## 4.1 percent in 2017, up from 2.5 percent in 2016

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---

### Growth performance and drivers in 2017
- Real GDP growth in the CCA region was 4.1 percent in 2017, up from 2.5 percent in 2016.
- CCA oil-exporting countries:
  - Growth accelerated to almost 4 percent in 2017 (from 2.4 percent in 2016).
  - Drivers: Azerbaijan and Kazakhstan benefited from the sharp increase in oil prices in the second half of 2017.
  - Country-specific drivers: In Azerbaijan, high public investment offset weaknesses in other sectors; in Kazakhstan, stronger demand for metals and agricultural products boosted growth.
- CCA oil-importing countries:
  - Growth jumped to 5.9 percent in 2017 from 3.4 percent in 2016.
  - Contributors to higher growth: rising remittances across the board, stronger external demand (Georgia, Tajikistan), and more robust industrial production (Kyrgyz Republic).
  - Armenia: monetary easing increased domestic demand; sharp rebound in agriculture in Q4.
  - Tajikistan: benefited from a delayed impact of fiscal expansion in 2016 despite continued financial sector vulnerabilities.
- Regional forecast revision:
  - The 2017 growth outcome exceeded expectations—a net upward revision of 0.5 percentage points from the October 2017 Regional Economic Outlook forecast for the region, with Armenia, Azerbaijan, the Kyrgyz Republic, and Tajikistan posting much larger upward revisions.

### Near-term outlook and projections (2018–23)
- Growth projections:
  - Real GDP growth in the CCA region is projected to slow to 3.7 percent in 2018.
  - Real GDP growth in oil exporters is expected to slow to 3.7 percent in 2018.
  - Real GDP growth in oil importers is expected to slow sharply to 3.9 percent in 2018.
  - GDP growth is projected at 3.9 percent in 2019.
  - Average growth over 2020–23 is projected at 4.1 percent.
- Labor market and welfare implications:
  - Projected medium-term growth is less than half the average growth posted in the first decade of this century and is likely too slow to reduce unemployment meaningfully.
  - Labor force in 2017 (estimate): 41.5 million.
- Drivers to fade:
  - Many factors that drove the stronger-than-expected 2017 outcome are likely temporary (e.g., oil price effects, one-off public investment).

### External positions and inflation
- External balances:
  - Current accounts improved dramatically in most CCA countries in 2017, although deficits remained wide in some (Kyrgyz Republic, Turkmenistan).
  - Improvements reflected strong export growth supported by higher commodity prices, recovering remittances, and further gains in competitiveness in several countries.
- Monetary and exchange rate policy:
  - More flexible exchange rate regimes and pragmatic monetary policy helped manage external pressures while containing inflation.
  - Inflationary pressures will need careful management in several countries, especially Uzbekistan given the impact of recent price liberalization.
  - Monetary policy in some countries will continue to be hampered by high dollarization.

### Fiscal positions and policy recommendations
- Public debt and contingent liabilities:
  - Lower commodity prices, slower growth, and expansionary fiscal policies over the past seven years contributed to rising public debt in CCA countries.
  - For oil exporters, debt is almost three times higher, albeit starting from very low levels.
  - For oil importers, debt has reached higher levels, although at a slower rate.
  - Contingent fiscal liabilities from guarantees, SOEs, the financial sector, and PPPs are considered large and could aggravate debt sustainability challenges, particularly for oil importers.
- Fiscal developments and risks:
  - After accounting for large-scale support to the banking sector in Kazakhstan, fiscal position in oil exporters generally improved.
  - Deficits were higher in Turkmenistan (spending pressures related to the 2017 Asian Indoor and Martial Arts Games) and wider in Uzbekistan due to larger-than-expected on-lending to SOEs.
  - Budgets for 2018 and projections for outer years appear broadly consistent with further fiscal consolidation, though risks exist (e.g., substantial capital expenditure in Azerbaijan could exceed absorption capacity; off-budget expenditures could compromise Uzbekistan’s targeted consolidated fiscal surplus).
- Policy recommendations:
  - Pursue growth-friendly fiscal adjustment, including strengthening revenues in a fair and equitable way, and providing scope for productive public investment and critical social spending.
  - Establish credible medium-term fiscal management frameworks—anchored where appropriate by fiscal rules—to guide the pace of adjustment and ensure efficient public spending.
  - Improve public finance management frameworks, fiscal transparency, and project management frameworks (example: Kyrgyz Republic ongoing development).

