Capital Movement in Albania
Capital Movement in Albania
There are several countries, including Albania, where the capital account has not yet been liberalized. While Albania does not apply restrictions or controls on capital inflows, it applies rules on most outflows. The reasons behind the need to open a capital account are related to the benefits arising from this process, such as more significant economic growth, diversification of investment opportunities, financial development, meeting the requirements set by the Albanian authorities in cooperation with the World Trade Organization and the European Union, the reduction of the informal economy, the achievement of low and stable inflation, etc.
Capital account liberalization requires fulfilling certain conditions such as A sound macroeconomic framework. A robust institutional and regulatory infrastructure, especially in the financial sector. An appropriate exchange rate regime. Consequently, we emphasize the importance of maintaining and improving current macroeconomic indicators, such as GDP growth and inflation, the reputation of careful monitoring of total debt levels, and especially external debt, and the urgent need to develop a strategy. For currency generation, Albania will maintain a healthy balance of payments.
Regarding the steps of liberalization, by the theory and practice so far, we suggest that the opening of the capital account in Albania should be treated with caution. Phasing or sequencing the steps of liberalization is very important. It presupposes the order and gradual combination of structural and macroeconomic reforms to enable the free movement of capital.
Capital Account Liberalization means completely removing controls and restrictions on capital movements inside and outside a country. Word .restriction. is used not only in the sense of a categorical legal prohibition, that is, in cases where the law completely prohibits the performance of a particular transaction, but also in the sense of a quantitative restriction, as well as in cases where a given transaction requires the approval of an individual, such as the Central Bank.
At this point, it is necessary to emphasize the difference between the obligation to obtain approval (authorization, permit) and the declaration required at the end of entry or exit of capital. Some countries implement the system of declaring the amount of money leaving the country only for statistical or tax-related reasons.
These statements do not constitute restrictions or controls on the movement of capital, as they do not impede or reduce this movement’s speed. Classical theory suggests that the international movement of capital allows countries with limited savings to attract financing for investment projects, enabling investors to diversify their portfolios, distribute investment risk, and promote international commodity trade today for future commodities several economists worldwide present arguments against full liberalization or how it is implemented in some countries. Some of these arguments are as follows:
First, it isn’t easy to measure the net benefits a country would reap from capital account liberalization. Under normal circumstances, it is impossible to predict the losses that a country may incur in the event of a capital account crisis. Through an appropriate analysis, a country must assess both the probability of a problem and the potential losses caused by it.Capital Movement in Albania
Capital account liberalization raises the right to credit in the private sector, especially for individuals and small and medium-sized enterprises. Albania is considered a country with low foreign capital and direct investment barriers, an index of Economic Freedom. Created by the Wall Street Journal, it ranks Albania, Canada, France, Slovenia, Bulgaria, Malta, Cyprus, and former Soviet Union countries.
This is because, according to our regulation on Foreign Exchange Activity, capital inflows are not subject to an approval process, and no sector is closed to foreign investment. Similarly, the repatriation of foreign capital initially invested and the profits deriving from foreign investments do not encounter obstacles when leaving the country.
According to Albania, domestic and foreign firms are treated equally and guaranteed security from expropriation or nationalization. In only one case (Random), foreign investors have not been treated the same way as Albania residents. Foreign investors, who invest in Albania’s treasury bills, have to pay a 15 percent profit tax, while Albanian residents are obliged to pay a 10 percent tax.
The movement of capital inside Albania and abroad is regulated by the regulation of Foreign Exchange Activity, amended on 30.07.2003. As mentioned above, foreign capital entering the country is not subject to restrictions or controls. Despite this, Albania’s capital inflows are very modest, and we feel the need to analyze several factors that may have limited capital inflows to Albania.
Freedom of movement of capital includes:
• Mobility of money and capital
• Liberalization of the insurance market
• Liberalization of payments
• Creating a common need for financial services
Regardless of their supportive or non-supportive stance on capital account liberalization, many economists agree on one thing in common: the importance of phasing (capitalization) capital account liberalization. Phasing means the gradual sequencing and combination of structural and macroeconomic reforms to enable the free movement of capital.
On the one hand, as we explained above, a country needs to undertake reforms to improve the overall situation and facilitate the liberalization process. Control over the movement of capital can not replace sound macroeconomic, structural, and financial policies. Therefore, before we start giving up rules, we need to identify the shortcomings of other policies intended to be corrected by maintaining these controls. Political and regional situations must be taken into account in choosing the pace, the moment of the beginning of the removal of rules, and determining the stages of liberalization.
The involvement of the authorities in the liberalization process and their interest in reforms must also be taken into account. It may be that political considerations hinder the implementation of an optimal program of reforms in the financial sector. Consequently, the authorities must be characterized by a spirit of cooperation and be careful and transparent in designing and implementing reforms. Improving and strengthening banking supervision is also very important for capital account liberalization.
