Too Much of a Good Thing? Credit Booms in Transition Economies: The Cases of Bulgaria, Romania, and Ukraine

Abstract

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy.Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.Rapid credit growth in Bulgaria, Romania, and Ukraine has been driven by successful macroeconomic stabilization, robust growth, and capital inflows.While financial deepening is both expected and welcome, the recent expansions appear to have been excessive, as evidenced by widening current account deficits in Bulgaria and Romania, and prudential concerns in Ukraine.Policy responses have included attempts to both moderate credit growth and offset its impact on domestic demand, with mixed success thus far.