Typical street scene in Santa Ana, El Salvador. (Photo: iStock)
IMF Survey: Rapid Credit Growth Sparks Worries
April 23, 2007
Rapid credit growth—a rapid increase in bank loans to the private sector—is one of the most pervasive recent developments in Central, Eastern, and Southeastern Europe (CEE).
Eastern Europeans such as Talarowski family in Poland are using credit to buy homes, cars, consumer durables (photo: Jerzy Dabrowski/ZUMA).
Central and Eastern Europe
Its benefits are unquestioned, but so are the potential risks. Policymakers in the region are thinking about how credit growth can be assessed and how they can respond when it seems excessive.
The papers presented at a conference held in Sinaia, Romania, in October 2005 have been brought together in Rapid Credit Growth in Central and Eastern Europe: Endless Boom or Early Warning? Edited by Charles Enoch and İnci Ötker-Robe of the IMF, this book provides a channel for sharing experiences and counteractive measures, contributing to the ongoing policy debate about this issue in the CEE region and in other regions experiencing a similar phenomenon.
The editors conclude that credit growth is growing rapidly in part because the CEE is catching up with Western Europe. The trend has been accompanied by rising incomes, confidence in domestic markets, and low interest rates, which are favorable developments. At the same time, policymakers are concerned that the rapid pace of credit growth could affect macroeconomic and financial stability, and the benefits may be lost if such growth is excessive and not well managed. Policymakers should therefore focus on safeguarding the benefits of credit growth through measures that contain the risks.