Some characteristics of sharp current account deficit reversal in transition countries

Abstract

This article examines current account deficit adjustments in selected transition countries in the 1990s and at the beginning of the 21st century. For this purpose we primarily investigate the main characteristics of sharp current account reversals in Albania, Armenia, Belarus, Bosnia and Herzegovina, Kyrgyz R., Lithuania, Moldova, Poland, Slovenia and Ukraine. Results suggest that restrictively defined reversals seem to be closely related to factors such as domestic savings, real export growth, international reserves and external indebtedness as well as to budget and trade balances. While the role of exchange rate depreciation seems ambiguous, we found that sharp current account reversals are systematically associated with a gradual GDP growth slowdown in the pre-reversal period and with robust GDP growth impetus afterwards.