal gangs behind drug cultivation and trafficking, and efficient judicial follow-up in criminal proceedings is seldom secured. There was little progress on fulfilling the recommendations identified last year. The police was modernised and international police cooperation intensified, especially with Europol. However, cooperation between police and prosecution needs to be further strengthened so that they can dismantle criminal networks more effectively. The number of final convictions in organised crimes cases is still limited, marking only a slight increase in recent years. Financial investigations targeting suspected members of organised criminal groups are not systematically and effectively used. The track record of freezing and confiscating illegally acquired assets remains very low. In the coming year, Albania should in particular: → demonstrate further progress on establishing a solid track record of proactive investigations, prosecutions and final convictions against organised crime groups, including confiscation of criminal assets and successfully dismantling criminal networks; → align relevant laws with European standards and best practices, in particular the anti-mafia law, the criminal procedure code and legislation on interceptions and surveillance, time limits for investigations and admissibility of evidence;

→ decentralise specialised police forces, allocate adequate resources to the fight against organised crime and implement an effective human resources policy, including merit-based recruitments, promotions and transfers within police and prosecutors' offices. Track record There was little progress in effectively dismantling criminal networks. The number of final convictions for organised crime offences (criminal organisations and structured criminal groups) remained still very low and has only marginally increased in recent times. A relatively high percentage of organised crime cases registered by the Serious Crime Prosecution Office are transferred to local prosecutors' offices or dismissed based on lack of evidence and / or poor quality of referrals. Quality of decisions on dismissals should be improved, as well as the quality of referrals. Moreover, the Serious Crime Prosecution Office should coordinate further investigations with the investigating police officers and collect sufficient evidence necessary to open a case. There is an upward trend in investigating cases involving the laundering of proceeds of crime. However, the number of final convictions for money laundering remains limited. The financial investigation capacity of the Albanian state police needs to be further improved. Final convictions for human trafficking have increased over the past years but remain overall very low. Financial investigations are not systematically and effectively used to target criminal groups. Precautionary freezing of assets is rarely applied during the initial phase of an investigation. Proceeds of crime often disappear, resulting in a poor track record of confiscated assets at the time of the final conviction. Less than 50 % of organised crime cases lead to confiscation of assets. Leaks to the press, violations of the secrecy of investigations and endangerment of the safety of police officers and prosecutors are still frequent. Institutional and operational capacity There are 9 894 police officers, 232.8 per 100 000 inhabitants. The new police organisational structure in place since December improved its overall capacity. The specialised units on financial and economic crime, money laundering and investigation of criminal assets were strengthened, as well as the central Crime Analysis and Intelligence Directorate. However, there is still a lack of staff specialised in financial and fiscal matters. The high rates of staff turnover continue to weaken the police institutional and operational capacity. The general level of equipment and logistics has improved, but is still inadequate, particularly in IT. Cooperation between prosecution and police in detecting and investigating complex criminal cases remains weak. There is no comprehensive approach to investigations and prosecutions. Police and prosecutors also lack direct access to several private and public national databases. Bureaucratic and lengthy procedures are required to obtain even basic information during investigations, causing significant delays. Albania has an operational cooperation agreement with Europol and since 2009 a liaison officer at Europol headquarters. Albania is involved in operational projects and the exchange of information through the SIENA secure information exchange network application. However, Albania receives far more requests than it sends (959 received and 32 sent in 2015). As such, Albania remains a reactive rather than a proactive partner in international police cooperation. Similar trends were also noted as regards cooperation with Interpol. Albania should make full use of its operational agreement with Europol. The police's capacity to collect and process crime statistics improved. Since February 2015, the police receives electronically daily notifications about criminal offences committed countrywide. The capacity of the Forensics Directorate has also been enhanced. However, the budget for the DNA unit is still insufficient to cover the costs of DNA collection, limiting the DNA profiling capacity. Legal framework The legal framework is not fully aligned with the acquis. The relevant legislation should be amended to address a number of weaknesses in the investigation phase. The law on the confiscation of criminal assets is only partially aligned with the acquis. Alignment is still required on third party confiscation, extended confiscation and precautionary freezing of assets. Amendments to the anti-mafia law on assets seizure and confiscation are yet to be adopted. The law on electronic communication also needs to be amended to oblige network and public communication service operators to provide the police and prosecutors with swift access to their databases. Strategic framework The 2015-2020 public order strategy and its 2015-2017 action plan cover important areas such as intelligence-led policing, proactive