### Banking sector, financial intermediation, and vulnerabilities
- Banking sector vulnerabilities have been exposed by external shocks, hampering growth and leading to materialized fiscal contingent liabilities in some countries.
- Progress made:
  - Enhanced regulation and supervision, improved bank resolution frameworks, and strengthened governance in several countries (including Armenia and Georgia); troubled banks addressed in Azerbaijan, Kazakhstan, Kyrgyz Republic, and Tajikistan.
- Credit and intermediation:
  - Credit growth to the private sector has resumed in several countries, but in some banks remain constrained and unable to support private-sector-led activity.
  - Bank balance sheet vulnerabilities should be properly diagnosed and promptly addressed; weak banks should be timely and effectively intervened; support for bank resolution should be provided under strict conditions and within a sound legal framework.
- Country example:
  - Georgia strengthened consolidated supervision, raised capital requirements for systemically important banks, and enhanced oversight authority of credit bureaus.
- Problem loans and credit growth:
  - Figures and trends presented in country-level charts (Figure 9) illustrate variation across countries and time.

### Structural reform agenda and regional/global integration
- Current growth model and needed transition:
  - Current growth model relies largely on oil and gas, mining, remittances, construction, and public spending and is increasingly incompatible with securing high, sustainable, and inclusive medium-term growth.
  - Strategy to transition to a private-sector-driven model should include:
    - Completing banking system clean-ups where needed while preserving progress in restoring bank soundness.
    - Implementing reforms to improve the quality of institutions, reduce red tape, and expand product and trade diversification.
    - Promoting fair competition through trade and better regulation, modernizing education and training, and improving access to finance.
    - Removing tariff and non-tariff barriers, improving customs efficiency, and reducing uncertainty around tariff schedules.
    - Addressing loss-making SOEs through restructuring and privatization to create private-sector opportunities (example: Kazakhstan’s first wave of its privatization plan in 2018).
- Public investment and regional initiatives:
  - Ensure any additional public investments linked to regional integration initiatives are consistent with available fiscal space and monitored for their impact on debt sustainability.

### Risks and fiscal governance measures
- Global and regional risks:
  - Commodity price uncertainty and inward-looking policies could threaten the growth momentum and amplify fiscal and external vulnerabilities.
  - Reform fatigue or vested interests regionally could threaten the recovery.
- Fiscal governance reforms to reduce risks from SOEs and PPPs:
  - Publish extended fiscal risk statements covering PPPs, power purchase agreements, and contingent liabilities (example: Georgia).
  - Enact PPP laws aligned with international best practice and strengthen fiscal risk assessment capacity (example: Armenia).
  - Implement corporate governance reform, performance-based management contracts, elimination of quasi-fiscal activities, and caps on government guarantees to SOEs.

### Uzbekistan: reforms, challenges, and regional spillovers
- Background:
  - Post-1991 policies led to large FX reserves and low public and external debt but limited living standards growth; many nationals sought jobs abroad.
- 2017 policy course and reforms:
  - New government initiated reforms toward a more open, market-oriented economy.
  - September 2017: official and black-market exchange rates unified; surrender requirements abolished.
    - Result: official rate depreciated by about 50 percent.
    - Price liberalization started: prices for most goods liberalized and energy prices raised in several steps; these measures were accompanied by a surge in inflation but should allow more efficient resource allocation.
  - Government plans: continue raising energy prices toward market levels; reforms to the tax system and to make monetary policy more effective are planned to help stabilize inflation.
- Short-term challenges:
  - Containing inflation, restructuring state enterprises, and consolidating fiscal accounts to target priority spending on education, health, and public infrastructure in line with the United Nations Sustainable Development Goals.
- Medium-term priorities:
  - Adapt fiscal and monetary institutions to a more open economy and foster a banking system that can sustainably finance growth and job creation without reliance on large-scale public funding.
- Regional significance and spillovers:
  - Uzbekistan’s share of regional trade rose from 12 to 18 percent over the past 10 years.
  - Large population size relative to Central Asia implies successful reforms in Uzbekistan could catalyze change in the wider region via demonstration effects and increased regional trade and supply chain integration.
  - Recent steps to ease border crossing restrictions with CCA neighbors will facilitate spillovers.

