EUROPEAN COMMISSION Brussels, 10.11.2015 SWD(2015) 213 final COMMISSION STAFF WORKING DOCUMENT ALBANIA

2015 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



EU Enlargement Strategy {COM(2015) 611 final}

{SWD(2015) 210 final}

{SWD(2015) 211 final}

{SWD(2015) 212 final}

{SWD(2015) 214 final}

{SWD(2015) 215 final}

{SWD(2015) 216 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 4.4Chapter 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. In the past year, Albania has implemented smoothly its obligations under the Stabilisation and Association Agreement (SAA). 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 in addressing the five key priorities identified for the opening of accession negotiations. Albania continued to actively participate in high level dialogue meetings, as well as in the related joint working groups on the five key priorities. 1.2. Summary of the report As regards the political criteria, the local elections in June 2015 were conducted without major incidents. Concerns about the impartiality and professionalism of the electoral authorities and the overall politicisation of the electoral process have yet to be addressed. In December 2014, the parliament adopted a resolution outlining the basis for the ruling majority and the main opposition party to engage in a continuous constructive political dialogue. This ended a six-month parliamentary boycott by the main opposition party. However, more needs to be done to address the divisive political culture and ensure a more constructive cross-party dialogue. As concerns public administration reform, Albania is moderately prepared. Comprehensive reform strategies and the new Code of Administrative Procedures were adopted. However, efforts are needed to achieve the objective of a professional and depoliticised public administration, to increase the financial and administrative capacity of local government units and to ensure effective implementation of the civil service law at local level. Albania's judicial system is at an early stage of preparation. Substantial shortcomings in the judicial system remain regarding independence and accountability of judges and prosecutors, enforcement of decisions, inter-institutional cooperation, and the administration of justice which remains slow. An ad hoc parliamentary committee was established to conduct a comprehensive and inclusive justice reform. The next crucial steps are the adoption of the judicial reform strategy and action plan followed by the adoption of the necessary institutional, legislative and procedural measures. Albania has reached some level of preparation in the fight against corruption. A new anti-corruption strategy and action plan were adopted. However, corruption is widespread and more efforts are needed to make progress with a view to establishing a solid track record of investigations, prosecutions and convictions at all levels. Proactive investigations, systematic risk assessments and inter-institutional cooperation need to be improved. The independence of institutions involved in the fight against corruption needs to be enhanced, as they remain vulnerable to political pressure and other undue influence.

The country has reached some level of preparation as regards the fight against organised crime. Albania conducted a number of law enforcement operations leading to the destruction of vast cultivations of cannabis. However, the number of final convictions effectively leading to dismantling criminal organisations remains negligible compared to the estimated value of the regional and domestic criminal market. Financial investigations, anti-money laundering measures and asset confiscation remain underused. Albania needs to establish a track record of proactive investigations, prosecutions and final convictions in organised crime cases, including money laundering, and effectively dismantle criminal networks. The legal framework for the protection of human rights is broadly in line with European standards. However, effective implementation of relevant legislation and strategies is limited and the enforcement of human rights protection mechanisms remains insufficient. As regards freedom of expression, Albania has reached some level of preparation. The overall environment is generally 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. Enforcement of property rights remains to be ensured, and the processes of property registration, restitution and compensation are not completed. Roma and Egyptians face very difficult living conditions and frequent social exclusion and discrimination. In the area of anti-discrimination, the case-law needs to be further developed. Institutional mechanisms to protect the rights of the child remain poor. The juvenile justice system fails to comply with international standards. Albania has continued to participate actively in regional cooperation and maintain 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 macroeconomic stability and growth prospects improved. Inflation remained low. However, significant challenges remain. Further efforts are needed to sustain fiscal consolidation, improve the business environment and tackle the informal economy. Albania should also improve the budget management framework and address the high level of non-performing loans. The levels of unemployment (17.5%) and informal employment remain high. Concerning the capacity to cope with competitive pressure and market forces within the Union, Albania has some level of preparation. Some progress was made as regards education, transport and energy infrastructure. However, significant investment in human and physical capital is necessary to improve Albania's competitiveness. Albania should improve the quality of higher education and continue restructuring the vocational education and training, adopt and implement the national transport and energy strategies and lower non-tariff barriers to trade such as shortcomings in food safety. Albania continued aligning its legislation to the requirements of the EU 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. However, Albania will need to make substantial efforts to upgrade its preparations for implementing the acquis. It should continue work on the development of the transport and energy network. The administrative capacity and professional standards of bodies charged with the implementation of the acquis needs 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. Albanian authorities are expected to pursue their efforts to tackle the increasing number of manifestly unfounded asylum applications lodged by its citizens to EU Member States and Schengen-associated countries. All activities to counter this negative phenomenon shall be intensified via the post-visa liberalisation monitoring mechanism, particularly after the recent increase over the summer. 2. Political criteria 2.1. Democracy Elections The local elections in June 2015 were conducted without major incidents. Concerns about the impartiality and professionalism of the electoral authorities and the overall politicisation of the electoral process have yet to be addressed. While no major incidents occurred in the June local elections, a number of shortcomings affected the process. Many cases of group voting and procedural irregularities were noted by international observers. The OSCE’s Office for Democratic Institutions and Human Rights (OSCE/ODIHR) raised concerns about the impartiality and professionalism of the electoral authorities and the overall politicisation of the electoral process. Local elections were based on the new territorial administrative division, which provided for 61 municipalities. In April, amendments were made to the Electoral Code to reflect the new boundaries. They also strengthen the gender quota provisions for local elections, requiring 50 % representation of each sex on lists of candidates, in line with OSCE/ODIHR and Venice Commission recommendations. Other OSCE/ODIHR recommendations have not been addressed, including those on enhancing the impartiality of electoral commissions, transparent campaign financing and effective resolution of electoral disputes. The Central Election Commission (CEC) has been at full capacity since January, when parliament appointed three members whose appointment had been pending since April 2013. The overall impartiality and professionalism of the electoral administration remain a concern. Parliament Some progress has been made in the functioning of parliament, in particular by improving the transparency of law-making. A more constructive cross-party dialogue remains to be ensured. Initial steps were taken to prepare legislation for the exclusion of criminal offenders from public offices. In December, a six-month parliamentary boycott by the main opposition party ended when parliament adopted a resolution whereby the ruling majority and the main opposition party pledged to engage in constructive political dialogue. They also agreed to revise the rules of procedure on parliamentary committees, and to work on drafting legislation for the exclusion of criminal offenders from public offices. The implementation of this agreement started with the establishment of two parliamentary committees of inquiry and an ad hoc committee to work on the exclusion of criminal offenders from public offices. The adoption of the related legislation would enhance the citizens' trust in political representatives and public institutions. The work of the committees remains affected by political polarisation. In July, the parliament approved the new composition of the ad hoc committee on judicial reform based on parity of members of the ruling majority and the opposition. In November, parliament amended its rules of procedure, granting the main opposition party the same amount of speaking time as the Prime Minister. Constructive dialogue in parliament and its technical bodies needs to be ensured. Parliament lifted the immunity of three MPs from the ruling majority, and rejected seven of the President’s nominations to the High Court. In March, parliament enacted a new law on its role in the EU integration process, providing for more inclusiveness, oversight and exchange of information. This was followed in May by the establishment of the National Council for European Integration to make the EU-related reform process more inclusive. Parliament’s capacity to monitor the implementation and compliance of new legislation with EU law remains limited. Coordination with the executive branch needs to be enhanced. Other oversight mechanisms, such as question and answer sessions, remain underused. Parliament continued to monitor the work of independent institutions and discussed their reports more promptly and thoroughly. However, appropriate follow-up to their findings needs to be ensured.

