How Sustainable are External Imbalances in Selected Transition Countries?
How Sustainable are External Imbalances in Selected Transition Countries?

Summary/Abstract: The main aim of the article is to examine the issue of ‘current account sustainabi-lity’ in selected transition countries. 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 in-vestment (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, as part of strengthening the growth prospective and external positions a rapid entrance into the European Union (EU) and into the Economic and Monetary Union (EMU), together with the further promotion of FDI and a prudent fiscal policy should become necessary elements of the economic policy created in the region. In the end, the results indicate that current account deficits of transition countries that exceed 5 per cent of GDP generally involve problems of their external sustainability

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