External Shocks Dim Growth Prospects for Caucasus, Central Asia

  • Lower commodity prices, coupled with Russia’s slowdown, have reduced growth
  • Depreciations help absorb shocks but inflation, financial concerns linger
  • Fiscal consolidation, structural reforms vital for sustainable growth, economic stability
  • The IMF’s Regional Economic Outlook: Middle East and Central Asia, released on October 21 in Dubai and October 23 in Almaty, predicts growth in the CCA region as a whole to reach about 3¾ percent this year, 1½ percentage points lower than in 2014. Economic activity is expected to recover gradually, reaching 4 percent in 2016, on the back of an expected improvement in key trading partners such as Russia and those in the euro area, the report said (see table).

    While some CCA countries deployed fiscal stimulus and allowed their currencies to depreciate to soften the immediate impact of external shocks, the report recommended accelerating structural reforms to boost potential growth. Greater exchange rate flexibility and medium-term fiscal consolidation were also emphasized to support stability over the medium term.

    “The long-lasting nature of the shocks means that deeper and more durable policy changes will be needed,” Juha Kähkönen, Deputy Director of the IMF’s Middle East and Central Asia Department told reporters in Almaty, Kazakhstan. “Structural reforms would help move these countries to a higher growth path.”

    Oil importers rocked by lower remittances and exports

    In the CCA’s oil importers—Armenia, Georgia, the Kyrgyz Republic, and Tajikistan—growth will slow to 2¼ percent this year. That’s largely the result of the recession in Russia and the weakening of the ruble, which have had a severe impact on these countries, particularly through remittances and trade.

    The drop in remittances is also erasing external gains from lower oil prices, and the current account deficit for these countries is expected to remain high at about 10 percent of GDP this year, the IMF said.

    To ensure that public debt does not increase further, and to cultivate more inclusive growth, the report emphasized that oil importers should improve the quality of public spending and return to fiscal consolidation as soon as conditions allow, while preserving capital and social expenditure.

    Oil exporters feel impact of lower oil prices

    Growth in the oil exporters—Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan—will decline by 1½ percentage points to 3¾ percent in 2015 as economic activity continues to wane as a result of the...

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