Transparency and inclusiveness in the legislative process have improved. Parliamentary committees have generally been proactive in holding consultations with civil society and interest groups. A resolution on the role of civil society in the country’s democratic development was adopted in December. Parliament’s organisational structure and administrative and expert capacity need to be further improved, which requires the allocation of sufficient funds to recruit and train staff, especially in relation to research and analysis. Governance The government has maintained its focus on addressing the key priorities for the opening of accession negotiations, pursuing a set of reforms necessary to advance in the EU integration path. Some progress has been made at local government level with the start of implementation of the territorial administrative reform and the adoption of the decentralisation strategy. However, substantial efforts are needed to clarify the functions and responsibilities of the newly created local government units and to increase their financial and administrative capacity. Some steps have been taken to improve inter-institutional coordination. Working groups in specific sectors have been reorganised to improve monitoring of policy developments and to provide strategic advice more effectively. The Constitutional Court has ruled on 12 cases related to the functioning of state institutions. Swift implementation of Constitutional Court rulings is essential, and when they require the adoption of legislation or change of work practices the government and parliament should ensure implementation. Further efforts are needed to ensure the professionalism and depoliticisation of independent institutions. Albania should examine the possibilities for introducing harmonised provisions on the appointment and dismissal of heads of independent institutions, a merit-based and transparent selection process of both their heads and members of boards, budgetary autonomy and autonomy to set up their internal structures. Regarding local self-government, in January, the government established the National Agency for Implementation of the Territorial Reform. Instructions on amalgamation of local government units as a result of the territorial administrative reform were adopted and a EUR 13.2 million transitory fund for the implementation of the reform was distributed to the 61 newly established municipalities. In line with the newly adopted decentralisation strategy for 2015-2020, a new law fully clarifying the functions and responsibilities of the local government units is needed. Local government associations were more actively involved in the drafting of the strategy and legal acts. However, recent legal provisions for increased inter-institutional cooperation between central and local governments have yet to be implemented. The amendments to the law on territorial planning, clarifying some aspects of the development of local plans, entered into force in October 2014, and implementing legislation is in place since July. However, local governments continued to face difficulties in implementing their urban planning responsibilities. The National Urban Construction Inspectorate continued to demolish illegal buildings, while the process of legalising others through the Agency for Legalisation of Illegal Buildings continued. The inspectorate referred several mayors to the prosecution service for alleged abuse of office and issuing illegal building permits. This resulted in a number of ongoing prosecutions and first-instance court decisions. The decision-making process in the National Territorial Council (NTC), the inspectorate and local government bodies needs to be made more transparent. As regards fiscal decentralisation, local government expenditure in 2014 was 2.3 % of GDP, an increase on the previous year while remaining below the annual target. Albania should strengthen public finance management at local level under the strategy on public finance management adopted in December. Efforts to make the distribution of central funds to local units more transparent should be further supported. Albania needs to ensure the decentralisation strategy's sustainability as part of the 2016-2018 medium-term budget programme. Local government units need substantially greater capacity to deliver services to the public, including one-stop-shops for all public services. More efforts are needed to develop the capacity to design and implement local development plans. Substantial efforts are needed from both central and local government units to develop and implement a comprehensive training plan for the staff of the new local government units. The Ombudsman's cooperation with civil society remained very good and a number of joint trainings were delivered. In March, the Ombudsman’s Office was awarded an ‘A’ status certificate by the International Coordinating Committee of National Human Rights Institutions for complying with the Paris Principles, granting it the right to speak at the United Nations Human Rights Council. In November, the Law on the Ombudsman was amended, extending its remit on human rights promotion and providing for a more transparent and inclusive selection of candidate commissioners, and creating two additional commissioner posts: the Children’s Commissioner and the Commissioner for the national mechanism for prevention of torture. However, these were not reflected in additional budget allocations, which remain insufficient. The seven regional Ombudsman offices are dependent on volunteers and donor support. The authority, autonomy and resources of the Ombudsman’s Office need to be enhanced, and he should always be properly consulted on draft legislation and reforms affecting his areas of competence. Civil society Good progress has been made towards establishing an institutional framework for cooperation with and consultation of civil society. Now it is important that existing mechanisms are fully implemented in practice. Cooperation between state institutions and civil society organisations (CSOs) has improved. In October, parliament approved a regulation on public consultations, and in December it passed a resolution which ratifies the charter on civil society, recognising the importance of civil society in the country’s democratic development. Following a wide consultation process, in May the government adopted a roadmap setting out its policy towards a more enabling environment for civil society. Civil society representatives participated in meetings of the National Council on European Integration, but are yet to take an active role. The law setting up the National Council for Civil Society, a consultative body to enable regular dialogue between the government and CSOs on civil society development, was adopted by the government, but is yet to be enacted by the parliament. At local level, cooperation remains weak. While the new law on VAT provides CSOs with the possibility to obtain value added tax reimbursement on Instrument for Pre-Accession (IPA) funded grants, no such reimbursement has taken place so far. The new online tax system requires monthly declarations on all CSOs, even when no activities are ongoing, which creates an additional administrative burden, particularly for small organisations. Public funding for CSOs is limited and procedures for fund allocations need to be clarified and unified throughout the public administration. Tax rules and other regulations are not conducive to private donations to CSOs. Civil society remains fragmented overall and overly dependent on donor funding. 2.2. Public administration reform Albania is moderately prepared with the reform of its public administration. Good progress has been made in areas falling under the key priority on public administration reform, especially with the adoption of a comprehensive reform strategy and a new Code of Administrative Procedures. However, further efforts are needed also in the areas outside the scope of this key priority, especially on improving policy development and coordination, and the capacity of administrative courts. In order to fulfil the key priority on public administration reform, in the coming year, Albania should in particular: → continue to demonstrate transparent and merit-based recruitment and dismissal of civil servants in all state institutions in order to achieve the objective of a professional and depoliticised public administration;

→ make accurate information on public service available through the Human Resources Management Information System, and connect it to the treasury system; → prepare for the implementation of the new Code of Administrative Procedures, and carry out a parallel review and alignment of other relevant legislation. Public service and human resources management The 2013 Law on Civil Servants is in line with the principles of public administration. The law provides for merit-based recruitment, promotion and dismissal in the public service. Several open ‘pool’ recruitments were carried out in 2014 and 2015 for entry-level positions. An open competition for the senior civil servants was held and led to the creation of the top level management corps. An in-depth training programme for all new top-level managers shall now be carried out. The amendments to the law, adopted in December, however, open the possibility of recruitment for lower and middle management posts from outside the civil service, and render dismissals more flexible. Following the amendments, the secondary legislation should ensure that fair and rigorous recruitment and dismissal procedures are maintained. The quality of recruitment procedures needs to be significantly improved, especially in the independent institutions. The legal framework excludes certain institutions and positions from the scope of the Law on Civil Servants. Albania should ensure a homogenous employment regime among public administration institutions. Management of human resources across the public administration has improved. The Department for Public Administration increased its staff in 2014 to ensure better coordination, but it still needs to improve capacity. Preparations have started to make the human resources management information system operational and extend it to all institutions. Implementation of the Law on Civil Servants at local level remains a challenge. The high number of appeals in the administrative courts raises concern about the use of termination, downgrading, restructuring and disciplinary procedures to demote and dismiss public servants. The Commissioner for oversight of the civil service was appointed by parliament at the end of 2014 as an independent monitor of the management of civil service. In March, she presented her first report to the parliament. Effective follow-up of the Commissioner’s findings and recommendations should be ensured. The remuneration system is based on job classification and is in principle transparent. However, in June, the government adopted a new system of salary bonuses for civil servants working on EU integration and legal drafting. The proposed system needs to be reviewed to ensure it is in line with the Law on Civil Servants. The authorities need to take the necessary steps to ensure fair and transparent remuneration with equal pay for equal work, and to avoid weakening the career-based civil service system. Professional development is provided for in the law. The Albanian School of Public Administration (ASPA) is responsible for civil servants training. The quality and quantity of training has increased, but ASPA's budget is insufficient for the increased number of civil servants in need of training. The new performance appraisal system is not yet used widely. The perception of corruption is high in Albania. Both the public administration reform strategy and the anti-corruption strategy include measures to prevent corruption and promote integrity in public service, but they still need to be implemented effectively. Policy development and coordination Albania has the legal framework and institutional structures in place to ensure a good policy-making system, but there are some weaknesses in implementation. The European integration coordination system has been set up but needs to be made fully functional and equipped with the necessary staff capacity. Planning as well as monitoring and reporting on the implementation of the national plan for European integration should be improved. There are weaknesses with regard to the implementation of the government’s work programme, coordination of the policy proposals and costing of strategies. The links between policy planning and medium-term budget planning need to be therefore substantially strengthened. Policy and legislation development is not yet sufficiently inclusive and evidence-based. In March 2015, tables of concordance based on European standards were made compulsory for all legislation aiming at alignment with the acquis. However, ministries do not have in place clear internal rules which regulate procedures for policy development and legal drafting. The Law on Public Notification and Consultation came into force in May, setting out procedures for stakeholder consultation. Impact assessments are not carried out systematically and their quality varies between institutions. Financial impact assessments generally accompany draft legislative proposals, but their quality also varies greatly. The system for monitoring government's performance should be streamlined to ensure efficient public scrutiny over government work, and the government monitoring reports should focus on achievements against policy objectives rather than on outputs. Accountability of the administration The legislative framework for the organisation of the state administration is in place, but the lines of accountability between agencies and subordinate bodies are still not fully clear. Also, lines of accountability within institutions need to be improved, as managerial accountability is not yet a feature of the system. (See Chapter 32 – Financial control) The institutional set-up and resources to ensure the citizens' right to good administration are generally well established. The degree to which the recommendations of oversight bodies such as the Ombudsman and the High State Control are implemented is, however, difficult to establish as there is no systematic monitoring. The right to access public information is regulated in the Law on the Right to Information, which was adopted in September 2014. The law grants supervisory, monitoring and sanctioning powers to the Commissioner for the Right to Information and Protection of Personal Data. Regular monitoring of the practical application of exemptions from the law should be carried out. 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. There are considerable delays in enforcement of the final decisions of the courts, including on cases of unlawfully dismissed civil servants. The Constitution lays down the right to seek compensation and public authorities’ liability in cases of wrongdoing is regulated by a special law, but in practice the number of related court cases is low due to limited public awareness. Public financial management A public financial management reform strategy for 2014-2020 was adopted in December. Implementation has focused on strengthening the fiscal framework with multi-year ceilings, on a new IT system for the tax administration and on compliance audits. Implementation of the arrears prevention and clearance strategy is on track. The credibility of the medium-term budget programme needs to be strengthened, and coordination of public investment planning and management improved. Strong coordination is needed to ensure synergies with public administration reform. Efforts to prevent, detect and fight against high-risk fraud, corruption and misuse of public funds need to be further stepped up.