investigations, criminal asset investigations, interinstitutional and international cooperation, and exchange of information. The state police continued to assess main organised crime threats following Europol methodology, with the preparation of annual national serious and organised crime threat assessments (SOCTAs). However, the usage of Europol's strategic intelligence products remained limited. The provisions in the criminal code on cybercrime are in line with the requirements of the Council of Europe Convention on cybercrime (the Budapest Convention). Fight against terrorism Albania has been affected by the phenomenon of foreign terrorist fighters. A number of unauthorised mosques, allegedly linked to extremists groups, are present in Albania and present risks of radicalisation. This phenomenon requires a targeted approach by the intelligence, law enforcement authorities, and judicial institutions. While international cooperation has greatly improved at both operational and strategic level, prevention mechanisms involving civil society and religious communities need to be improved. 2.4.Human rights and the protection of minorities Overall situation The legal framework for the protection of human rights is broadly in line with European standards and Albania has ratified most international human rights conventions. However, enforcement of human rights remains to be strengthened. Shortcomings particularly affect the following areas:

Despite the efforts made, enforcement of property rights has yet to be ensured and the processes of property registration, restitution and compensation need to be completed. Living conditions for Roma and Egyptians need to be improved. Social exclusion and discrimination need to be tackled through better policy implementation and better interinstitutional cooperation. Additional efforts are needed to develop a track record of antidiscrimination cases. Institutional mechanisms to protect the rights of the child and to tackle gender-based and domestic violence remain poor. The legislation on juvenile justice has yet to be brought in line with international standards. Services for victims of domestic violence need to improve in quality, quantity, accessibility and geographical coverage. A detailed analysis of freedom of expression follows below. For a detailed analysis of developments on other human rights and the protection of minorities, see chapter 23 — Judiciary and fundamental rights. For developments on trade union rights, non-discrimination and equal opportunities, see also chapter 19 — Social policy and employment. Freedom of expression The country has some level of preparation / is moderately prepared in the area of freedom of expression. However, there was no progress in this area over the past year. Last years' recommendation to enhance transparency of government advertising in the media was not addressed. The overall environment is generally conducive to the exercise of freedom of expression, but implementation remains a challenge even in areas where there is a sound legal basis. In the coming year, the country should in particular: → introduce legislation in line with best international practice on state advertising to enhance transparency; → bring ownership limitations for national operators in line with the relevant international standards; → further strengthen the independence of the regulatory authority and the public broadcaster. Intimidation of journalists Physical assaults on journalists remain very rare. Two cases of physical assaults against journalists were reported and followed up by the prosecution in 2016. The national authorities and media organisations reacted promptly and condemned these acts. Legislative environment Overall, the constitution and other relevant laws are in line with international human rights law, guaranteeing individual liberties including the right to privacy, freedom of expression and sanctions against incitement of hatred. Defamation remains a criminal offence, although prison sentences are not allowed. However, journalists are at risk of potentially large fines and damages. The rules on hate speech are in line with international standards. There were three cases of hate speech registered by police and prosecution in the reporting period. Five complaints on hate speech were submitted to the Commissioner for the protection against Discrimination on the grounds of sexual orientation. The law on access to information is in line with international standards. Implementation of legislation/institutions In July, the parliament elected four Audiovisual Media Authority (AMA) members. However, the method of electing members is not free of political influence and does not ensure the regulator's independence. AMA's decision-making was affected by the lack of quorum for several months due to the absence of its opposition-nominated members, who questioned the legitimacy of the board. This long-term staff shortage limited AMA's ability to fulfil its mandate and made it difficult for the regulator to take key decisions, particularly on the licensing of commercial digital operators, which resulted in it being taken to court. Public service broadcaster The regulation governing the public service broadcaster RTSH is in line with EU standards. However, there are concerns that the new method for electing the general director through a simple majority vote after three rounds, as provided for in the amended law, would limit its ability to guarantee the appointment of a politically consensual figure. Financing is mostly independent of the government. RTSH's fee collection system has been relatively stable. Economic factors Media ownership is formally transparent and accessible through the National Registration Centre. However, the functioning of the media market remains opaque, with a number of media outlets surviving in a relatively small market with limited resources. Transparency of government funds channelled to the media for advertising or other purposes needs to improve. Legislation on state advertising in line with international best practices should be introduced. The media continued to be used as a tool to promote political and private interests.

