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By Dow Jones Business News, October 24, 2014, 03:25:00 AM EDT

A quarter century after the fall of Communism, progress toward closing the gap in incomes between eastern and western Europe has stalled, and in some cases is going in reverse, the International Monetary Fund said on Friday.

In a special report to commemorate 25 years since the Berlin Wall was breached in November 1989, the IMF said that over that period, most formerly Communist countries had undergone "a dramatic transformation," involving their " reintegration" into the global economy and "major improvements in living standards."

But it acknowledged that much of that progress had been made in the run-up to the financial crisis, when growth in large parts of the region was fueled by overseas borrowing to finance consumption and construction.

The fund estimated that between 1995 and 2008, incomes in the region as a whole were catching up toward average European Union incomes at a rate of about 1 percentage point a year, from around 35% to nearly 50%. Since the financial crisis, however, little progress has been made, in contrast to some developing economies.

The IMF warned that with economic growth in central and Eastern Europe likely to remain weak in the coming years--a trend that may be exacerbated by the conflict between Russia and Ukraine--further progress is likely to be slow.

"Measured against all advanced economies, most countries of the region have been flat or falling back," the IMF said. "Relative incomes in emerging Asia, in contrast, have continued to rise strongly, albeit from a much lower base."

Speaking in Warsaw, IMF First Deputy Managing Director David Lipton said the stalling of convergence may spark a backlash against the reforms against the progress already made in transforming centrally planned into market economies.

"The region risks a vicious circle of weak growth, disillusionment and retreat from market-oriented policies," Mr. Lipton said.

The fund isn't alone in painting a relatively bleak picture of the region's economic prospects. Late last year, the European Bank for Reconstruction and Development concluded the political and economic reforms that followed the fall of communism had stalled, and warned countries in the region may never match the income levels that are common in western Europe.

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IMF Warns Eastern European Income Convergence Has Stalled