Budget transparency is ensured to some extent. The annual budget proposal does not have information on baseline expenditure, new policies, final outturn data for previous years or multiannual commitments on capital spending. A ‘citizen’s budget’ is not available. The High State Control does not provide an opinion on whether the government's financial reports fairly present public finances. Service delivery to citizens and businesses There is a strong political commitment to a user-oriented administration, and the government aims to ensure equal access to public services. Progress has been achieved with further extension of services on the e-Albania portal and the establishment of an interoperability framework for state institutions. Public satisfaction with government services is moderate and should be enhanced by policies and mechanisms promoting quality improvements in public institutions. The fragmented institutional responsibilities are a key challenge to further implementation. Progress on simplifying administrative procedures has been achieved in April with the adoption of a new Code of Administrative Procedures, in line with European standards. For uniform application of the code upon its entry into force mid-2016, the authorities need to carry out a parallel review and alignment of other relevant legislation and provide substantial training to the civil servants. The special administrative procedures need to be reviewed and either abolished or brought into line with the new law. Strategic framework for public administration reform The 2015-2020 public administration reform strategy was adopted in April together with an action plan for 2015-2017. A comprehensive monitoring and reporting system with performance indicators and targets has been set up. Related strategies on public financial management, the ‘digital agenda’, anti-corruption and decentralisation have also been adopted. Political support to the reform process is expected to be ensured by the newly set-up Integrated Policy Management Group for PAR, chaired by the Minister of State for Innovation and Public Administration. The capacity of the lead institutions needs to be further strengthened, particularly with regard to public administration reform monitoring. Financial sustainability is a concern, as costs of the overall public administration reform are not fully reflected in the medium-term budget programme. 2.3. Rule of law Functioning of the judiciary Albania’s judicial system is at an early stage of preparation. Some progress has been made in the past year, notably through the establishment, in November, of an ad hoc Parliamentary Committee on Justice Reform to carry out a comprehensive and inclusive reform process. Administration of justice is slow and judicial decisions are not always enforced. The professional training of judges is inadequate and their independence is not fully ensured. There is insufficient accountability of judges and prosecutors and corruption within the justice system is widespread. Inter-institutional cooperation is poor and resources are insufficient. In order to fulfil the key priority on the reform of the judicial system, in the coming year Albania should in particular: → adopt a new judicial reform strategy and accompanying action plan, and proceed, through an inclusive consultation process, with drafting and adopting the institutional, legislative and procedural measures necessary, taking into account European standards and best practices; → fill the vacancies at the High Court and the administrative courts; → extend the courts' unified electronic case management system and ensure it is effective, including an appropriate maintenance budget; → publish all court decisions with their respective reasoning within a reasonable deadline. Strategic documents The 2011-13 justice sector reform strategy has expired and the adoption of a new strategy is pending. In April, the 2015-17 medium-term strategy of the Prosecution Office was adopted. Management bodies The High Council of Justice (HCJ) is the governing body of the judiciary. Its role is limited to the appeal and first-instance courts. It is composed of the President of the Republic (chair), the Minister of Justice, the President of the High Court, nine judges of all levels elected by the National Judicial Conference and three jurists elected by parliament by a simple majority. There is no provision ensuring that at least one member designated by parliament is supported by an opposition party. The deputy head of the HCJ, who is appointed upon a proposal by the President from among the members designated by parliament, plays a crucial role in the work of the Council. He is the only fulltime member of this body. The HCJ is in charge of the evaluation, appointment, promotion, and transfer of judges and handles disciplinary proceedings initiated by the Minister of Justice. In 2014, new rules on suspension from office and dismissal of HCJ members, and on issues relating to conflicts of interest, were introduced. However, the rules on ethics remain incomplete. The HCJ publishes its decisions online, together with the minutes of its meetings.

The Council of Prosecutors is made up of six prosecutors plus a representative of the Ministry of Justice, and may include a representative of the President of the Republic. It is an advisory body to the General Prosecutor and not a fully-fledged career management body for prosecutors. Independence and impartiality The independence of the judiciary is enshrined in the Constitution. However, in practice it is jeopardised by the highly politicised way in which High Court and Constitutional Court judges are appointed, and the wide margin of discretion enjoyed by the HCJ in appointing, promoting and transferring judges. In principle, judges and prosecutors decide independently on individual cases. In practice, their independence is limited and there are regular reports of selective justice and political interference in court cases. Not all courts use the unified case management system to allocate cases. Non-transparent practices such as assigning cases by drawing lots — occasionally even in the office of the head of court — have not been phased out in some courts. Rules on the exclusion of judges from cases are set out in the Civil, Criminal and Administrative Procedure Codes. Courts do not keep a register of cases from which judges have been excluded or have asked to be excluded. Individual requests to exclude judges from cases are addressed directly to the courts. The prosecution service’s recently established case-handling system is not yet fully operational throughout the country, except for case registration purposes. Accountability A code of ethics for judges has existed since 2000 but had no real impact on their accountability. In 2014, a code of conduct was adopted for the prosecution service. There is not enough monitoring of compliance with ethical standards and integrity when appointing judges and prosecutors. There is no counselling or mandatory in-service training on ethics. Lawyers have their own code of ethics and professional ethics is one of the subjects covered by the initial training programme of the School of Magistrates. Judges are held accountable through inspection by both the Ministry of Justice and the HCJ. Although there is a memorandum of understanding between these two bodies, there is a risk of overlapping inspections. The legal framework for disciplinary proceedings lacks clarity and such proceedings can be used to improperly influence judges. The Minister of Justice has sole power — and discretion — to bring disciplinary proceedings against judges, which is contrary to EU standards. The Minister submits disciplinary cases to the HCJ for review and a decision on sanctions. Judges and prosecutors are obliged to declare their assets on an annual basis. However, despite numerous reported cases of failure to comply with this requirement, no final decisions on sanctions have been issued to date. The judiciary is generally perceived as being highly corrupt. Professionalism and competence Recruitment, appointment and dismissal are the responsibility of the HCJ, for judges, and the General Prosecutor, for prosecutors. The requirement of professionalism and integrity is not sufficiently reflected in the existing criteria for judges. Criteria for evaluating prosecutors are in place but clear and transparent criteria for evaluating and promoting judges have yet to be adopted. Decisions related to judges' careers are not fully transparent and are not always based on merits and other objective criteria. An appeal against appointments, evaluations, transfers, promotion decisions and disciplinary measures is possible. High Court and Constitutional Court judges are appointed by the President of the Republic, with the backing of a simple majority of parliament. In recent years, the process of appointing Constitutional and High Court judges has been marred by controversial hearings in parliament’s Legal Affairs Committee and frequent rejection by parliament of presidential nominees. In an attempt to remedy this situation, the Law on the High Court was amended in 2013 and again in 2015, when more specific criteria and procedures for the selection of judges were introduced. Prosecutors are appointed, promoted, transferred and dismissed by the President of the Republic upon a proposal from the General Prosecutor. The independence and accountability of the prosecutorial system is further weakened by the fact that the General Prosecutor is appointed with the consent of a simple majority of parliament. Procedures for the appointment, promotion and dismissal of key staff in the General Prosecutor’s Office lack transparency. Quality of justice Initial and in-service judicial training is provided by the School of Magistrates, and is being partly financed by foreign donors due to continuing shortfalls in the budget. A training programme on the case law of the European Court of Human Rights is in place, but training on EU acquis is limited. Albania does not yet participate in the European Judicial Training Network. The National School of Lawyers began its activity in October 2013. Since then, the school has prepared 705 lawyers for the bar examination. The school does not yet provide in-service training for lawyers. The Ministry of Justice publishes an annual report of courts’ activities and all courts produce their own annual reports, although not all those reports are published. The budget for the overall justice sector in 2015 is 3 % lower than in 2014 at EUR 80.1 million, which represents 0.8 % of GDP and 2.4 % of the state budget. It covers the Ministry of Justice, the prosecution, the courts, the School of Magistrates, the High Council of Justice and the Constitutional Court. Nevertheless, the budget for the courts, the prosecution and the State Commission for Legal Aid, which is EUR 27.6 million and represents EUR 9.55 per inhabitant, has increased. Albania has 402 professional judges (13.9 per 100 000 inhabitants), 327 prosecutors (11.4 per 100 000 inhabitants) and 916 judicial administrative staff (2.3 employees per judge). There are 55 practising lawyers for 100 000 inhabitants. The planning and distribution of administrative and financial resources within the judiciary needs to be improved. Major investments have been made in court infrastructure but many court premises require further renovation. Some courts do not have enough courtrooms and hearings still take place in judges’ offices, which increases the risk of corrupt practices. Online access to legislation in a consolidated form is not available. A case law database exists but publication of judicial decisions remains inconsistent and there are no effective research tools. The High Court has handed down only a few rulings unifying case law. The system for notifying parties and witnesses is inadequate. The Law on Mediation provides an alternative dispute resolution mechanism, but recourse to mediation is rare.