Internet The criminal code applies different definitions for offline and online hate speech, the latter not requiring incitement to violence. The rather broad definition of online hate speech carries the risk of unduly infringing the rights of online media if they are held liable for readers' comments. Self-regulation for the online media sector needs to be encouraged. Social dialogue / social conditions Journalism in Albania is a precarious profession with low wages and little job security. Poor implementation of the labour code remained a major concern and most journalists work without contracts or have contracts which can be terminated arbitrarily. Delays in paying salaries and missing years of social contribution payments are a widespread phenomenon, often leading to self-censorship. There is a Union of Albanian Journalists, but it has limited influence. A significant number of journalists are not organised or represented in any form, reflecting the country's lack of tradition of trade union organisations. Professional and ethical standards in journalism need to be strengthened. 2.5.Regional issues and international obligations Albania still maintains a 2003 bilateral immunity agreement with the United States, granting exemptions for US citizens from the jurisdiction of the International Criminal Court. In doing so, it does not comply with the EU common positions on the integrity of the Rome Statute or with the related EU guiding principles on bilateral immunity agreements. Albania needs to align with the EU position. On regional cooperation and good neighbourly relations, Albania continued to play a constructive and proactive role in several regional initiatives such as the South East Europe Cooperation Process, the Adriatic-Ionian Initiative, the EU Strategy for the Adriatic and Ionian Region, the Central European Initiative, the Western Balkans Six and the Regional Initiative for Migration and Asylum. Albania is a committed supporter of the ‘Western Balkans 6 process’ and has engaged fully in the Western Balkans Six initiative, particularly the connectivity agenda. In March, Albania hosted a Western Balkans Six meeting where countries of the region reviewed the state of play of regional connectivity projects and the implementation of the soft measures on transport and energy identified at the Vienna Conference ahead of the Paris Summit. The meeting also proposed a comprehensive cooperation agenda for the refugee crisis, putting the emphasis on further enhancing the EU-Western Balkans partnership on migration. Work started on establishing the Western Balkans Fund and regional Youth Cooperation Office, both of which will have their headquarters in Tirana. Albania continued to be a constructive partner in the region, further developing bilateral relations with other enlargement countries and neighbouring EU Member States. Albania signed a convention with Montenegro on regional cooperation, under Article 13 of the SAA, while negotiations with Serbia are yet to be concluded. Relations with Bosnia and Herzegovina remained good, with no pending bilateral issues. Albania's President visited Sarajevo in February, advocating the recognition of Kosovo. Albania continued its very good relations with Kosovo and kept advocating for Kosovo's full membership of international and regional organisations. In June, seven agreements and memoranda of cooperation were signed in the third joint governments’ meeting in the fields of customs and taxation, energy, public administration, transport and the environment. Albania supports the ongoing EU-facilitated dialogue between Kosovo and Serbia. Relations with the former Yugoslav Republic of Macedonia were good and information exchanges intensified after the neighbouring country was hit by the flow of refugees, in order to identify a possible deviation of the route through Albania. Relations with Montenegro were stable, with Albania strongly supporting Montenegro's NATO membership bid. Relations with Serbia continued to normalise, with the government continuously demonstrating political commitment to maintaining constructive dialogue. Bilateral ties were also strengthened under the Western Balkans 6 process and the common connectivity