### Selected economic indicators (2000–19) — key figures
- CCA (aggregate):
  - Real GDP (annual growth): Average 2000–14: 8.1; 2015: 3.1; 2016: 2.5; 2017: 4.1; 2018: 3.7; 2019: 3.9.
  - Current Account Balance (Percent of GDP): Average 2000–14: 0.9; 2015: -3.7; 2016: -6.4; 2017: -2.5; 2018: -2.0; 2019: -1.7.
  - Overall Fiscal Balance (Percent of GDP): Average 2000–14: 2.4; 2015: -4.3; 2016: -3.5; 2017: -4.3; 2018: -1.6; 2019: -1.3.
  - Inflation (year average; percent): Average 2000–14: 8.9; 2015: 6.4; 2016: 10.4; 2017: 9.0; 2018: 9.1; 2019: 7.2.
- CCA oil and gas exporters (Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan):
  - Real GDP (annual growth): Average 2000–14: 8.4; 2015: 3.0; 2016: 2.4; 2017: 3.9; 2018: 3.7; 2019: 3.8.
  - Non-oil growth (of which non-oil growth): Average 2000–14: 8.7; 2015: 2.8; 2016: 1.2; 2017: 3.6; 2018: 3.8; 2019: 3.6.
  - Current Account Balance (Percent of GDP): Average 2000–14: 2.1; 2015: -3.1; 2016: -6.2; 2017: -2.0; 2018: -1.2; 2019: -1.0.
  - Overall Fiscal Balance (Percent of GDP): Average 2000–14: 3.3; 2015: -4.5; 2016: -3.3; 2017: -4.4; 2018: -1.3; 2019: -1.1.
  - Inflation (year average; percent): Average 2000–14: 9.2; 2015: 6.6; 2016: 11.5; 2017: 9.6; 2018: 9.7; 2019: 7.6.
- CCA oil and gas importers (Armenia, Georgia, the Kyrgyz Republic, and Tajikistan):
  - Real GDP (annual growth): Average 2000–14: 6.3; 2015: 3.9; 2016: 3.4; 2017: 5.9; 2018: 3.9; 2019: 4.3.
  - Current Account Balance (Percent of GDP): Average 2000–14: -7.8; 2015: -8.9; 2016: -8.2; 2017: -6.0; 2018: -8.0; 2019: -7.3.
  - Overall Fiscal Balance (Percent of GDP): Average 2000–14: -3.0; 2015: -2.8; 2016: -5.2; 2017: -3.4; 2018: -3.3; 2019: -2.8.
  - Inflation (year average; percent): Average 2000–14: 7.1; 2015: 4.8; 2016: 1.8; 2017: 4.5; 2018: 4.4; 2019: 4.3.

*Middle East and Central Asia Department — REO Update, May 2018 (excerpt).*

### 4.1 percent in 2017, up from 2.5 percent in 2016

### 4.1 percent in 2017, up from 2.5 percent in 2016

### Growth performance and drivers in 2017
- Real GDP growth in the CCA region was 4.1 percent in 2017, up from 2.5 percent in 2016.
- CCA oil-exporting countries:
  - Growth accelerated to almost 4 percent in 2017 (from 2.4 percent in 2016).
  - Drivers: Azerbaijan and Kazakhstan benefited from the sharp increase in oil prices in the second half of 2017.
  - Country-specific drivers: In Azerbaijan, high public investment offset weaknesses in other sectors; in Kazakhstan, stronger demand for metals and agricultural products boosted growth.
- CCA oil-importing countries:
  - Growth jumped to 5.9 percent in 2017 from 3.4 percent in 2016.
  - Contributors to higher growth: rising remittances across the board, stronger external demand (Georgia, Tajikistan), and more robust industrial production (Kyrgyz Republic).
  - Armenia: monetary easing increased domestic demand; sharp rebound in agriculture in Q4.
  - Tajikistan: benefited from a delayed impact of fiscal expansion in 2016 despite continued financial sector vulnerabilities.
- The 2017 growth outcome exceeded expectations—a net upward revision of 0.5 percentage points from the October 2017 Regional Economic Outlook forecast for the region, with Armenia, Azerbaijan, the Kyrgyz Republic, and Tajikistan posting much larger upward revisions.

