Transition economies face economic crisis due to unsustainable current account deficits.
The article analyzes if current account deficits in transition economies in Central and Eastern Europe are sustainable. Factors like capital inflows and fixed exchange rates have caused real exchange rate appreciation, leading to loss of competitiveness and worsening current account balances. Weak banking systems, fiscal imbalances, low reserves, and increasing foreign debt indicate external balance fragility. However, speculative capital outflows are limited due to small short-term investments in these economies.