Efficiency The overall length of proceedings from initiation to final judgment remains a major concern. There is no effective monitoring mechanism and there is an overall lack of capacity to produce reliable statistical data. Compared with selected European states and the ‘reasonable time’ standard under Article 6 of the European Convention on Human Rights (ECHR), Albania has some of the lengthiest civil and criminal procedures in Europe. The excessive length of proceedings is due to long delays before appeal courts. Unclear provisions in the Codes of Civil and Criminal Procedure also reduce the efficiency of the courts. The clearance rate, i.e. the ratio of solved cases to new cases filed, has increased in recent years but with some differences according to the type of court. In 2014, clearance rates were below 100 % at the High Court, in both first-instance and appeal administrative courts, as well as in district first-instance and appeal courts as far as criminal cases are concerned. Backlogs remain high, in particular in administrative courts and at the High Court (rising from 4 094 cases in 2011 to some 12 000 in 2014). In 2014, there was an overall backlog of 30 600 cases in first-instance and appeal courts, 7.5 % less than in 2013. Fight against corruption The country has reached some level of preparation in the fight against corruption. Some progress has been made in the past year, notably through the adoption of a strategy and action plan. However, corruption is widespread and more efforts are needed to establish a solid track record of investigations, prosecutions and convictions at all levels, in particular for cases where high-level state officials are involved. The independence of institutions involved in the fight against corruption needs to be enhanced, as they remain vulnerable to political pressure and other undue influence. In order to fulfil the key priority on the fight against corruption, in the coming year Albania should in particular: → demonstrate further progress with a view to establishing a solid track record of investigations, prosecutions and convictions in the fight against corruption at all levels; ensure follow-up of the high number of cases referred to the prosecution by the High Inspectorate for Declaration and Audit of Assets and Prevention of Conflict of Interest; → amend relevant legislation in the area of interceptions and surveillance, time limits for investigations, and admissibility of evidence before court to enhance the efficiency of investigations on corruption cases, in line with European standards and best practices; → step up efforts to ensure direct access to databases for prosecutors and police; extend the case management system in prosecution offices and ensure it is effectively used. Track record The track record of investigations, prosecutions and convictions in corruption cases remains limited. So far, there are only very few first instance convictions of corruption cases involving high-level state officials. One judge has been convicted on corruption related grounds. The number of final convictions involving junior or middle-ranking officials has increased steadily since 2010, but remains low overall. A number of high-profile cases, including some where evidence of alleged wrongdoing by high-level state officials, judges, mayors and former ministers was leaked to the media, have never been seriously investigated. Political authorities should ensure law enforcement bodies are fully empowered to act effectively and impartially when investigating corruption allegations. Control and inspection mechanisms in the public administration need to be strengthened as a matter of urgency. Financial investigations are not yet systematically launched in cases of corruption. There are very few final cases of asset confiscation in corruption cases. Infiltration of the public and private sectors by organised crime — facilitated by corruption — continues to be a major cause for concern and needs to be urgently addressed. Political influence on law enforcement authorities and the judiciary is an issue of concern. Political actors frequently criticise ongoing corruption investigations and court rulings. The number and frequency of checks on asset declarations increased in 2014. However, many referrals are not being prosecuted. So far, there have been very few cases relating to conflicts of interest violations. A proper follow up of the cases needs to be ensured. Also, a sufficient sample of asset declaration checks of high-state officials has yet to be ensured. Regarding party financing and electoral campaign financing, there is no track record of effective control, or deterrent penalties for wrongdoing. Education, healthcare, judiciary, public procurement, construction and spatial planning, and local government continue to be particularly vulnerable to corruption. The law on access to information, which has been adopted in September 2014, is in line with international standards. It has started being implemented, with inspections being carried out by the Commissioner for Access to Information and Data Protection Office, as well as decisions taken. There is no adequate legal framework for protecting whistleblowers. Institutional framework There is a National Coordinator against Corruption, but responsibilities for different aspects of policy are scattered among individual institutions. The High Inspectorate for Declaration and Audit of Assets and Prevention of Conflicts of Interest (HIDAACI) is at high risk of political influence, and its independence and accountability need to be strengthened in view of its significant potential contribution to strengthening the prevention of and fight against corruption. In addition to the High State Control and HIDAACI, there are two other levels of audit. State institutions have internal audit units as a standard component of public sector internal financial control, and the Council of Ministers’ Unit for Internal Administrative Control and Anti-Corruption (UIACA) may also conduct audits in line ministries, institutions under the authority of the Prime Minister or ministers, and administrations under the authority of prefects and companies where the state holds all or a majority of the shares. UIACA’s mission includes administrative checks in relation to complaints on alleged corruption or abusive and arbitrary administrative practices and awareness rising of public authorities. However, UIACA’s role needs to be further clarified, and corruption prevention should be streamlined; the institutions involved are fragmented. There is no system of risk assessments based on suspected breaches, or audits of institutions in line with public internal financial control systems. The HIDAACI’s remit and capacity also need to be strengthened, its cooperation and data exchange with other institutions improved, and an electronic system to manage conflict of interest and asset declarations set up. In January, the government launched an online portal for complaints of corruption, but its scope and referral mechanisms need to be further clarified. There are no clear, enforceable, public standards for professional conduct for MPs, and no system for case-by-case notification of conflicts of interest. MPs’ asset declarations are not made public automatically and are fully audited only every three years. As regards law enforcement, important steps have been taken since 2007 to set up specialised units to investigate corruption-related offences in the police and prosecution. In 2014, further steps were taken to ensure the investigation and prosecution of cases involving high state officials. However, significant flaws remain in the legal and institutional framework. Jurisdiction over corruption offences is unclear, human and technical resources are inadequate, effective cooperation and trust between the police and prosecutors are lacking, and there is not enough cooperation and exchange of information with other institutions. Ordinary courts are not specialised enough to deal with complex corruption-related cases and training is inadequate. Sanctions imposed in corruption cases tend to be overly lenient. Courts have different approaches to authorising special investigative techniques and admitting illegally obtained evidence such as private recordings. Court decisions are often poorly structured and drafted.

