## Caucasus and Central Asia Update to the Regional Economic Outlook APRIL 2019

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**Canonical URL:** [Caucasus and Central Asia Update to the Regional Economic Outlook APRIL 2019](https://www.imf.org/-/media/files/publications/reo/mcd-cca/2019/april/english/cca-ppt0419.pdf)

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### Outlook for the CCA
- Growth has stabilized across the region (slide title: "Growth has stabilized").
- CCA Oil Exporters Real GDP Growth, 2013─20: chart axis labels show percent change scale 0 1 2 3 4 5 6 7 8 and years 2013 14 15 16 17 18 19 20 (Projections).
- CCA Oil Importers Real GDP Growth, 2013─20: chart axis labels show percent change scale 0 1 2 3 4 5 6 7 8 and years 2013 14 15 16 17 18 19 20 (Projections).
- Consumer Price Inflation (Percent change, year average) chart spans years 2008 09 10 11 12 13 14 15 16 17 18 19 20 with axis ticks 0 4 8 12 16 20; slide notes modest inflation pressures.

### Living standards and convergence
- GDP per capita and Years to Convergence (US Dollars and years, 2018): chart shows country codes KAZ TKM AZE GEO ARM UZB KGZ TJK against scales 0 2,000 4,000 6,000 8,000 10,000 12,000 (GDP per capita) and 0 10 20 30 40 50 60 (Years to Convergence). Slide conclusion: growth is too low to raise living standards.

### Legacies and unfinished reforms
- Positive policy legacies of shocks:
  - Strengthened macroeconomic policy frameworks and greater exchange rate flexibility.
  - Fiscal frameworks were strengthened by introducing fiscal rules, reform of tax codes, and improving fiscal transparency.
  - Pragmatic implementation of monetary and exchange rate policies has helped countries manage external pressures while containing inflation and reducing dollarization.
  - As a result, buffers erosion was limited and growth has stabilized.
- Challenging legacies that restrain growth:
  - Weak banking systems.
  - Incomplete monetary policy framework transitions.
  - Limited fiscal space.

### Financial sector and monetary frameworks
- Banking indicators presented:
  - Banking Credit to Private Sector (Index, 2014 = 100).
  - Problem Loans Ratios (Percent of total loans) with country labels AZE KAZ GEO ARM KGZ TJK and distinction Oil exporters / Oil importers.
  - Loan and Deposit Dollarization (percent of total) with axis ticks 0 20 40 60 80 100.
- Incomplete monetary policy framework transitions: slide shows historical classifications (2005, 2017) across countries including Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, Uzbekistan with labels such as Inflation Target, Independently Floating, Conventional Peg, Stabilized, Managed Floating, Monetary Target, ER Anchor, Other.

### Fiscal position
- Public and Publicly Guaranteed Debt (Percent of GDP) chart with axis ticks 0 10 20 30 40 50 60 and country sequence KAZ UZB TKM AZE GEO TJK ARM KGZ (2013 and 2018 series). Note: Azerbaijan includes approximately 30 percent of GDP in guarantees.
- Slide conclusion: Fiscal space has become limited.

### Global headwinds
- Main headwinds identified:
  - Commodity prices.
  - Increased global uncertainty.
  - Weak external demand.
- APSP Crude Oil (US dollar per barrel) chart axis ticks 0 20 40 60 80 100 120 and years 2014 2016 2018 2020 2022 2024 with series APSP spot price, WEO current APSP projection, WEO Oct. 18 APSP projection (Projections).
- Commodity Price Indices (2005 = 100) chart axis ticks 0 50 100 150 200 and years 2014 15 16 17 18 19 20 21 22 23 showing Food price, Metals price, Natural gas price and corresponding WEO Oct. 18 projections.
- Global Growth (Percent) projections chart uses values 3.0 3.2 3.4 3.6 3.8 4.0 for years 2017 18 19 20 21 with comparisons Apr-2019 vs Oct 2018 (slide: "Top Trading Partners, Revisions").
- Cyclicality of Remittances, Inflows to CCA and GDP Growth in Russia: chart shows annual growth rates with a range –40 –20 0 20 40 60 on left axis and Russia real GDP growth series spanning 2006–2018; series comparing CCA oil importers remittances inflow growth (right scale).
- Exports and imports: weighted average annual growth chart for CCA exports and imports volume shows axis range –35 to 20 and –50 to 50 with years 14 15 16 17 18 19; Uzbekistan excluded due to data availability.
- Increased global uncertainty: Global Economic Policy Uncertainty (GEPU) Index and Geopolitical Risk (GPR) Index plotted from Jan-12 to Jan-19; Federal Reserve Funds Rate central tendency chart shows projection horizon 2018 2019 2020 2021 Longer run with central tendency and lower and upper bounds (March 2019) compared to December 2018.