### Near-term outlook and projections (2018–23)
- Growth projection for 2018:
  - Real GDP growth in the CCA region is projected to slow to 3.7 percent in 2018.
  - Real GDP growth in oil exporters is expected to slow to 3.7 percent in 2018.
  - Real GDP growth in oil importers is expected to slow sharply to 3.9 percent in 2018.
- Medium-term projection under current policies:
  - GDP growth is projected at 3.9 percent in 2019.
  - Average growth over 2020–23 is projected at 4.1 percent.
- Labor market and welfare implications:
  - Projected medium-term growth is less than half the average growth posted in the first decade of this century and is likely too slow to reduce unemployment meaningfully.
  - Labor force in 2017 (estimate): 41.5 million.
- Key drivers likely to fade in 2018: many factors that drove the stronger-than-expected 2017 outcome are likely temporary (e.g., oil price effects, one-off public investment).

### External positions and inflation
- External positions strengthened in 2017:
  - Current accounts improved dramatically in most CCA countries in 2017, although deficits remained wide in some (Kyrgyz Republic, Turkmenistan).
  - Improvements reflected strong export growth supported by higher commodity prices, recovering remittances, and further gains in competitiveness in several countries.
- Monetary and exchange rate policy:
  - More flexible exchange rate regimes and pragmatic monetary policy helped manage external pressures while containing inflation.
  - Inflationary pressures will need careful management in several countries, especially Uzbekistan given the impact of recent price liberalization.
  - Monetary policy in some countries will continue to be hampered by high dollarization.

### Fiscal positions and policy recommendations
- Public debt and contingent liabilities:
  - Lower commodity prices, slower growth, and expansionary fiscal policies over the past seven years contributed to rising public debt in CCA countries.
  - For oil exporters, debt is almost three times higher, albeit starting from very low levels.
  - For oil importers, debt has reached higher levels, although at a slower rate.
  - Contingent fiscal liabilities from guarantees, SOEs, the financial sector, and PPPs are considered large and could aggravate debt sustainability challenges, particularly for oil importers.
- Fiscal developments and risks:
  - After accounting for large-scale support to the banking sector in Kazakhstan, fiscal position in oil exporters generally improved.
  - Deficits were higher in Turkmenistan (spending pressures related to the 2017 Asian Indoor and Martial Arts Games) and wider in Uzbekistan due to larger-than-expected on-lending to SOEs.
  - Budgets for 2018 and projections for outer years appear broadly consistent with further fiscal consolidation, though risks exist (e.g., substantial capital expenditure in Azerbaijan could exceed absorption capacity; off-budget expenditures could compromise Uzbekistan’s targeted consolidated fiscal surplus).
- Policy recommendations:
  - Pursue growth-friendly fiscal adjustment, including strengthening revenues in a fair and equitable way, and providing scope for productive public investment and critical social spending.
  - Establish credible medium-term fiscal management frameworks—anchored where appropriate by fiscal rules—to guide the pace of adjustment and ensure efficient public spending.
  - Improve public finance management frameworks, fiscal transparency, and project management frameworks (example: Kyrgyz Republic ongoing development).

