1 SUSTAINABILITY OF CURRENT ACCOUNT BALANCE1

The trade deficit and consequently, the current account deficit, are among the essential challenges the Albanian transition is facing. The level of 24,6 % of the relative indicator of trade deficit in 2002 (in percentage of GDP), corresponds to the level of 9 % of the relative indicator of current account deficit, approaching to the record level marked in 1997 (11.1%), surpassing the level of 2001 by 3,7 percentage points and being about two times higher than the level of 5%, which, in economic literature, is regarded as a “warning ” level. The high levels of current account deficit raise the need to analyze the deficit sustainability, an analysis that constitutes even the aim of this paper. Comparing the theoretical criteria and particularly the practical criteria of current account deficit sustainability with current account balance position in Albania, the conclusion is drawn that in Albania’s case the current account deficit is chronic, and at very high levels. Nevertheless, given the overall considerations, current deficit may be estimated as relatively sustainable, but with a rather fragile and seriously threatened sustainability. Given the current account deficit structure, it is concluded that the improvement of current account balance requires, first of all, the trade balance improvement. In spite of the importance the substitution of imports has, this paper emphasizes the idea that the orientation of economy towards export growth stands in the basis of a sustainable and long-term trade balance improvement