## Caucasus and Central Asia Regional Economic Outlook, May 4, 2017

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**Canonical URL:** [Caucasus and Central Asia Regional Economic Outlook, May 4, 2017](https://www.imf.org/-/media/files/publications/reo/mcd-cca/2017/may/pdf/cca0517p.pdf)

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### The Global Context
- Stronger growth in key trading partners supported by revised WEO projections (referenced: WEO April 2017 vs WEO October 2016).
- Commodity price improvements:
  - Crude oil prices shown as index (June 2011=100) and in U.S. dollars a barrel; indices for Copper, Aluminum, Gold, Cotton displayed for 2012–2018 period.
- External environment indicators:
  - Remittances indexed (Jan 2011 = 100).
  - Total Exports shown in Billions of USD for 2011–2022 with distinct lines for Oil Exporters and Oil Importers.
- Downside global risks explicitly noted:
  - Possible further appreciation of the US dollar
  - Tighter and volatile global financial conditions
  - Inward shift of policies, including protectionism

### The Outlook for the Region
- Growth prospects:
  - Real GDP Growth presented by country groups Oil Exporters and Oil Importers for 2016–2019 and 2018–22, with breakdowns of Oil Growth Contribution and Non-Oil Growth Contribution.
  - Historical benchmark: 2000-14 average total (overall growth).
  - Country codes referenced: AZE, KAZ, TKM, UZB, ARM, GEO, KGZ, TJK.
- Projection summary:
  - “After bottoming out in 2016, growth is expected to accelerate over next two years, while remaining subdued.”
- Public debt dynamics:
  - Public Debt (Percent of GDP) tracked 2010–2016 with interquartile range and median for Oil Exporters and Oil Importers.
  - Decomposition of public debt changes: Stock of Debt in 2014; Exchange Rate Effect 2014-16; New Debt in 2014-16; Public Debt (Percent of 2016 GDP) by country: AZE KAZ TKM UZB ARM GEO KGZ TJK.
- Fiscal balances:
  - Fiscal Deficit presented as Percent of GDP for overall deficit and percent of non-oil GDP for non-oil deficit across 2011–2022 for Oil Exporters (Non-oil Fiscal Deficit) and Oil Importers (Overall Fiscal Deficit).
  - Public Expenditure Components (Percent of GDP for oil importers, percent of non-oil GDP for oil exporters) and Public Revenue (Percent of GDP for oil importers, percent of non-oil GDP for oil exporters) shown for 2015, 2016, 2017, and 2018–22.
    - Expenditure components listed: Capital, Wages, Other Current, Interest.
    - Revenue components listed: Non-Oil Revenues, Revenues.
  - Note: 2017 figures include one-off operations in Kazakhstan (financial sector support package) and Azerbaijan (oil fund transfer for debt repayment).
- Monetary and financial conditions:
  - Monetary Policy Rate (Percent) tracked Jan-15 to Jan-17 for Oil Exporters (includes Azerbaijan, Kazakhstan) and Oil Importers (Armenia, Georgia, Kyrgyz Republic, Tajikistan).
    - “Currency stabilization and diminishing inflationary pressures allowed for easing monetary policy in some countries.”
  - Credit to Private Sector (YoY percent change) tracked 2011–2016 showing depressed credit across Oil Exporters and Oil Importers.
  - Financial vulnerabilities highlighted:
    - Asset quality deterioration: “NPLs are very high in some countries”; restructured loans continue to rise.
    - Bank capital very low: Banks have merged or required closing; some new capital injections.
    - Public costs of support can be significant: one-time support package to the banking system of about 4 percent of GDP in Kazakhstan.

### Key Themes and Structural Priorities
- Implications and priorities:
  - Opportunity from global growth momentum:
    - “Prospects for key trading partners have firmed”
    - Need for reforms to diversify the economy, boost productivity, enhance competitiveness, generate employment.
  - Need to mitigate elevated risks:
    - Continued focus on rebuilding buffers
    - Address fiscal and financial vulnerabilities
- Critical mass of structural reforms required across common priority areas:
  - Technology & Innovation
  - Business Environment
  - Labor Market
  - Fiscal Structural Reforms
  - Infrastructure
  - Banking System
  - Capital Market Development
  - Legal System & Property Rights
  - Trade Liberalization
  - Agriculture
- Country-specific reform emphases (as presented):
  - LIDCEM, IncomeLevel, Reform Types mapping with country mentions: UZB, TJK; KGZ, TJK; KGZ; KGZ, TJK; UZB; UZB; GEO; ARM, TKM; GEO; ARM, KAZ; PAK; ARM, AZE, GEO, KAZ; AZE, KAZ; TKM; TKM; AZE.

### What the IMF is Doing to Help
- Partnership approach:
  - Reform is a long and complex process requiring sustained commitment, public support, and protection for the vulnerable.
  - IMF support modalities:
    - Tailored program design and policy advice
    - Technical assistance
    - Facilitating dialogue with peers
    - Analytical work
    - Catalyzing support from partners

### Summary of Key Messages
- After bottoming out in 2016, growth is expected to accelerate over next two years, while remaining subdued.
- Reforms are critical to secure resilience and generate higher and more inclusive growth.
- Fiscal consolidation needs to proceed carefully, with the pace calibrated to country-specific circumstances.
- Monetary policy frameworks should be further strengthened to fully harness the benefits of exchange rate flexibility.
- Vulnerabilities in the financial sector need to be addressed urgently.

*IMF — Caucasus and Central Asia Regional Economic Outlook (content unit: cca0517p, May 4, 2017).*

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_Source: https://www.imf.org/-/media/files/publications/reo/mcd-cca/2017/may/pdf/cca0517p.pdf_