There are no legal barriers to the exchange of information between institutions. However, it is not smooth or effective in practice. HIDAACI needs access to relevant databases and sources, including the land register and bank information, to check asset declarations. The police and prosecution also need direct access to a number of public databases to be able to build cases. However, mutual distrust between institutions remains evident and hampers access. Legal framework Public sector corruption, including active and passive corruption, abuse of duty, high-level corruption, private sector corruption, illegal benefiting from public office and matters related to asset declaration are all defined in the Criminal Code. The anti-corruption legal framework is highly complex, and its stability and legal certainty have been undermined by numerous and frequent amendments, which are often subject to contradictory interpretation. Government mechanisms for obtaining help, advice or training are limited and the procedures for responding to breaches of ethics are ineffective. Reforms implemented so far have not yielded significant results or altered the public’s perception of the level of misconduct by public officials. Further efforts are needed to improve the law to make investigations more efficient, and to clarify the definition of ‘high state official’ and ‘large-scale corruption’. The existing regulations mainly focus on restrictions and prohibitions, to the detriment of public disclosure and transparency, which limits their effect. Further efforts are needed to improve implementation and ensure that information of public interest is disclosed in a timely and efficient manner. The country is party to the UN Convention against Corruption. Albania has not criminalised illicit enrichment, but has criminalised the refusal to declare assets, non-declaration, the concealment of assets, and false declarations by elected persons, public employees and others who have a legal obligation to declare assets. The country signed and ratified the relevant Council of Europe Anti-Corruption Conventions and the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Albania has still to fully align its legal framework with the recommendations made in the Council of Europe’s Group of States against Corruption (GRECO) evaluation rounds (see Chapter 23: Judiciary and fundamental rights). Strategic framework The government defined the fight against corruption as one of its key priorities. In March, Albania adopted its national anti-corruption strategy (2015-20) and action plan (2015-17), with a budget of EUR 12 million. Relevant stakeholders, including civil society and business community, were widely consulted. Clear timelines and responsibilities are set out, and actions are budgeted individually. Results and impact indicators should still be improved in the end-of-year review of the action plan. Fight against organised crime The country has reached some level of preparation in the fight against organised crime. Some progress has been made over the past year on enhancing international police cooperation, in particular in the fight against drug trafficking. However, cooperation between prosecution and police remains to be further developed. Effective judicial follow-up of organised crime cases and quality of indictments must be ensured. The number of final convictions remains negligible compared to the estimated value of the regional and domestic criminal drug market. Financial investigations remain underused and the level of assets confiscated is low. In order to fulfil the key priority on the fight against organised crime, in the coming year Albania should in particular: → demonstrate further progress with a view to establishing a solid track record of proactive investigations, prosecutions and convictions, including dismantling of criminal networks involved in all forms of organised crime; → amend relevant legislation in the area of interceptions and surveillance, time limits for investigations, and admissibility of evidence to enhance the efficiency of investigations on organised crime cases, in line with European standards and best practices; → set up an effective human resources policy and a merit-based promotion and transfer process in the Albanian State Police, and allocate adequate resources to the police and prosecution services to fight organised crime. Track record The number of final convictions for organised crime is still very low and has only slightly increased in recent years. There are very few cases against trafficking in human beings, despite Albania being a source, transit and destination country for trafficked people. Over the past five years fewer than 35 people have been convicted for money laundering and none during the first semester of 2015, although 123 proceedings were registered and two cases sent to court. The circumstantial evidence in cases of inexplicable wealth, unjustified proliferation of assets or extraordinary financial operations is not used. Criminal investigations often have a narrow scope and legal persons are very rarely investigated. Financial investigations targeting suspected members of organised criminal groups are not systematically and efficiently carried out. Precautionary freezing of assets is seldom 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 led to the confiscation of assets beyond those found upon the arrest of the suspect. Leaks to the press, violating the secrecy of investigations and jeopardising the safety of police, are frequent. Institutional and operational capacity The Albanian State Police has 9 997 police officers, 228 per 100 000 inhabitants. Its management of human resources has improved, while its command structures and capacities need to be consolidated. The high rates of staff turnover, in particular among experienced police officers often trained with international support, need to be reduced. Specialised units are in place for economic and financial crimes, cybercrime, counter-terrorism, trafficking in drugs and human beings, motor vehicles, works of art, arms, explosives, protection of witness and collaborators of justice, and international law enforcement cooperation. The joint investigation units need to further develop their human resource capacity. The efficiency of investigations is often jeopardised by frequent changes of judicial police officers and a lack of personnel specialised in financial and fiscal matters. The general level of police equipment and logistics remains an issue of concern.

Cooperation between prosecution and police needs to be further improved. The poor capacity of judicial police and prosecutors to detect and investigate complex criminal cases means they are limited to simple investigations ending in arrests in the act, so there is no comprehensive approach to investigations and prosecutions. The law enforcement authorities are highly centralised, resulting in poor standards of investigation in remote areas of the country. Capacity to use special investigative means is limited. Formal and lengthy procedures to obtain even basic information during investigations cause significant delays and jeopardise the secrecy of the process. The police and prosecution services lack adequate resources to fight organised crime. Following the conclusion of an operational agreement with Europol, exchange of information has significantly increased. Albania obtained access to the secure information exchange network application (SIENA). In 2014, 1 026 messages were exchanged through SIENA, compared with 216 in 2013, which represents an increase of approximately 375 %. Police collect and process crime statistics manually, which is cumbersome and undermines data reliability. The budget of the DNA sector of the Forensic Directorate, despite the recent increase, is insufficient to cover the costs of DNA collection, thus limiting DNA profiling capacity. Legal framework The new Law on the State Police, which came into force in March, is in line with the main recommendations of the Council of Europe’s European Code of Police Ethics. Criminal penalties are not sufficiently dissuasive. A number of shortcomings in the investigation phase need to be addressed, including the timeframe for preliminary investigations and procedures for using special investigation means. The law on the confiscation of criminal assets is partially aligned with the acquis. Alignment is still required as regards third party confiscation, extended confiscation and precautionary freezing of assets. Frequent amendments and contradictory interpretation have hindered legal certainty. The recommendations of the Financial Action Task Force are reflected in anti-money laundering legislation. However, shortcomings need to be addressed, including in implementation and in police access to public databases. Amendments to the anti-mafia law on assets seizure and confiscation have yet to be adopted. Strategic framework A revised 2013-20 interinstitutional strategy and action plan on fighting organised crime, countering terrorism and illicit trafficking is in place. In June Albania adopted a national serious and organised crime threat assessment (SOCTA). Albanian police analysts have been trained by Europol in June thus establishing the necessary capacity to align the national serious and organised crime threat assessment with the EU SOCTA methodology. However, Albania makes little use of Europol’s strategic intelligence products. Fight against terrorism Albania has been affected by the phenomenon of foreign terrorist fighters and radicalisation. Cases of hate speech need to be addressed more forcefully. The phenomenon of foreign terrorist fighters needs a specific approach by the intelligence and law enforcement community and a coherent judicial policy on offenders. While international cooperation has greatly improved at both operational and strategic level, prevention mechanisms involving civil society and religious communities are yet to be designed. 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. However, implementation is limited and enforcement of human rights remains insufficient. Shortcomings particularly affect the following areas: • Enforcement of property rights remains to be ensured. The processes of property registering, restitution and compensation are not completed. • Roma and Egyptians face very difficult living conditions and frequent social exclusion and discrimination due to ineffective policy implementation and poor inter-institutional cooperation; a solid anti-discrimination case law has yet to be built up; • Institutional mechanisms to protect the rights of the child remain poor; the juvenile justice system fails to comply with international standards; In order to fulfil the key priority on the protection of human rights, in the coming year Albania should in particular make further progress with the implementation of the 2012-2020 strategy on property rights, and the processes of property registration, restitution and compensation; improve the living conditions of Roma and Egyptians; demonstrate progress towards developing the anti-discrimination track record; and enhance efforts to bring legislation on juvenile justice in line with international standards. 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 in the areas of 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 concerning the right to freedom of expression. There has been some progress over the past year.

