New Economic Challenges Ahead for Caucasus, Central Asia

25th anniversary of independence of eight former Soviet countries marks many achievements

Lower commodity prices, regional slowdown challenge old thinking

Regional roundtable focuses on ways to diversify economies, modernize monetary and fiscal frameworks

The decline in oil prices and the economic slowdown in China, Russia, and Europe will have a long lasting impact on the region.

The first regional roundtable, held in Astana, Kazakhstan on May 24 and jointly chaired by IMF Managing Director Christine Lagarde and Kazakhstan’s Prime Minister Karim Massimov, was a platform to deepen the regional dialogue on the way forward. CCA countries have enjoyed average growth rates of nearly 7 percent during the last decade. But growth is expected to slow down to 3.5 percent in the medium term according to IMF projections.

Throughout the roundtable discussion, finance ministers from the region plus Russia and Belarus, along with IMF experts agreed that now is the time to diversify away from commodity dependence, strengthen institutions, and promote regional integration to address these challenges. Key questions discussed throughout the day’s events were:

• Can more trade within the region and between Europe and Asia help, and how to achieve it?

• What to make of initiatives like “One Belt, One Road,” which is a transport corridor between Europe and Asia?

• When is monetary policy action such as allowing sharp exchange rate adjustments appropriate?

• How to find the right balance in fiscal policy between supporting growth in the short term and maintaining medium-term sustainability?

Many of the issues debated at the roundtable extended to panel discussions at the subsequent Astana Economic Forum held later in the week.

Reviving the old Silk Road

Participants in the roundtable and the forum agreed that in the face of commodity prices that are likely to remain low for long, the region can no longer rely on oil, gas, and mining. Diversification into trade and logistics holds most promise, the experts agreed. One important area is increasing intra-regional trade which, at just 6 percent of total trade, stands at the lowest share in Asia.

The CCA region’s greatest opportunity, however, lies in serving as a transport link between Europe, China, India, and South Asia. Reviving the ancient Silk Road through the “One Belt, One Road” project initiated by China, is seen as a big opportunity.

Central Asia region can increasingly serve as a bridge between Europe...