Debt Overhang in Emerging Europe?

This paper assesses the extent to which debt overhang poses a constraint to economic activity in Emerging Europe, as the region emerges from the recent financial and economic crisis. At the macroeconomic level, it finds that the external imbalance problem for Emerging Europe has been in most cases more one of flows (high current account deficits in the pre-crisis years) rather than large stocks of external debt. A high reliance on equity funding means that net external debt is far lower than net external liabilities. Domestic balance sheets have expanded quite rapidly but sector liabilities remain relatively low compared with advanced economies. With the important exception of Hungary, public debt levels also remain relatively low in Emerging Europe. At the microeconomic level, the potential for debt overhang in the corporate sector is limited to a few countries: Latvia, Lithuania, Estonia, and Slovenia. Due to the low incidence of household debt, hardly any country, except Estonia, seems to face a threat of debt overhang in the household sector. The strong increase in non-performing loans compared with pre-crisis bank profitability suggests that debt overhang in the banking sector is a threat in Ukraine, Latvia, Lithuania, Hungary, Georgia, and Albania. Financial integration of Emerging Europe seems to have contributed to the transmission of the crisis to the region. At the same time, this integration is helping the region in managing the crisis by concerted actions of the major players.

Bibliographic Details

Main Authors:	Brown, Martin, Lane, Philip R.
Language:	English
Published:	2011-08-01
Subjects:	ADVANCED ECONOMIES, ASSET POSITION, ASSET PRICES, BALANCE SHEET, BALANCE SHEETS, BANK ASSETS, BANK BALANCE SHEETS, BANK BONDS, BANK CREDIT, BANK DEBT, BANK FINANCING, BANK LENDING, BANK LOAN, BANK LOANS, BANK PROFITABILITY, BANKING CRISES, BANKING CRISIS, BANKING SECTOR, BANKING SYSTEM, BIASES, BOND, BOND ISSUANCE, BORROWING, BUSINESS CYCLES, CAPITAL BASE, CENTRAL BANK, COMMODITY PRICES, COMMON CURRENCY AREA, CONCEPT OF DEBT, CONSUMER CREDIT, CORPORATE DEBT, CORPORATE FINANCE, CORPORATE INVESTMENT, CREDIT ACCESS, CREDIT AVAILABILITY, CREDIT CARD, CREDIT CARD DEBT, CREDIT CARDS, CREDIT LINE, CREDITOR, CREDITOR RIGHTS, CREDITORS, CURRENCY DEPRECIATION, CURRENCY MISMATCH, CURRENCY SHORTAGES, CURRENT ACCOUNT, CURRENT ACCOUNT DEFICITS, DEBT, DEBT BURDEN, DEBT CRISES, DEBT CRISIS, DEBT DEFAULT, DEBT FINANCING, DEBT FORGIVENESS, DEBT LEVEL, DEBT LEVELS, DEBT LIABILITIES, DEBT LIABILITY, DEBT OVERHANG, DEBT PAYMENTS, DEBT PROBLEM, DEBT RATIO, DEBT RATIOS, DEBT RELIEF, DEBT RESCHEDULING, DEBT RESOLUTION, DEBT RESTRUCTURING, DEBTOR, DEBTORS, DEBTS, DEFAULTS, DEPOSIT, DEPOSIT MONEY BANKS, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DISTRIBUTION