The Constitution and relevant legislation are in line with international human rights law, guaranteeing individual liberties. The overall environment is generally conducive to the exercise of freedom of expression, but better implementation of the legislation is needed. In addressing the shortcomings outlined below, in the coming year, Albania should in particular: → enhance transparency of government advertising in the media; → ensure that the existing legislation is implemented in a manner which ensures equality before the law; → further strengthen the independence of the regulatory authority and public broadcaster notably through the establishment of the RTSH steering committee and the appointment of senior management. Intimidation of journalists Physical assaults on journalists are rare. One case of a failed attempt on a journalist’s life has been reported, although it has yet to be confirmed whether this attempt was related to the exercise of his profession. Another journalist has been threatened and placed under police protection. The police and respective authorities have reacted promptly, and investigations are ongoing. Proper judicial follow-up needs to be ensured. There have been some cases where politicians made hostile statements against journalists. Legislative environment The Constitution and relevant legislation 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 is a criminal offence, although prison sentences are not foreseen as sanctions. Journalists are exposed to potentially large fines and damages. The rules on hate speech are in line with international law. However, domestic court rulings in hate speech matters are not monitored. The Commissioner for Protection against Discrimination has issued a number of decisions and recommendations in cases that are related to hate speech. The new law on access to information, approved in September 2014, is in line with international standards. Recent proposals to amend the Civil Code and the Law on Audiovisual Media with the aim of filtering offensive comments and removing existing audiovisual media ownership limitations could limit freedom of expression. Implementation of legislation/institutions The 2013 Audiovisual Media Law transformed the National Council on Radio and Television into the Audiovisual Media Authority (AMA). The procedure for appointing members of the AMA board, based on political support by either the majority or the opposition, does not fully guarantee their independence. New AMA members and a chair were appointed in 2014. The opposition disputed the election process in court, alleging that the appointments — approved with the votes of the ruling majority only — were invalid and in breach of the law. Opposition-nominated AMA members did not attend AMA board meetings, questioning the legitimacy of its board. This has made it difficult for the regulator to reach the quorum needed for major decisions. Online content and registration of websites are not regulated by law. Public service broadcaster Regulation of the public service broadcaster RTSH is in line with EU standards. Financing is mostly independent of the government. RTSH fee collection improved when the collection rate of electricity bills, which include the RTSH fee, improved. The election of the RTSH’s Steering Council has been delayed by political deadlock and a lawsuit brought by the opposition. The RTSH should now adopt its statute, and other necessary guidelines, and elect a new management. Economic factors Media ownership transparency has improved. At the National Registration Centre's website citizens can check the shareholders of any registered company. 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 advertising in the media needs to improve. The media continued to be used as a tool to promote political and private interests. Professional organisations, professional conditions The capacity of the journalists’ trade union remains weak, although it has intensified its efforts to set up branches covering many cities in the country. Professional and ethical standards in journalism need to be strengthened. Protection from arbitrary dismissal needs to be provided for journalists to prevent self-censorship. Further action is needed to ensure the proper enforcement of labour rights, especially the rights of media staff to a formal employment contract and the payment of social contributions. 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. As regards regional cooperation and good neighbourly relations Albania is active in regional initiatives and plays a proactive role, and it held a one-year chairmanship of the South-East European Cooperation Process (SEECP). In 2014, Albania concluded its one-year US-Adriatic Charter (A5) presidency. Albania has continued to participate in the EUFOR/ALTHEA mission in Bosnia and Herzegovina, and in all events related to the implementation of the Trans-Adriatic Pipeline and Ionian Adriatic Pipeline projects. A fresh impetus has been given to regional cooperation through the 'Berlin process' and the Western Balkan 6 initiative, intensifying cooperation among the Western Balkan countries and with the EU, notably regarding the connectivity agenda. In April, the Western Balkan Six countries reached an agreement on the core transport network and in June 2015 on extending three trans-European transport networks core corridors to the Western Balkans. They also identified the priority projects along sections of these corridors to be implemented by 2020. To ensure sustainability and also achieve short term results, the countries agreed to implement before the next summit in Paris a number of 'soft' measures such as aligning and simplifying border crossing procedures, road safety and maintenance schemes.

Albania is a constructive partner in the region, further developing solid bilateral relations with other countries preparing to join the EU and neighbouring EU Member States. Albania started negotiations with Montenegro and Serbia with regard to the bilateral convention on regional cooperation, under Article 13 of the Stabilisation and Association Agreement. Relations with Bosnia and Herzegovina are good. There are no open bilateral issues. In July, Albania and Bosnia Herzegovina signed an agreement allowing their citizens to travel between the two countries with ID cards only. Relations with the former Yugoslav Republic of Macedonia are good, with frequent high-level official visits. The government reacted to the May events in Kumanovo by calling for calm, transparency and full implementation of the Ohrid Framework Agreement. A memorandum of understanding on defence was signed in January. An agreement to jointly recognise respective social insurance schemes and a cooperation protocol on culture for 2015-20 were signed in March. In August, Albania approved a EUR 50 000 grant for humanitarian aid to alleviate flood damage in Tetovo. Relations with Montenegro are good. A bilateral agreement on economic cooperation was signed in February. Albania has consistently expressed its support for Montenegro’s NATO membership. There were two high level visits during the year. Relations with Kosovo * are good. A joint customs procedure was established at the Morinë border crossing point. In March, 12 agreements, memoranda and protocols of cooperation were signed at the second joint governments’ meeting, on cooperation and security, border control, education, agriculture, trade and rural development. Albania has strongly supported Kosovo’s integration process and its membership of regional initiatives and international organisations. Albania supports the ongoing dialogue between Kosovo and Serbia facilitated by the EU. Relations with Serbia have intensified and are constructive overall. In October, an incident during a football match played by both national teams in Belgrade strained bilateral relations. The Albanian Prime Minister’s subsequent visit to Belgrade — the first in 68 years — marked an important step forward in the normalisation of relations, and was followed by a visit of Serbian Prime Minister Vučić in May. Albania and Serbia presented a joint proposal on concrete connectivity projects at the April Western Balkans Summit in Brussels. The Serbian and Albanian Ministers of Foreign Affairs took part in a first trilateral meeting with their Italian counterpart in Rome. Albania maintains close relations with Turkey. In May, a strategic partnership was signed on mutual assistance and cooperation in the fight against organised crime and the fight against terrorism. Frequent high-level visits took place, including Turkish President Erdoğan in May. Relations with Greece have been positive overall, and have become closer in relation to the rule of law, with joint meetings between representatives of the ministries of the interior to build cooperation on migration issues. Talks on several bilateral issues, including the agreement on the delimitation of Greek-Albanian continental shelf and maritime zones, continue. Relations with Italy remain very strong, particularly in the trade sector. Diplomatic relations are very good. In December, a bilateral cooperation protocol was signed for 2014-2016, focusing on private sector development, agriculture, and rural and social development. 3. Economic criteria Key economic figures 2013 2014 Gross domestic product per capita (% of EU28 in PPS) 28 29 GDP growth (%) 1.1 2.1 Unemployment rate (female; male) (%) 15.9 (13.5; 17.8) 17.5 (15.2; 19.2) Economic activity rate for persons aged 20–64: proportion of the population aged 20–64 that is economically active (female; male) (%) 67.6 (57.6; 79.2) 68.6 (57.3; 80.5) Current account balance (% of GDP) -10.8 -13.1 Foreign direct investment (FDI) (% of GDP) 9.6 8.1 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 increased importance of economic governance in the enlargement process. In order to improve their economic governance, in 2015 the enlargement countries were asked to prepare Economic Reform Programmes (ERPs), which set out a medium-term macro-fiscal policy framework together with key structural reforms aimed at supporting the framework and boosting competitiveness. The ERPs were the basis for country-specific recommendations jointly adopted by the EU and the Western Balkans and Turkey in the Economic and Financial Dialogue meeting on 12 May 2015. 3.1. The existence of a functioning market economy Albania is moderately prepared in developing a functioning market economy. Some progress was made, in particular in improving macroeconomic stability. However, significant challenges remain, in particular the need to lower the public debt burden. Growth prospects have been improving, but they are still vulnerable to constrained bank lending. With a narrow export and production base, the competitiveness of Albania’s economy is weak. The private sector is held back by significant shortcomings in the regulatory environment and the rule of law. The level of unemployment and informal employment remains high. In line with the ERP recommendations and in order to support long-term growth, in the coming year Albania should pay particular attention to: → sustaining fiscal consolidation and strengthening the budget management framework; → tackling the high level of non-performing loans; → improving the business environment by implementing regulatory reforms and adopting the new bankruptcy law. Economic policy essentials The government demonstrated strong commitment to reform and implemented stability-oriented macroeconomic policies in a challenging political environment. Albania submitted its Economic Reform Programme, covering the period 2015-17, in January 2015. The objectives of the programme are to achieve macroeconomic stability, remove obstacles to growth and improve competitiveness. The ERP’s medium-term macroeconomic projections assume a further acceleration of growth and continued fiscal consolidation on the basis of stability-oriented policies. Albania needs to follow up on its commitments and take further steps to implement the ERP recommendations, which are set out below. The three-year financing arrangement with the International Monetary Fund agreed in February 2014 supports strengthened macroeconomic stability and growth-boosting reforms. Macroeconomic stability

