Current Account Balances and External Debt in Transition Economies: Lesson for Central Asia (original) (raw)
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How Excessive are External Imbalances in Selected Transition Countries?
Prague Economic Papers
This article examines the main current account balance determinants in order to assess the potential excessiveness of current account deficits in selected transition countries. For this purpose, dynamic panel-regression techniques are used to characterise the properties of current account variations across the transition regions. The results are chiefly consistent with the theoretical and previous empirical analysis, indicating a moderate level of current account deficits persistency and negative effects of economic growth, real appreciation and worsening of terms of trade on the external balances. Furthermore, the validity of the stages of development hypothesis and twin deficit hypothesis, as well as the significance of demographic factors is confirmed in the regions. Finally, the results suggest that most transition countries are justified in running relatively high current account deficits.
Debt in transition economies: Where is it heading, what can be done about it
Revue D'économie Financière, Special Issue, Ten Years of Transition in Eastern European Countries, Achievements and Challenges, 2001, pp. 191-213, 2001
Since the start of the transition, the countries of Central-Eastern Europe and the Baltic States (CEB), South-Eastern Europe (SEE) and the Commonwealth of Independent States (CIS) have experienced a wide variety of debt developments. These range from sustainable debt management to outright default, with debt positions varying widely across countries and over time. Only a few of the countries had high external debts at the onset of transition. Bulgaria, Hungary, Poland, the Soviet Union and Yugoslavia had borrowed heavily from the West during the communist era and by 1989 had accumulated high external public debt burdens relative to GDP, exports and fiscal revenues. Romania had also borrowed abroad during the 1970s, but repaid its Western external creditors, including multilateral lenders, in full during the 1980s through a draconian policy of consumption rationing and import compression. A number of countries had to apportion financial assets and liabilities when former states dissolved and new states were created. The successor nations of the former Socialist Republic of Yugoslavia confronted this problem after the federation disintegrated in 1991, although its resolution took many years to complete because of prolonged conflicts. With the break-up of the Soviet Union in 1991, Russia offered the other former Soviet republics the opportunity to start their transition free of external debt. Under the so-called “zero option”, all the external debts of the Soviet Union were assumed by Russia in exchange for the other republics assigning to Russia their rights to the external assets of the Soviet Union. The allocation of the debts of the former Czechoslovakia was easier because the amounts were small, due to prudent fiscal and monetary policies followed by the communist regime. The paper traces the main developments in the indebtedness of the countries in the region and shows how the debt burdens of countries have changed dramatically. While some countries that were heavily indebted at the beginning of the transition have reduced their debt burdens, others that started off debt-free have accumulated debt very rapidly and to very high levels. The paper places special emphasis on the issue of external and public debt sustainability and the buildup of debt between CIS countries and the related energy payments crisis.
Current account deficit sustainability in selected transition economies
Zbornik Radova Ekonomskog Fakulteta U Rijeci Proceedings of Rijeka School of Economics, 2006
The article examines the question of whether the current account deficits seen in selected transition economies in recent years mainly as a symptom of the dynamic economic activity of the catching-up process are a source of potential macroeconomic destabilisation. Given the possible significant reduction of capital flows, as well as restrictions and lessons from recent financial crises, current account deficits must be closely monitored in the region. In this respect, the issue of 'current account sustainability' in seventeen transition economies is investigated. For this purpose, two accounting frameworks (Milesi-Ferreti and Razin, 1996; Reisen, 1998) based on certain strict assumptions are employed. The results show that if the observed level of foreign direct investment (FDI) flows is kept in the medium run almost all countries could optimally have a higher level of external deficit, with the exception of countries such as Baltic States, Hungary, Macedonia, Moldova and Romania. Accordingly, the maintenance of relatively large FDI inflows (especially greenfield investments) to national economies is a key priority in securing future external sustainability. In the end, the results indicate that current account deficits of transition economies that exceed 5 percent of GDP generally involve problems of their external sustainability.
How sustainable are current account deficits in selected transition economies?