agenda. The Serbian and Albanian foreign ministers took part in two trilateral meetings with their Italian counterpart, first in Rome and more recently in Tirana. The Albanian and Serbian Prime Ministers opened together a business forum in Niš in October 2016. Albania continued to have good relations with Turkey, with a strategic partnership regulating bilateral relations. The two countries have good cooperation over security and the fight against terrorism. Relations with Greece remained overall positive, with frequent high-level visits. Cooperation over migration management was recently stepped up, including at operational level, in response to the migration crisis, with trilateral meetings held between Greece, Italy and Albania. On the occasion of the 25th anniversary of Greece and Albania’s Friendship Treaty and the visit of Greek Foreign Minister to Tirana, the two countries discussed the establishment of a joint mechanism to address outstanding bilateral issues. 3. ECONOMIC CRITERIA

Key economic figures 2014 2015 Gross domestic product (GDP) per capita (% of EU28 in PPS) 30 30 GDP growth (%) 1.8 2.8 Unemployment rate (female; male) (%) 17.5 (19.2; 15.2) 17.1 (17.1; 17.1) Economic activity rate for persons aged 20–64: proportion of the population aged 20–64 that is economically active (female; male) (%) 68.6 71.3 Current account balance (% of GDP) -12.9 -11.3 Net foreign direct investment (FDI) (% of GDP) 8.1 8 Source: Eurostat In line with the conclusions of the European Council in Copenhagen in June 1993, EU accession requires the existence of a functioning market economy and the capacity to cope with competitive pressure and market forces within the Union. The monitoring of these economic criteria should be seen in the context of the central importance of economic governance in the enlargement process. Each enlargement country prepares an Economic Reform Programme (ERP) annually, which sets out a medium-term macro-fiscal policy framework and a structural reform agenda aimed at ensuring competitiveness and inclusive growth. The ERPs are the basis for country-specific policy guidance jointly adopted by the EU and the Western Balkans and Turkey at ministerial level in May each year. 3.1. The existence of a functioning market economy Albania is moderately prepared in developing a functioning market economy. Some progress was made in improving the budget balance, fighting informality and reforming the electricity sector. The comprehensive judicial reform started and needs to be fully implemented to significantly improve the business environment. Economic growth gained momentum and unemployment decreased but is still high. Public debt also remained high and has yet to start falling. The underexecution of the investment budget continued. Nonperforming loans in the banking sector still constrained credit growth. Business-relevant regulations remained cumbersome and shortcomings in the rule of law continued to hamper enterprises and deter investments. In line with the ERP policy guidance and in order to support longterm growth, in the coming years, Albania should pay particular attention to: → pursuing efforts to improve tax revenue mobilisation to lower the public debt level whilst creating space for growth-enhancing spending; → strenghtening financial sector stability by implementing the non-performing loans action plan and developing a medium-term startegy to promote the use of the local currency; → increasing the coverage of active labour market policies and improving the activation of unemployed and inactive persons, especially young people, women and the long-term unemployed. Economic governance Albania remained committed to strengthen macroeconomic stability and implement market-oriented reforms. Addressing the high level of public debt remained in the focus of macroeconomic policies. Reforms crucial to improving the business environment advanced but require further efforts to be completed. The ERP policy guidance from 12 May 2015 was only partially implemented but progress was made in most fields. Stability and growth are bolstered by the country's compliance with the conditions of the 3-year programme with the International Monetary Fund (IMF), agreed in February 2014.



