Speech

How Can the Caucasus and Central Asia Region Benefit from Greater Integration?

May 16, 2018

Good afternoon. I am pleased to welcome you to today’s event to discuss how the Caucasus and Central Asia region can benefit from greater integration. I would like to thank Prime Minister Sagintayev for joining us to discuss this important topic. And I would like to express my appreciation to National Bank of Kazakhstan Governor Akishev for his hospitality in co-hosting today’s event.

I am very pleased to be making my first visit to Astana as IMF Deputy Managing Director. Today’s gathering enables us to exchange views on what is needed to develop a new growth model for this region, and to strengthen policy frameworks and institutions in support of these efforts.

For the first decade of this century, the economic story of the CCA region was quite successful. Growth was strong, inflation came down, and significant progress was made reducing poverty.

However, these achievements were based on a growth model that relied heavily on commodities, remittances, public spending, and construction.

This left the CCA region vulnerable to volatile commodity prices and external developments. We saw that with the shocks that hit the region in 2008-09 and again since 2014. These included lower commodity prices, weaker remittances, and an economic slowdown among trading partners. As you know, the result has been weaker growth, heightened financial sector vulnerabilities, and higher public debt.

The response of the CCA countries to these shocks has been sound. You pursued fiscal support, where possible, more flexible exchange rates, and efforts to stabilize big banks. We are now seeing a turnaround in economic activity. But while growth in 2017 exceeded expectations, the momentum was again driven by external factors—especially higher oil prices. It is not expected to last.

The paper we are releasing today argues for a new growth model for the region. This model would be based on greater openness, diversification, and regional and global integration. Opening the CCA economies to trade and investment would provide more choices at lower prices for consumers and businesses. It would boost productivity. Opportunities such as the Belt-and-Road Initiative and the policy changes in Uzbekistan could help kick-start that economic transformation. But they would have to be well managed.

So how can the region benefit most from greater integration? For starters, CCA countries should take advantage of the current global upswing to reduce tariff and non-tariff barriers. They also should strengthen participation in multilateral initiatives led by the WTO, and increase regional trade. Currently, only 5 percent of the trade of oil exporters, and 15 percent of importers is conducted within the region. Those are low figures by both historical and international standards.

Economic integration needs to be based on stronger macroeconomic frameworks. Sound, sustainable and transparent policies will provide greater stability, predictability, and confidence to investors—both domestic and foreign.

What are some of the specifics? We’ll hear from my colleague, Peter Kunzel, on the specific fiscal, monetary, financial, and structural reform policies that would be helpful. I will say, however, that while reforms may not happen overnight or be easy, countries should take advantage of the current global upswing to redouble their reform efforts. With a strong, shared commitment to greater integration and openness, there is no doubt that the next chapter in the story of the CCA region can be greater growth, jobs, and prosperity for all.

I can assure you that the IMF stands ready to support you.

I look forward to our discussion today, and hope it will stimulate the debate and deepen our understanding of these important issues.

Thank you and let me now turn to Peter to make a short presentation.