2006
The article examines the issue of 'current account sustainability' in seventeen transition economies. For this purpose, two accounting frameworks (Milesi-Ferreti and Razin, 1996; Reisen, 1998) based on certain strict assumptions are employed. The results show that if the observed level of foreign direct investment (FDI) flows is kept in the medium run almost all countries could optimally have a higher level of external deficit, with the exception of countries such as Baltic States, Hungary, Macedonia, Moldova and Romania. Accordingly, the maintenance of relatively large FDI inflows (especially greenfield investments) to national economies is a key priority in securing future external sustainability. In the end, the results indicate that current account deficits of transition economies that exceed 5 percent of GDP generally involve problems of their external sustainability.
Eastern European Economics
The balance of payments can act as a constraint on the output growth rate, since it puts a limit on the growth of demand. This paper focuses on verifying whether the Balance-of-Paymentsconstrained growth hypothesis is suitable for explaining the growth performance in several transition economies of the Central and Eastern Europe that joined the European Union in 2004. According to Thirlwall´s Law, we determine the balance of payments equilibrium growth rate of an economy by the ratio of the income elasticities of the demand for exports and imports and the growth of foreign demand. The obtained results are compared with the multi-sector version of Thirlwall´s Law as an alternative approach that considers the structure of the economy and how specific specialization affects the Balance-of-Paymentsconstrained growth. Our results show that almost all transition countries in the sample grew and a higher rate that the one consistent with the Balance-of-Payments equilibrium and that the multi-sector version of this approach makes a suitable prediction of the actual growth in these countries.
Current Account Sustainability in Selected Transition Countries
SSRN Electronic Journal, 2006
The article examines the question of whether the current account deficits seen in selected transition economies in recent years mainly as a symptom of the dynamic economic activity of the catching-up process are a source of potential macroeconomic destabilisation. Given the possible significant reduction of capital flows, as well as restrictions and lessons from recent financial crises, current account deficits must be closely monitored in the region. In this respect, the issue of 'current account sustainability' in seventeen transition economies is investigated. For this purpose, two accounting frameworks (Milesi-Ferreti and Razin, 1996; Reisen, 1998) based on certain strict assumptions are employed. The results show that if the observed level of foreign direct investment (FDI) flows is kept in the medium run almost all countries could optimally have a higher level of external deficit, with the exception of countries such as Baltic States, Hungary, Macedonia, Moldova and Romania. Accordingly, the maintenance of relatively large FDI inflows (especially greenfield investments) to national economies is a key priority in securing future external sustainability. In the end, the results indicate that current account deficits of transition economies that exceed 5 percent of GDP generally involve problems of their external sustainability.
The deficit of current account balances and budgetary deficit in countries in transition
1998
During the last decade of this century the countries in transition (CIT) have undergone numerous changes in the field of the entire political, economic and social life. In restructuring process of their own economies, countries in transition deal with many common problems. In the analyzed period from 1993 to 1996 there was improvement in the economic situation in the countries in transition which is reflected on the higher rates of increase in GDP, increase in GDP per capita, as well as on the decrease in inflation and unemployment, which gives evidence of the efficiency of the transition process.
Empirica
The European Commission's Scoreboard of Macroeconomic Imbalances is a rare case of a publicly released early warning system. It was published first time in 2012 by the European Commission as a reaction to public debt crises in Europe. So far, the Macroeconomic Imbalance Procedure takes a one-size-fits-all approach with regard to the identification of thresholds. The experience of Central and Eastern European Countries during the global financial crisis and in the resulting public debt crises has been largely different from that of other European countries. This paper looks at the appropriateness of scoreboard of the Macroeconomic Imbalances Procedure of the European Commission for this group of catching-up countries. It is shown that while some of the indicators of the scoreboard are helpful to predict crises in the region, thresholds are in most cases set too narrow since it largely disregarded the specifics of catching-up economies, in particular higher and more volatile growth rates of various macroeconomic variables.
Structural Change and Transformation within the Transition Economies
2018
While previous chapters have concentrated on trade-related issues (including foreign direct investment and institutions with global values), we now consider the inter-dependencies that exist between foreign trade, European integration, economic development and structural change within the common framework of transition. The performance of Central and Eastern European Countries (CEECs) is a classic example of ‘diversity in unity’ where countries have faced differing economic environments and pursued different tactical and strategic policies while maintaining a common vision within the framework of market reforms. The dynamics of economic change, starting from early transition with high sunk costs, to the ‘big push’ forward given by membership of the European Union to the adverse impact of the Great Recession (the ‘big pull’ backward) is explained within a formal framework.