Macroeconomic stability Albania's economic recovery gained strength on the back of rising investment. Economic growth bottomed out in 2013 but has been on an increasing trend since then, supported by government policies, increased consumer and business confidence and falling interest rates. Although external conditions were challenging, real GDP growth was 2.8 % in 2015 and accelerated further in the first quarter of 2016. It was driven by a strong revival in investment, which overturned a 3-year contraction, and a positive contribution from foreign trade. Despite strengthened economic activity, per capita GDP in purchasing power standards stood at only 30 % of the EU-28 average in 2015, practically unchanged since 2009. Inflation continued to be below the official target, prompting further monetary easing. Average annual inflation has remained below the central bank's 3 % target since 2012, reaching 1.9 % in 2015. It decelerated further in the first eight months of 2016 to just 1 %, reflecting low prices for imported products and weak domestic inflationary pressures due to still below-potential economic output. The central bank reacted by continuing to cut the key interest rate to a record low of 1.25 % in May 2016 and signalling its intention to keep the interest rate low for an extended period. Loan interest rates also decreased, but bank lending was hampered by risk-averse banks reluctant to extend credit amid a still high level of non-performing loans (NPLs). The freely floating exchange rate of the leak has remained remarkably stable against the euro in the last 5 years. ERP policy guidance: ‘Pursue fiscal adjustment by ensuring that revenue and expenditure targets and, by extension, the deficit target, are met. Evaluate and quantify fiscal risks stemming from all active public-private partnership and concession contracts and from local government arrears.’ High public debt poses macroeconomic risks and requires sustained fiscal consolidation to which the authorities remain committed. Public debt relative to GDP has been rising since 2011 and now exceeds 70 %, which is high compared with regional peers and Albania's capacity to generate revenue to pay off the debt. Most of the domestic debt is short-term and must be frequently refinanced. This refinancing relies mainly on a few domestic banks. In 2015, Albania successfully borrowed from international markets, enabling the government to pay off some domestic debt and extend the average maturity of the debt stock. However, as Albania borrowed in foreign currency, the country’s exposure to exchange rate risk increased. Under its ongoing programme with the IMF, Albania undertook to strengthen debt sustainability and clear its substantial stock of arrears to businesses. Progress was made on both fronts. The identified stock of arrears was repaid ahead of schedule in 2014-2015. The budget deficit was lower than planned in 2014 and met the 4 % of GDP target in 2015. Tax revenue in 2015 came in much lower than planned, reflecting overoptimistic assumptions and external shocks such as the oil price fall. Expenditure also underperformed, highlighting significant and recurrent shortcomings in the management of public investments. In an effort to tackle this issue, the Ministry of Finance, which oversees overall budget execution, was assigned responsibility for this portfolio at the beginning of 2016. Economic growth and efforts to improve tax compliance led to a marked increase in tax receipts in the first seven months of 2016. Expenditure remained significantly below budget. Public debt relative to GDP is expected to start falling this year.

