BANK OF ALBANIA
Capital Account Liberalization - What should Albania do?
Publication date: 12.09.2003
Capital account liberalization is one of the processes Albania will have to undertake in the near future. Restrictions on movements of capital are no novelty. They have been prevalent in many countries around the world especially during times of turbulence such as wars or economic depressions. The last two decades have been characterized by a continuous easing of controls on capital movement, and many countries have completely opened up their capital accounts. However there is a number of countries, Albania included, that are not yet liberalized. While Albania imposes no restrictions or controls on capital inflows, it maintains controls on most capital outflows. The reasons behind the need for capital account opening are linked to the benefits stemming from this process such as higher economic growth, increased diversification opportunities, financial development, fulfillment of the requirements set by the Albanian authorities in collaboration with the WTO and the European Union, reduction of the informal economy, stable and low inflation etc..
Capital account liberalization requires the fulfillment of certain conditions such as: a sound macroeconomic framework; strong institutional and regulatory regime especially in the financial sector and appropriateness of the exchange rate regime. Therefore we stress the importance of preserving and improving current macroeconomic indicators such as GDP growth and inflation, the importance of the continuation of structural reforms, the importance of carefully monitoring the levels of total and especially foreign debt, and the immediate necessity to develop a foreign exchange-generating strategy that will enable Albania to maintain a sound balance of payments position.
As far as the liberalization steps are concerned, in line with theory and recorded evidence so far, we suggest that a careful approach be taken as Albania opens its capital account. The sequencing of the liberalization steps is very important. Sequencing stands for an ordering and a combination of structural and macroeconomic reforms with steps towards the opening of the capital account.