OF CREDIT, DOMESTIC BANKING, DOMESTIC BANKS, DOMESTIC CREDIT, DOMESTIC CURRENCY, DOMESTIC MARKET, DUMMY VARIABLE, EARNINGS, ECONOMIC ACTIVITY, ECONOMIC CRISIS, ECONOMIC GROWTH, ECONOMIC POLICIES, ECONOMIC POLICY, EDUCATION LEVEL, EMERGING ECONOMIES, EMERGING MARKET, EMERGING MARKET ECONOMIES, EMERGING MARKETS, ENTERPRISE CREDIT, ENTERPRISE PERFORMANCE, EQUITY CLAIM, EQUITY FINANCING, EQUITY FUNDING, EQUITY RETURN, EQUITY RETURNS, EQUITY SHARE, EXCHANGE RATE, EXCHANGE RATES, EXISTING CREDITORS, EXISTING DEBT, EXPORTER, EXTERNAL DEBT, EXTERNAL DEBTS, EXTERNAL FINANCE, EXTERNAL FUNDING, FACE VALUE, FAMILY BUSINESS, FINANCIAL ASSETS, FINANCIAL ASSISTANCE, FINANCIAL CRISIS, FINANCIAL DEVELOPMENT, FINANCIAL HEALTH, FINANCIAL LIABILITIES, FINANCIAL MARKETS, FINANCIAL PORTFOLIOS, FINANCIAL STABILITY, FINANCIAL STATEMENT, FIRM PERFORMANCE, FOREIGN BANKS, FOREIGN CURRENCY, FOREIGN CURRENCY LOAN, FOREIGN CURRENCY LOANS, FOREIGN DEBT, FOREIGN EQUITY, FOREIGN EXCHANGE, FOREIGN EXCHANGE RESERVES, FOREIGN INVESTORS, GOVERNMENT DEBT, GUARANTOR, HIGH DEBT, HOME IMPROVEMENT, HOME MARKETS, HOUSEHOLD DEBT, HOUSEHOLD INCOME, INCOME LEVEL, INCOME SHOCKS, INDEBTED, INDEBTED HOUSEHOLDS, INDEBTEDNESS, INDIVIDUAL BANKS, INDIVIDUAL CREDITORS, INFORMATION ASYMMETRIES, INSURANCE, INTEREST RATE, INTEREST RATE DIFFERENTIALS, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL BANKS, INTERNATIONAL BOND, INTERNATIONAL DEBT, INTERNATIONAL DEBT SECURITIES, INTERNATIONAL FINANCIAL INSTITUTIONS, INVESTMENT ACTIVITY, INVESTMENT BEHAVIOR, INVESTMENT DECISIONS, INVESTMENT LOAN, INVESTMENT OPPORTUNITIES, ISSUANCE, LENDERS, LENDING DECISIONS, LEVEL OF DEBT, LEVELS OF CREDIT, LEVERAGE, LIABILITY, LIQUIDITY, LIVING STANDARDS, LOAN, LOAN LOSSES, LOAN PORTFOLIOS, LOAN QUALITY, LOANS FROM BANKS, LOCAL CURRENCY, LOCAL DEBT, LONG-TERM COST, LONG-TERM COSTS, LOWER DEBT, MATURITIES, MONETARY FUND, MORAL HAZARD, MORTGAGE, MORTGAGE CREDIT, MORTGAGE DEBT, MORTGAGE LOANS, MORTGAGES, MULTINATIONAL, NEGATIVE SHOCK, NEGATIVE SHOCKS, NET DEBT, NON-PERFORMING LOAN, NON-PERFORMING LOANS, NPL, OUTPUT LOSSES, OUTSTANDING STOCK, OVERDRAFT, OVERDRAFT FACILITY, PAYOFF, PENALTY, PENSION, POLICY RESPONSE, PRIVATE CREDIT, PRIVATE SAVING, PRIVATE SECTOR CREDIT, PRIVATE SECTOR LOANS, PROPERTY RIGHTS, PUBLIC DEBT, PUBLIC DEBTS, PUBLIC FUNDS, REAL EXCHANGE RATE, REMITTANCE, REMITTANCES, RENEGOTIATION, REPAYMENT, REPAYMENT DISCIPLINE, REPAYMENTS, RESERVE, SAVINGS, SELF-EMPLOYMENT, SHARE OF ASSETS, SHAREHOLDERS, SOVEREIGN DEBT, SOVEREIGN DEBTS, STOCKS, TAX, TRADE BALANCE, TRANSPARENCY, URBAN AREA, USE OF BANK CREDIT, VALUE OF DEBT, VULNERABLE HOUSEHOLDS, WHOLESALE BANK,
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20111011085806 https://hdl.handle.net/10986/3606
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