### Banking sector, financial intermediation, and vulnerabilities
- Banking sector vulnerabilities have been exposed by external shocks, hampering growth and leading to materialized fiscal contingent liabilities in some countries.
- Progress made: enhanced regulation and supervision, improved bank resolution frameworks, and strengthened governance in several countries (including Armenia and Georgia); troubled banks addressed in Azerbaijan, Kazakhstan, Kyrgyz Republic, and Tajikistan.
- Credit and intermediation:
  - Credit growth to the private sector has resumed in several countries, but in some banks remain constrained and unable to support private-sector-led activity.
  - Bank balance sheet vulnerabilities should be properly diagnosed and promptly addressed; weak banks should be timely and effectively intervened; support for bank resolution should be provided under strict conditions and within a sound legal framework.
- Country example: Georgia strengthened consolidated supervision, raised capital requirements for systemically important banks, and enhanced oversight authority of credit bureaus.
- Problem loans and credit growth: figures and trends presented in country-level charts (Figure 9) illustrate variation across countries and time.

### Structural reform agenda and regional/global integration
- Current growth model relies largely on oil and gas, mining, remittances, construction, and public spending and is increasingly incompatible with securing high, sustainable, and inclusive medium-term growth.
- Strategy to transition to a private-sector-driven model should include:
  - Completing banking system clean-ups where needed while preserving progress in restoring bank soundness.
  - Implementing reforms to improve the quality of institutions, reduce red tape, and expand product and trade diversification.
  - Promoting fair competition through trade and better regulation, modernizing education and training, and improving access to finance.
  - Removing tariff and non-tariff barriers, improving customs efficiency, and reducing uncertainty around tariff schedules.
  - Addressing loss-making SOEs through restructuring and privatization to create private-sector opportunities (example: Kazakhstan’s first wave of its privatization plan in 2018).
- Caution on public investment and regional initiatives:
  - Ensure any additional public investments linked to regional integration initiatives are consistent with available fiscal space and monitored for their impact on debt sustainability.

### Risks and fiscal governance measures
- Global and regional risks:
  - Commodity price uncertainty and inward-looking policies could threaten the growth momentum and amplify fiscal and external vulnerabilities.
  - Reform fatigue or vested interests regionally could threaten the recovery.
- Fiscal governance reforms to reduce risks from SOEs and PPPs:
  - Publish extended fiscal risk statements covering PPPs, power purchase agreements, and contingent liabilities (example: Georgia).
  - Enact PPP laws aligned with international best practice and strengthen fiscal risk assessment capacity (example: Armenia).
  - Implement corporate governance reform, performance-based management contracts, elimination of quasi-fiscal activities, and caps on government guarantees to SOEs.

### Uzbekistan: reforms, challenges, and regional spillovers
- Background:
  - Post-1991 policies led to large FX reserves and low public and external debt but limited living standards growth; many nationals sought jobs abroad.
- 2017 policy course and reforms:
  - New government initiated reforms toward a more open, market-oriented economy.
  - September 2017: official and black-market exchange rates unified; surrender requirements abolished.
    - Result: official rate depreciated by about 50 percent.
    - Price liberalization started: prices for most goods liberalized and energy prices raised in several steps; these measures were accompanied by a surge in inflation but should allow more efficient resource allocation.
  - Government plans: continue raising energy prices toward market levels; reforms to the tax system and to make monetary policy more effective are planned to help stabilize inflation.
- Short-term challenges:
  - Containing inflation, restructuring state enterprises, and consolidating fiscal accounts to target priority spending on education, health, and public infrastructure in line with the United Nations Sustainable Development Goals.
- Medium-term priorities:
  - Adapt fiscal and monetary institutions to a more open economy and foster a banking system that can sustainably finance growth and job creation without reliance on large-scale public funding.
- Regional significance and spillovers:
  - Uzbekistan’s share of regional trade rose from 12 to 18 percent over the past 10 years.
  - Large population size relative to Central Asia implies successful reforms in Uzbekistan could catalyze change in the wider region via demonstration effects and increased regional trade and supply chain integration.
  - Recent steps to ease border crossing restrictions with CCA neighbors will facilitate spillovers.