ERP policy guidance: ‘Underpin fiscal consolidation by improving the fiscal framework; in particular, (i) strengthen medium-term budget plans by empowering the parliament to approve binding three-year ceilings at programme level and by clearly showing in the Medium Term Budget Programme which funds are effectively committed and which are new expenditure under the ceiling; (ii) move decisively towards adopting a fiscal rule which ensures debt sustainability, counter-cyclicality and transparency.’ Several steps have been taken to improve fiscal governance and address fiscal risks. Ambitious public finance management reforms are under way with EU budget support, albeit with delays. A fiscal rule was adopted in June 2016. The rule mandates a long-term debt ceiling of 45 % of GDP and budget balances that ensure a falling debt ratio until the target is reached. However, there is neither a deadline for the target to be reached nor an independent body to monitor compliance. Fiscal reforms were adopted to address the persistent optimism bias in economic forecasts; make medium-term budget plans more binding; and increase transparency over public-private partnerships. Albania amended the terms under which it compensates former property owners expropriated under Communism to make the scheme more sustainable financially. However, the constitutionality of the new arrangement has been challenged. The macroeconomic policy mix has been appropriate. Reducing the budget deficit is necessary to strengthen the sustainability of public debt. Keeping the key interest rate low is appropriate as it helps to raise weak inflation and economic activity. Lower domestic borrowing by the government also allows the private sector to borrow more to finance investments and consumption. The functioning of product markets Business environment Procedures for market entry were further streamlined and business registrations soared, but the new bankruptcy law has yet to be adopted. A single service window for business registration and licensing became operational in April 2016, also offering online services. The number of newly registered businesses more than doubled in 2015, reflecting multi-pronged government action against widespread informality. The upward trend continued during the first quarter of 2016. However, firms' access to formal finance, especially in the start-up phase, remained a challenge. A new bankruptcy law to streamline burdensome market exit procedures, avoid abuse and facilitate collateral recovery has been in the pipeline for several years but has not yet been approved. Businesses continued to face a cumbersome regulatory environment. Efforts were made to facilitate doing business and improve government communication with enterprises, but they have yet to produce tangible results on the ground. A draft law to streamline complex and inconsistent tax procedures has been prepared but has not yet been adopted. The partial moratorium on building permits, imposed in the wake of the local administration reform, was lifted, and construction activity returned to growth. ERP policy guidance: ‘Strengthen administrative capacities to ensure smooth legal land registration, the full functioning of the cadastre in general and especially the e-cadastre until 2019. Implement the e-procedure for building permits in order to cut red tape and encourage investments.’ Deficiencies in the rule of law continued to hamper the business environment, but the justice reform advanced. The informal economy is estimated to account for more than a third of GDP, leading to tax revenue losses, a lack of labour protection and unfair competition among firms. Inefficient contract enforcement, uncertain property rights and the prevalence of corruption are major concerns repeatedly expressed by businesses. The wide-ranging judicial reform, which aims to tackle these interlinked problems, made significant progress with the unanimous parliamentary approval of constitutional amendments in July. Its successful implementation requires further legislative action and institution-building. Better governance, a more predictable and consistent enforcement of rules and a more efficient delivery of public services would substantially enhance the business environment. State influence on product markets State presence in the economy remained limited and the electricity sector is to be weaned off public support. The share of public revenue and spending in GDP remained relatively low. Total reported State aid stood at 0.4 % of GDP in 2015 but enforcement of State aid rules remained underdeveloped. The electricity sector reform led to a substantial decrease in distribution losses and some improvement in bill collection rates, strengthening the financial situation of state-owned enterprises in the sector. Albania expressed its intention to eliminate by 2020 all power sector subsidies, including public guarantees and policy net lending. Privatisation and restructuring Albania is advanced in market liberalisation and privatisation. The private sector remained dominant in the economy, providing more than 80 % of jobs. The State's involvement in the economy remained limited and was concentrated in a few sectors such as energy. The 2015 power sector law provides for a specific timeframe for further market liberalisation, starting from June. Albania renegotiated the terms of the concessionary agreement for the management of Tirana airport, removing its monopoly on international flights. In April, Albania privatised the fully state-owned insurance company