Albania emerged from the Communist era as the poorest country in Europe. Under the Communists, the state controlled all economic activities; private ownership and private enterprise were forbidden. Because the state tended to invest in heavy industry, the popular demand for consumer goods was neglected. Furthermore, the constitution did not allow other countries to invest in or aid Albania. On the other hand, there was little unemployment since the state guaranteed almost everyone a job. In the early 1990s Albania’s new, democratically elected leaders started a far-reaching program to reform Albania’s economy. Many state businesses were privatized, key decisions about production and demand were taken away from the state, and restrictions on trade and foreign investment were lifted. At first, between 1989 and 1992, the disruption brought by the end of the Communist era and the start of market reforms led to a steep economic decline with soaring unemployment and widespread poverty. However, in 1993 Albania’s gross domestic product (GDP) grew by 11 percent; in 1994 by 7 percent; and in 1995 by 6 percent—the highest growth in Europe. From 1992 to 1995 inflation dropped from a yearly average of 226 percent to 7 percent, and by 1995 the state controlled only 40 percent of the total economy. The rapid growth was due mainly to a recovery in farming spurred by rapid privatization and land reforms. In 1999 the GDP was $3.68 billion, or about $1,090 a person.

Before 1991, the ruling communist party directed the country's entire economy through a series of five-year plans. All means of production were under state control, agriculture was fully collectivized and industry nationalized, and private enterprise was strictly forbidden. In addition a provision of the constitution prohibited the government from seeking foreign aid, accepting loans, or allowing foreign investments. The failure of this command economy has forced the government to decentralize the economic decision-making process. Restrictions on private trade have been lifted, and the government now accepts foreign credits and investments and seeks to create joint ventures with foreign partners. Such measures are intended to encourage the growth of light industries, food processing, and agriculture, but they are hampered by chronic shortages of basic foods, a failing infrastructure, a lack of raw materials, shortages of skilled workers and managers, low productivity, and poor labour discipline. Albania remains Europe's poorest country.

Poor by European standards, Albania is making the difficult transition to a more open-market economy. The economy rebounded in 1993-95 after a severe depression accompanying the end of the previous centrally planned system in 1990 and 1991. However, a weakening of government resolve to maintain stabilization policies in the election year of 1996 contributed to renewal of inflationary pressures, spurred by the budget deficit which exceeded 12% of GDP. The collapse of financial pyramid schemes in early 1997 - which had attracted deposits from a substantial portion of Albania's population - triggered severe social unrest which led to more than 1,500 deaths, widespread destruction of property, and a 7% drop in GDP. The government has taken measures to curb violent crime and to revive economic activity and trade. The economy is bolstered by remittances from some 20% of the labor force that works abroad, mostly in Greece and Italy. These remittances supplement GDP and help offset the large foreign trade deficit. Most agricultural land was privatized in 1992, substantially improving peasant incomes. In 1998, Albania recovered the 7% drop in GDP of 1997 and pushed ahead by 8% in 1999 and by 7.5% in 2000. International aid helped defray the high costs of receiving and returning refugees from the Kosovo conflict. Privatization scored some successes in 2000, but other reforms lagged.