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CEE Special

CEE - Vulnerabilities 2 years later

  • An examination of external accounts in the region gives us confidence that a number of countries have managed to bolster vulnerability ratios over recent quarters while already enjoying a return of capital inflows, helping support a recovery in economic activity. In other cases there is still a large amount of work to be done. 
  • Amongst the leaders we put Turkey, Czech and Poland. All three countries have seen an improvement in external vulnerability indicators. Gross external debt ratios are manageable, as are gross external financing requirements. The same applies to Russia. In those countries that have drawn off IMF programmes, there has for the most part been an improvement in vulnerability indicators. Gross external debt and financing requirements remain elevated however while some IMF programmes are nearing expiry. In the absence of continued IMF collaboration, vulnerabilities will likely rise over time as countries are forced to repay IMF/EU funds.
  • A number of countries have been successful in regaining most if not all of the output losses seen since the crisis and are attracting renewed capital inflows to further aid the recovery. Chatter of rate hikes has gathered pace, though for now central banks may be content to welcome gradual currency gains to help tighten monetary conditions. In other countries economic activity continues to lag, as do capital inflows. Hungary, the Baltics and Ukraine are obvious examples. In part this is to be expected. Larger vulnerabilities as we entered the crisis meant that the downturn was always likely to be more prolonged. But most of these countries also face greater challenges over the coming quarters and years. In this environment policy makers cannot afford to take a backseat in terms of reform agendas.

Length: 9 pages
Language: English
Published: ad hoc

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