Economic activity picked up in 2014 because of improved private domestic demand. The growth rate reached its lowest level in 15 years in 2013, at only 1.1 %. In 2014, however, growth rebounded to an estimated 2.1 % as interest rate cuts by the central bank improved financing conditions, rising remittances and low inflation boosted household spending, and the clearance of a large part of government arrears improved firms’ liquidity and confidence. Annual economic growth reached 2.8 % in the first quarter of 2015, partly thanks to a strong increase in investment. Per capita GDP in purchasing power standards stood at only 29 % of the EU-28 average in 2014 (unchanged since 2009), pointing to the need to generate higher growth rates to converge towards EU living standards. The current account deficit is structurally high, but its financing is healthy, relying mainly on non-debt-creating flows. Overall, the current account deficit increased to 13.1 % of GDP in 2014 from 10.8 % in 2013. The trade deficit increased to 18.8 % of GDP in 2014 after narrowing in 2012 and 2013. This was the result of higher imports due to recovering domestic demand, though exports, especially of clothing and footwear, also rose. The growing stock of foreign investment resulted in higher repatriation of investment earnings. The long-standing decline in migrant remittances was reversed in 2014, but in proportion to GDP they remain much below the level reached in the years leading up to the 2008 global crisis. In the 2009-2014 period, around two thirds of net financial inflows to the economy consisted of foreign direct investment (FDI). External debt amounted to around 68 % of GDP at the end of 2014, with long-term debt making up more than 80 % of the total, mostly in the form of concessional government borrowing and inter-company lending. This debt profile does not give rise to concerns about refinancing prospects. Moreover, the official foreign exchange reserves, covering around 5.3 months of imports and amounting to almost double the stock of short-term external debt in the first quarter of 2015, provide an adequate safeguard against adverse shocks. To address the persistent current account deficit, Albania needs to diversify its economy and improve productivity by attracting foreign capital into tradable sectors among other things. Unemployment remained high despite an increase in employment. Employment, in line with the economic recovery, grew by 1.6 %, but due to a rise in the labour force the unemployment rate rose from 15.9 % to 17.5 % in 2014 as a whole, before falling to 17.3 % in the second quarter of 2015. 56.6 % of the working-age population were employed in 2014, almost unchanged from 2013. However, the high prevalence of long-term and youth unemployment and large gender differences in labour force participation indicate significant structural obstacles. Nearly a third of the employed are unpaid family workers (mainly in agriculture) and informal employment remains widespread; this affects job security and social security entitlements and hinders company development. Some progress was made on strengthening labour market policies in line with the national employment and skills strategy for 2014-2020, adopted in November 2014. However, more needs to be done to improve the functioning of the national employment service, strengthen employment promotion programmes, modernise training services and develop a coherent labour market information system. Inflation remained weak, allowing the central bank to lower the key interest rate. Average annual inflation remained below the Bank of Albania’s (BoA) 3 % target in both 2013 (at 1.9 %) and 2014 (at 1.6 %). This resulted from below-potential economic activity, low inflation in trading partners and a stable exchange rate against the euro. In the first seven months of 2015, inflation was volatile as a result of floods temporarily disrupting agricultural production and driving up food prices; however, on average it remained well below the target rate. Persistently low inflation allowed the BoA to bring down the key interest rate in several steps to a new historic low of 2 % in January 2015 in an effort to stimulate economic activity and steer inflation towards the target. The BoA was successful in lowering market interest rates and supporting credit growth, even if banks’ increased risk aversion hampered the pass-through of monetary stimulus to the economy. The degree to which the financial system uses the euro (‘euroisation’) lessened but remains high. This entails credit risks in case of abrupt changes in the exchange rate and reduces the room for manoeuvre for monetary policy. ERP recommendation 1: ‘Pursue fiscal consolidation in line with the objective to put the public debt ratio on a downward path and lower it to less than 66 % of GDP by 2017. At the same time, preserve fiscal space for growth-enhancing public investment by making sure that revenue performance remains on track, allowing for the initially budgeted capital expenditure to be executed.’ The budget performed well in 2014, but revenues fell short of the target in the first half of 2015. The 2014 deficit outcome, at 5.2 % of estimated full-year GDP, remained well below the initial target of 6.6 %. Revenues increased by 12.1 %, resulting from tax increases and successful efforts to improve tax collection. At the same time, total spending was 3.9 % lower than budgeted due to underperforming public investment and operational expenditure. In 2014 the budget also had to finance the repayment of government arrears to businesses, amounting to 2.4 % of GDP. Without this extraordinary expense, the budget actually posted a small primary surplus for the first time since 2010. In the first half of 2015 tax revenues fell short of targets mainly due to overoptimistic assumptions about revenue growth, lower-than-expected inflation, and the fall in oil prices. The budget was revised in July and revenue targets were lowered, but thanks to savings on interest payments and substantial underspending on investment, the overall deficit target was left unchanged at 4 % of GDP (which includes repayment of arrears worth 1.3 % of GDP). Over-optimistic projections for tax revenue and investment spending are recurring problems that need to be tackled The high level of public debt, almost half of it short-term, remains a key source of macroeconomic risk. Public debt increased significantly to 71.8 % of GDP in 2014 from 55.1 % in 2008 in the wake of the economic slowdown. The large proportion of short-term debt translates in debt equivalent to about 20 % of GDP needing to be rolled over every year, relying mainly on domestic banks, which creates refinancing risks. Accordingly, the stated objective for 2015 and beyond is to continue fiscal consolidation and reduce public debt, in accordance with ERP recommendation 1. This would not only help rebuild fiscal buffers to fight any future downturn, but also foster financial stability given large holdings of government debt by banks. An ambitious pension reform has largely been implemented with the aim of improving the long-term sustainability of the system. The government made some progress in addressing fiscal risks stemming from the electricity sector. This public utilities sector is characterised by very high distribution losses and inadequate bill collection, which leads public finances to bear the costs, including those of emergency imports of electricity. While the government has already taken measures to clamp down on electricity theft and illicit connection to the grid, sustained efforts are needed to make the electricity sector financially sustainable, in line with ERP recommendation 2: ‘Progress towards eliminating high fiscal risks posed by the electricity sector by reducing distribution losses at an average rate of 5 percentage points in the coming years and by improving the bill collection rate. Evaluate the fiscal impact of the property compensation scheme and accommodate the costs in the medium-term budget, if necessary by adjusting the parameters of the scheme with the aim of creating a realistic, transparent and sustainable compensation framework.’ ERP recommendation 2. Additional fiscal risks include the obligation for the state, confirmed by judgments of the European Court of Human Rights, to pay compensation to former owners of property confiscated during the communist regime. In line with ERP recommendation 2, Albania prepared a draft law which would improve the financial sustainability of the current compensation scheme. ERP recommendation 3: ‘Reinforce the budget management framework by implementing the public finance management strategy agreed with the Commission and adopted in December 2014, in particular by moving towards adopting a credible fiscal rule which will effectively ensure the sustainability of public finances in the long run and by strengthening budget forecasting.’ The budget management framework needs to be significantly strengthened, in accordance with ERP recommendation 3. Shortcomings in public finance management (PFM) include weak budget planning and monitoring, over-optimistic growth and revenue projections, as well as lax tax collection especially in election years. Over the years, these shortcomings have contributed to increased public debt and large government arrears to the private sector. To address these weaknesses, the government approved an ambitious PFM strategy for the period 2014-2020, supported by the Instrument for Pre-Accession Assistance (IPA). It contains plans to strengthen multi-year budgets, introduce rules to limit politically motivated ad hoc spending increases and eliminate systematic biases in budget forecasts. Fiscal credibility is to be reinforced by adopting a fiscal rule the details of which have yet to be worked out. Interplay of market forces ERP recommendation 6: ‘Improve the overall business environment, including by implementing the merger of the NRC (National Registration Centre) and NLC (National Licensing Centre) to further ease the regulatory and administrative burden for businesses. Start the implementation of the simplification regime for authorisations. Make the newly established investment council fully operational.’ Market liberalisation and privatisation are advanced. Price and trade liberalisation was carried out early in the transition process and privatisation is wide-ranging. The state’s involvement in the economy remains limited and is concentrated in a few sectors such as energy. The private sector remains dominant, accounting for more than 80 % of the workforce. Privatisation efforts are now focused on state-owned small and medium-sized enterprises (SMEs) in non-strategic sectors. Some companies with poor economic performance went into liquidation in the reporting period, while the unused assets of others were offered for lease to domestic and foreign investors. In addition, a decision was made to privatise the state insurance company INSIG through an open tender that attracted four bids. A working group has been set up to identify the best option for restructuring and privatising the oil company Albpetrol.