INSIG. Privatisation plans for the oil company Albpetrol were put on hold as falling oil prices have reduced investor interest. The functioning of the financial market Financial stability The banking system continues to be stable but is exposed to risks. Banks overall maintained adequate buffers to absorb shocks as capital adequacy and liquidity ratios largely exceeded regulatory requirements. Banking sector profitability improved in 2015 but fell in the first half of 2016. Banks are not reliant on foreign-based parent banks for funding because the ratio of loans to domestic deposits is only 53 %. Loan euroisation remained high: foreign currency loans to unhedged borrowers still make up around a third of the total loan stock, making their repayment vulnerable to a sharp depreciation of the lek. Government securities represent almost a quarter of bank assets, exposing banks to sovereign risk as well. Access to finance ERP policy guidance: ‘Continue to address risks to financial stability and the real economy by following-up on the NPL action plan which has been adopted and developing a medium-term strategy to promote the use of the local currency in the financial system, including all relevant stakeholders. Throughout this process, the central bank’s monetary policy stance may remain accommodative insofar as the path of fiscal consolidation remains favourable, but risks related to further policy easing should be carefully assessed.’ There is scope for banks to expand lending and better support the economic recovery. The banking sector, dominated by foreign banks, holds over 90 % of all financial system assets. With loans to businesses and households amounting to 35 % of GDP, there is much scope for increased bank lending. However, credit growth has been sluggish in recent years despite the gradual fall in interest rates as a result of both a low demand for and a tighter supply of bank loans. Banks' willingness to lend was affected by the high proportion of NPLs, which was still 21.2 % in July. The government and the central bank agreed on a comprehensive NPL action plan in September 2015 that involves legislative and regulatory measures and is expected to speed up NPL resolution and credit recovery. The size of the non-banking financial sector increased but remained small. It comprises the insurance and private pension businesses plus investment funds; total assets represent 6.6 % of GDP. The capital market is rudimentary and the stock exchange remained closed. There is great scope for expanding equity finance.

The functioning of the labour market ERP policy guidance: ‘Increase the coverage of active labour market policies and improve the activation of unemployed and inactive persons, especially youth, women and long-term unemployed. Step up current efforts to achieve a comprehensive approach to reducing undeclared work.’ Strengthening economic activity improved labour market conditions but unemployment, especially of young people, remained high. The economic recovery created jobs and the employment rate rose to 52.9 % in 2015 from a low of 49.9 % in 2013 (15-64 years). Over 40 % of the workforce is employed in agriculture, mostly in low-skilled jobs, and informal employment remains widespread. Labour force participation also increased, to 64.2 %, possibly reflecting improved employment prospects and a decreasing trend in remittances. Active labour market policies expanded from a low base but they still covered only around 4 % of the unemployed. There is a large and persistent difference in the labour force participation of women and men with the rate for women around 18 percentage points lower than for men, highlighting large structural problems in the labour market. The unemployment rate (15-64 years) fell from 17.9 % in 2014 to 15.9 % in mid-2016. The unemployment rate for young people (15-29 years) also declined but remained very high at 29.9 %, highlighting substantial skill mismatches. A relatively high minimum wage might also act as a disincentive for hiring low-skilled and young people. 3.2. The capacity to cope with competitive pressure and market forces within the Union Albania has some level of preparation in terms of capacity to cope with competitive pressure and market forces within the Union. Some progress was made particularly as regards improving higher and vocational education as well as prioritising infrastructure investments. However, the quality of education needs to be raised at all levels to better equip people with skills in line with labour market needs. Gaps in transport, energy and digital infrastructure still hinder Albania's competitiveness and constrain trade, which remains below potential and sectorally concentrated. Albania's capacity for research, development and innovation remains low. In line with the ERP recommendations and in order to support long-term growth, in the coming year Albania should pay particular attention to: → improving the quality of the education system; → further liberalising the energy market in accordance with the Energy Community Treaty, in particular by unbundling transmission and distribution activities in order to improve energy security and allow the market entry of independent operators; → facilitating trade through simplifying procedures and removing non-tariff barriers. Education and innovation Albania still has considerable gaps to close between education outcomes and labour market needs. Public spending on education remained low at less than 3 % of GDP. The quality of basic education is low as illustrated in the low