_Italic: Source — Middle East and Central Asia Department, REO Update, May 2018 (excerpt)._

### References

### References

### IMF publications cited
- IMF. 2016. “Analyzing and Managing Fiscal Risks—Best Practices.” IMF Policy Paper, Washington, DC.
- IMF. 2017. Regional Economic Outlook, Middle East and Central Asia. Washington, DC, April.
- IMF. Forthcoming-a. “A Growth-Friendly Path for Building Fiscal Buffers in the Caucasus and Central Asia.” IMF Middle East and Central Asia Department Departmental Paper, Washington, DC.
- IMF. Forthcoming-b. “Building Resilient Banking Sectors in the Caucasus and Central Asia.” IMF Middle East and Central Asia Department Departmental Paper, Washington, DC.
- IMF. Forthcoming-c. “Opening Up in the CCA Policy Frameworks to Support Enhanced Regional and Global Integration.” IMF Middle East and Central Asia Departmental Paper, Washington, DC.

### Selected Economic Indicators (2000–19)

### CCA (aggregate)
- Real GDP (annual growth)
  - Average 2000–14: 8.1
  - 2015: 3.1
  - 2016: 2.5
  - 2017: 4.1
  - 2018: 3.7
  - 2019: 3.9
- Current Account Balance (Percent of GDP)
  - Average 2000–14: 0.9
  - 2015: -3.7
  - 2016: -6.4
  - 2017: -2.5
  - 2018: -2.0
  - 2019: -1.7
- Overall Fiscal Balance (Percent of GDP)
  - Average 2000–14: 2.4
  - 2015: -4.3
  - 2016: -3.5
  - 2017: -4.3
  - 2018: -1.6
  - 2019: -1.3
- Inflation (year average; percent)
  - Average 2000–14: 8.9
  - 2015: 6.4
  - 2016: 10.4
  - 2017: 9.0
  - 2018: 9.1
  - 2019: 7.2

### CCA oil and gas exporters (Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan)
- Real GDP (annual growth)
  - Average 2000–14: 8.4
  - 2015: 3.0
  - 2016: 2.4
  - 2017: 3.9
  - 2018: 3.7
  - 2019: 3.8
- Non-oil growth (of which non-oil growth)
  - Average 2000–14: 8.7
  - 2015: 2.8
  - 2016: 1.2
  - 2017: 3.6
  - 2018: 3.8
  - 2019: 3.6
- Current Account Balance (Percent of GDP)
  - Average 2000–14: 2.1
  - 2015: -3.1
  - 2016: -6.2
  - 2017: -2.0
  - 2018: -1.2
  - 2019: -1.0
- Overall Fiscal Balance (Percent of GDP)
  - Average 2000–14: 3.3
  - 2015: -4.5
  - 2016: -3.3
  - 2017: -4.4
  - 2018: -1.3
  - 2019: -1.1
- Inflation (year average; percent)
  - Average 2000–14: 9.2
  - 2015: 6.6
  - 2016: 11.5
  - 2017: 9.6
  - 2018: 9.7
  - 2019: 7.6

### CCA oil and gas importers (Armenia, Georgia, the Kyrgyz Republic, and Tajikistan)
- Real GDP (annual growth)
  - Average 2000–14: 6.3
  - 2015: 3.9
  - 2016: 3.4
  - 2017: 5.9
  - 2018: 3.9
  - 2019: 4.3
- Current Account Balance (Percent of GDP)
  - Average 2000–14: -7.8
  - 2015: -8.9
  - 2016: -8.2
  - 2017: -6.0
  - 2018: -8.0
  - 2019: -7.3
- Overall Fiscal Balance (Percent of GDP)
  - Average 2000–14: -3.0
  - 2015: -2.8
  - 2016: -5.2
  - 2017: -3.4
  - 2018: -3.3
  - 2019: -2.8
- Inflation (year average; percent)
  - Average 2000–14: 7.1
  - 2015: 4.8
  - 2016: 1.8
  - 2017: 4.5
  - 2018: 4.4
  - 2019: 4.3

### Notes and sources
- Sources: National authorities; and IMF staff calculations and projections.
- Projections cover 2018 and 2019.
- CCA oil and gas exporters: Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan.
- CCA oil and gas importers: Armenia, Georgia, the Kyrgyz Republic, and Tajikistan.

*Middle East and Central Asia Department — REO Update, May 2018*

---


_Source: https://www.imf.org/-/media/files/publications/reo/mcd-cca/2018/may/english/cca0518.pdf_