Following a period of privatization and restructuring, commercial banks in Central and Eastern Europe and, more recently, in the Balkans have expanded rapidly their lending to the private sector. This paper studies whether these developments are consistent with a process of convergence and structural financial deepening by estimating an ''equilibrium'' level of the bank-credit-to-GDP ratio. It concluded that while there is no clear evidence that the recent increases in bank credit ratios is inconsistent with financial deepening, policy-makers will have to evaluate carefully its implications for macroeconomic developments and financial stability. Ó 2004 Published by Elsevier B.V.

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. How does fiscal policy fare in improving the underlying income distribution in Central America? We integrate the data from a number of existing tax and public expenditure studies for the countries in the region and find that the distributional effect of taxation is regressive but small. In contrast, the redistributive impact of social spending is large and progressive, leading to a progressive net redistributive effect in all countries of the region. We also show that raising tax revenues and devoting the proceeds to social spending would unambiguously improve the income of the poorest households.

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Following a period of privatization and restructuring, commercial banks in Central and Eastern Europe and, more recently, in the Balkans have rapidly expanded their lending to the private sector. This paper describes the causes of this expansion, assesses future trends, and evaluates its policy implications. It concludes that bank credit to the private sector is likely to continue rising faster than GDP in the next few years throughout the region, picking up also in countries where so far it has been stalled. Although this growth should be regarded as a structural and positive development, policymakers will have to evaluate carefully its implications for macroeconomic developments and financial stability.