Capital Needs and Investment Financing in Eastern Countries

The paper evaluates the future capital needs of Eastern countries and the potential structure of financing. Under certain growth assumptions, the investment needs amount to some $ 169 bn per year for Eastern Europe and nearly three times this amount for the former Soviet Union. Accelerating the catching-up process beyond the assumptions made would require more capital in earlier years; increases in total factor productivity would require less capital. Not all the financing needs will and can be provided by the West. It will be necessary to mobilize new domestic savings and also to increase the absorption capacity in Eastern countries. Only solid projects will be able to obtain funding from private capital markets. Eastern countries will thus need to offer foreign investors risk-adjusted returns at least comparable to those in developed countries