ranking of Albanian students in the OECD's PISA tests. Pre-primary (3-6 years) enrolment rates are very low at 33 %, undermining efforts to create a level playing field for the beginning of primary school. High youth unemployment and high unemployment even among well-educated people are signs of the need for improved quality and relevance of the education received. A large share of enterprises reported lack of appropriately skilled workers. The new law on higher education was adopted and preparations for accrediting higher education institutions started as well as the implementation of the new decentralised selection procedure for university admission. Gradual progress was made in establishing VET multifunctional centres and work continued on the national qualification framework. Albania's capacity for technological absorption and research, development and innovation (RDI) is low. Key obstacles include low expenditure on research and development (about 0.4 % of GDP); weak links between the scientific and private sectors; as well as fragmentation of the national research and innovation system. As a result of this weak innovation policy infrastructure, almost all sectors of the economy mainly provide lowtechnology, labour-intensive and low-cost products and services. Increased funding and a more focused RDI strategy in a number of specific sectors, particularly in energy, agro-food and sustainable tourism, would support the country's capacity to attract investment in RDI. ERP policy guidance: ‘Fully implement the obligations under the Energy Community Treaty including, in particular, the full unbundling of transmission and distribution activities in the electricity and gas sectors in order to improve energy security and allow market entry of independent operators.’ Physical capital and quality of infrastructure The decline in investment was reversed in 2015 but further measures are needed to sustain capital expenditure. Investment as a share of GDP decreased from 33.9 % in 2008 to 24.6 % in 2014 and fell also in nominal terms in 2012-2014. However, in 2015 rising energysector FDI inflows led to double-digit real growth in investment. Domestic saving is too low to match the substantial investment needs of the Albanian economy, which remains reliant on FDI inflows to enhance competitiveness and productive capacities. The lack of a functioning cadastre and clarity of land ownership is a significant impediment to investment. Some progress was made on strengthening the investment policy framework, notably by adopting implementing regulations of the law on strategic investments and by reorganising the investment promotion agency. Public investment made up more than 5 % of GDP in past years, but was often affected by ad hoc spending cuts. Albania's transport and energy infrastructure is still not sufficiently developed. Better connections to neighbouring countries and the EU transport network would reduce transportation costs and facilitate trade. Investment in the core transport network has been prioritised by the creation of a single sector project pipeline which includes national priority projects. However, Albania has not yet implemented the connectivity reform measures agreed under the Berlin process. Inadequate electricity supply remained a key structural challenge increasing costs to businesses. Progress was made on electricity sector reform: the financial viability of stateowned utility companies was strengthened and infrastructure improved, particularly with the completion of the transmission interconnection between Albania and Kosovo. The construction of the TAP major gas pipeline started. There are plans to use public-private partnerships to improve infrastructure, but such projects will need to be transparent and fiscally sound.

The digitalisation of the economy is low but advancing. Penetration of fixed broadband internet is only 9 %, while mobile broadband reached 46 % of the population by end-2015. Egovernment is more advanced with a portal (e-Albania) offering the possibility for online applications for initial business registration, submission of annual financial statements, consulting of business records, etc. Online banking and e-commerce are rising and have a large potential for further expansion. Sectoral and enterprise structure The Albanian economy is dominated by services, but agriculture still retains an important role. In 2015, services accounted for slightly over half of gross value added, followed by agriculture with a share of 22.1 %. Industry's share has gradually increased since 2007, to 14.6 % of the economy, mainly as a result of rising crude oil production. The manufacturing sector is relatively small (6.3 % of gross value added) and mainly produces low value added and labour-intensive products such as textiles and footwear. Construction's share of the economy greatly diminished over recent years as private credit and investment weakened but in 2015 it registered a first slight increase since 2007, rising to 10.8 %. The sectoral concentration of goods exports remained high in 2015, with 78 % of the total accounted for by a limited number of products: textiles and footwear (37 %); minerals, fuel and electricity (26.5 %); and construction materials and metals (14.5 %). This lack of diversification contributes to the large external deficit and exposes the economy to industryspecific shocks, as highlighted by the oil price fall’s impact on Albania's exports. SMEs play a significant role in the economy. They provide 80 % of employment and two-thirds of value added