Market entry and exit Further improving market entry and exit procedures could facilitate the efficient allocation of resources. Business registration continues to function reasonably well through the established network of the national registration centre (NRC). The number of start-ups surged by 43 % in 2014 and reached a six-year high, and business registrations have continued to increase in 2015, partly reflecting efforts to formalise the large informal economy. Plans to further streamline procedures by merging the NRC with the licensing authority to create a single service window for registration and licensing should be implemented in line with ERP recommendation 6. Steps have also been taken to create an inventory of authorisations to remove unnecessary ones. Firms’ access to formal finance, especially in the start-up phase, remains a challenge. Bankruptcy procedures remain slow and the recovery rate for debtors in most cases turns out to be low. There was some progress on revising the bankruptcy law. Legal system There are significant shortcomings in the rule of law, property rights enforcement and the fight against corruption which remain key aspects to improving the business environment. Steps have been taken to address these complex challenges (see Chapter 23 — Judiciary and fundamental rights), but much remains to be done. Efforts were also made to improve the government’s communication with businesses, notably by setting up an investment council and requiring mandatory consultation of stakeholders on new legal drafts, and to reduce the regulatory burden on businesses. However, results have yet to materialise. Financial sector development There is scope for banks to expand lending and better support the economic recovery. The banking sector, dominated by foreign-owned banks, holds 90 % of all financial system assets. With loans to businesses and households amounting to less than 40 % of GDP, there is much scope for increasing the role of bank lending in the economy. However, credit growth has only started to gather some momentum towards the end of 2014, despite banks’ ample liquidity and the gradual fall in credit rates. While the economic slowdown has reduced the demand for loans, the high proportion of non-performing loans (NPLs), which peaked at 24.9 % in 2014 and was still 21 % in June 2015, has contributed to banks’ increased risk aversion and cautious lending. Various regulatory and legislative changes have already been made to address the problem, and an inter-institutional working group was set up to develop a comprehensive NPL reduction strategy. However, in line with ERP recommendation 4, further efforts are needed to encourage the clean-up of bank balance sheets and boost lending, including by addressing impediments to judicial enforcement and collateral execution. ERP recommendation 4: ‘Take further measures to address the issue of non-performing loans, involving all key stakeholders including the Bank of Albania as necessary, with a view to achieving a sustainable reduction of their level. In this context, addressing impediments related to judicial enforcement and collateral execution would appear helpful.’ The banking system appears stable but is exposed to credit and sovereign debt risks. Overall, the capital and liquidity ratios of the banking system well exceed regulatory minima, and profitability was improving in 2014 and the first half of 2015. The three Greek-owned banks operate as stand-alone subsidiaries with adequate capital and liquidity buffers and no significant exposure to their parent banks. The central bank put in place additional prudential measures following the introduction of capital controls in Greece: therefore, financial contagion risks seem well contained. Banking activity continued to be fundamentally financed by deposits, with the loan-to-deposit ratio standing at around 55 %. Provisioning for potential losses on non-performing loans improved, but NPLs net of provisions still amounted to 36 % of bank capital in July. Banks are also exposed to credit risks originating from foreign currency loans whose repayment is vulnerable to a potential depreciation of the Albanian currency (lek). Also, since government securities make up around a quarter of bank assets, severe sovereign debt stress would be detrimental to banks’ solvency. The size of the non-banking financial sector increased but remains small. It comprises the insurance and private pension businesses plus investment funds; total assets represent 6.5 % of GDP. The regulatory and supervisory framework for the sector needs further strengthening. The capital market remains rudimentary. There is great scope for expanding equity finance. 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 transport and energy infrastructure. However, significant investment in human and physical capital is necessary to improve the country’s competitiveness. There is considerable scope for shifting employment to more productive sectors and for diversifying export products and markets. 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 higher education and continuing the restructuring of vocational education and training to improve its market relevance; → adopting and implementing the national transport and energy strategies; → lowering non-tariff barriers to trade. Human and physical capital ERP recommendation 5: ‘Adopt and start to implement the law on higher education, as well as the new strategy for higher education. Establish an independent accreditation system for all public and private universities. Continue the restructuring of the vocational education and training system with a view to improving the relevance of the training for the needs of the labour market.’ Despite significant improvements over the last decade, Albania still has considerable gaps to close in terms of years of schooling, secondary enrolment rates, education quality and the market relevance of qualifications. Public spending on education remains low at around 3 % of GDP and is expected to fall slightly in 2015 due to lower budgeted investment spending in this area. Albania adopted and started to implement the national employment and skills strategy for 2014-2020. Institutional changes are expected to be followed by the introduction of an apprenticeship system and upgrades to the curricula in line with market needs. In line with ERP recommendation 5, this should remain a priority, along with drafting a new strategy on higher education and setting up a new accreditation system for universities. Low scores received by Albanian students in the OECD’s PISA tests underline the need for improving the quality of basic education (see also Chapter 26: Education and culture). Improving physical capital and promoting innovation are important elements for enhancing productivity and competitiveness. Investment as a share of GDP decreased from 33.9 % in 2008 to 24.9 % in 2014, driven by weak investment in construction and in machinery and equipment. With some large foreign direct investment projects in the energy sector under way, including the construction of a large hydropower plant and the Albanian section of the Trans-Adriatic Pipeline, investment is likely to rebound in the coming years. Still, a more favourable investment climate is needed to attract capital into a wider range of sectors. New laws were adopted in May with the aim of promoting investment in strategic sectors and developing economic zones through lowering administrative burdens and providing fiscal incentives for such projects. Public investment made up 5.1 %-5.5 % of GDP in past years, but was often the target of ad hoc spending cuts when budget adjustments were needed. Public spending on research and development continued to represent only 0.01 % of GDP and much remains to be done to develop an innovation culture and links between science and industry. ERP recommendation 7: ‘Adopt and start to implement the transport strategy and action plan for 2016-2020. Focus investments on the core network. Adopt and start to implement the national energy strategy and the Power Sector Law, including speeding up the unbundling of the energy sector. Prepare single sector pipeline of priority investments for both transport and energy.’ While progress has been made over the years, Albania’s transport and energy infrastructure is still not sufficiently developed. The finalisation and implementation of the transport strategy 2016-2020 are expected to improve overall transport infrastructure in the country and are highlighted as a priority in ERP recommendation 7. Focusing investment on the core network, in particular, would improve connectivity within the Western Balkans as well as with the EU. ERP recommendation 8: ‘Adopt a strategy on the land cadastre and concrete measures to increase momentum in agricultural land consolidation.’ Sectoral and enterprise structure The Albanian economy is dominated by services, and agriculture still plays an important role. In 2014, services accounted for around half of gross value added, unchanged from 2008, followed by agriculture with a share of 22.6 %. Industry’s role has increased over the last years (making up 14.2 % of the economy in 2014, up from 11.4 % in 2008) due mostly to increased oil extraction. At the same time construction’s share of the economy fell to 11 % in 2014 from 18 % in 2008 following the economic crisis and the slowdown in lending. Agriculture provides a gradually falling, but still very large, proportion of employment (around 42.7 % in 2014), much of which is in the form of unpaid family jobs. In line with ERP recommendation 8, a strategy on the land registry (cadastre) should be adopted.

The sectoral composition of merchandise exports remained highly concentrated, with 82 % of total exports in 2014 accounted for by mineral products (33.6 %), textiles and footwear (33.6 %) and construction materials and metals (14.5 %). This lack of diversification contributes to the large external deficit and exposes the economy to industry-specific shocks. Small and medium-sized enterprises (SMEs) play a significant role in the economy. They provide 81 % of employment and 70 % of value added in the non-agricultural private sector. Micro-businesses in particular make up a high proportion of the number of companies and account for 46 % of jobs. Various state and donor-funded schemes support SMEs’ competitiveness and access to finance. The business development and investment strategy 2014-2020 has made support services for SMEs and start-ups a priority. Besides putting this strategy into action, further efforts could be made in implementing an SME test to ensure that regulations and legislation do not impede SME development and growth. State influence on competitiveness Reported state subsidies to the economy remained relatively low, but the electricity sector is an enduring drain on public resources. Total reported state aid stood at 0.5 % of GDP in 2014, marking a considerable decrease from 1.5 % in 2013. Around two-thirds of the subsidies were notionally granted for less distortive general business purposes, such as research and development and employment. However, much of the general business aid continued to benefit certain industries, such as the hydrocarbon or the clothing industries. Data on state aid does not include loan guarantees granted to the state-owned power company KESH to ease its financial difficulties. There is scope for improving the enforcement of competition rules. Economic integration with the EU The EU is Albania’s dominant trading partner, with especially strong links to Italy. Albania has increased its openness to trade, with total imports and exports rising to 92.3 % of GDP in 2014 from 86 % in 2008. The EU remains Albania’s largest trading partner by far, with a share of 77.4 % of its goods exports and 61.1 % of its goods imports in 2014. Italy is the main destination for Albanian exports, absorbing more than half of Albanian goods sold abroad in 2014 and providing almost a third of its goods imports. Trade links with Central European Free Trade Agreement (CEFTA) countries are also relatively important as they accounted for some 12 % of Albanian goods exports and 8 % of its imports of goods in 2014, but these shares are largely unchanged since 2008, pointing to a potentially large untapped potential for future growth. Substantial progress has been made in lowering technical barri