The development bank, one of the biggest investors in a campaign to transform the region since the collapse of communism two decades ago, also said risks arising from financial integration must be better managed.
It said countries had been over-reliant on foreign banks and in-flows to drive growth in the boom years, leaving them highly vulnerable during the global credit crunch.
"The EBRD economists concede that financial integration has brought disadvantages, by encouraging credit booms, over-borrowing and a trend towards foreign currency borrowing," the bank said in its annual report.
But while this has deepened the region's recession, the EBRD said financial integration with the West remains a source of growth and should not be reversed.
"This means addressing the bias towards foreign currency lending through macroeconomic policies, regulation, and the creation of legal frameworks and market infrastructures supporting local currency finance," the EBRD said.
The EBRD has been criticised by some of its 60-odd country shareholders for failing to warn Eastern Europe, as well as Central Asia, about the dangers of overexposure to foreign borrowing before the credit crisis deepened last year. Eastern Europe has been among the hardest hit worldwide, with growth and budgets slashed and several countries forced to turn to the IMF, World Bank and European Union for emergency funds.
(EurActiv with Reuters.)
