The World Bank, with support fromauthorities in the Western Balkans, has developed apractical guide for capital markets development in smalleconomies. The guide supports the implementation of theMulti-Annual Action Plan for a Regional Economic Area in theWestern Balkans Six by helping inform policy discussionsaround capital markets development, including to what extentcapital markets have potential and should be given priorityin the region and small economies more broadly. Thepractical guide aims to provide regulators and policymakersin small economies with an overview of the capital marketdevelopment agenda and existing challenges. The guide aimsto support policymakers and regulators of small economiesidentify general preconditions, key constraints, and areasof potential for development of local capital markets. Aframework for analysis of preconditions and capital marketsdevelopment has been developed to guide reforms in smalleconomies. A pilot of the methodology in Serbia helpedfurther advance the framework and adapt it to the realitiesthat small economies face. The framework for analysis of thepreconditions and capital markets is outlined in Annex two.The practical guide focuses on both necessary preconditionsand on relevant specific issues in capital marketsdevelopment. It includes an assessment of themacro-fundamental preconditions that need to be in place tomake capital markets development possible, includingmacro-political stability, level of savings, the structureof corporate sector, the broader legal and regulatoryframework (including insolvency law and tax law), the levelof real interest rates, and the soundness of the banking sector.
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