### External risk concentration and trade
- Limited export diversification highlighted: Total Exports and Destinations of CCA Countries (Percent of total) for 2007 and 2017 with destination shares Euro Area, RoW, China, Russia, CCA, Turkey, United States; commodity groupings include Mineral products, Metals, Chemicals & allied industries, Machinery, Foodstuffs, Transportation, Other. Note: Turkmenistan and Uzbekistan are excluded from oil exporters due to data availability. Tajikistan is excluded from oil importers due to data availability.

### Policy actions needed
- Enhance resilience and address legacy challenges (monetary, fiscal, structural):
  - Monetary:
    - Complete transition to credible, rules-based frameworks.
    - Scope for further exchange rate flexibility.
  - Fiscal:
    - Consolidation needed where debt is high.
    - Contain contingent liabilities.
  - Structural:
    - Tackle financial sector weaknesses.
    - Improve governance.
    - Make room for private sector growth.
- Growth-friendly fiscal consolidation is needed:
  - Slides depict Oil importers (Percent of GDP) and Oil exporters (Percent of GDP and Non-oil GDP) with time paths 2017 18 19 20 21 22 23 24 and axis ticks including negative values -20 -15 -10 -5 0 and positive values 0 5 10 15 20 25 (Non-oil fiscal balance, right scale) and public debt series.

### Governance and private sector
- Governance Indicators, 2017 (Average of score estimate -2.5 ─ 2.5, weak to strong): chart shows indicators Control of Corruption, Government Effectiveness, Political Stability and Absence of Violence/Terrorism, Regulatory Quality, Rule of Law, Voice and Accountability with comparative groups CC A, MENAP, LAC, SSA, EMASIA, EMEU, AE. Note: Use of indicators should be considered carefully as they are derived from perceptions-based data.
- Challenges to Doing Business in CCA (Number of countries identifying the constraint among the top five): listing of constraints includes Access to finance, Tax rates and regulation, Inflation, Corruption, Foreign currency regulations, Inadequately educated workforce, Inefficient govt bureaucracy, Poor work ethic in national labor..., Policy instability, Insufficient capacity to innovate, Government instability; chart compares CCA OE, CCA OI (Excl. GEO), EMASIA, LAC, SSA, EMEU, AE, GEO.
- Business Entry Density Rate (Number of newly registered firms with limited liability per 1,000 working-age people): slide uses World Bank Doing Business Report data (most recent within 2014–16; all CCA countries are 2016 values).

### IMF engagement in the CCA region
- Analytical Projects listed include:
  - “Opening Up in the CCA : Policy Frameworks to Support Regional and Global Integration” (February 2019).
  - “Fintech, Inclusive Growth and Cyber Risks in MENAP and CCA” (September 2018).
  - “Building Resilient Banking Sectors in the CCA” (August 2018).
  - “A Growth-Friendly Path for Building Fiscal Buffers in the CCA” (June 2018).
- Programs:
  - A program is in place with Georgia (EFF).
  - Armenia reached staff-level agreement on a 3-year precautionary SBA.
  - In Tajikistan discussions are underway for a new ECF.
- Capacity Development:
  - Fund technical assistance has increased in the past 2-3 years covering bank supervision & resolution, monetary framework, fiscal risks, tax policy, revenue administration, public financial management, financial stability and statistics.
  - Annual Joint Vienna Institute seminars and trainings.
  - Preparations for a new regional TA center are underway, with the center expected to open in the second half of CY2020.

### Takeaways
- Steady growth, but too low to raise living standards.
- Ensure higher growth by addressing legacy challenges and completing reforms.
- Global headwinds increase urgency for action.

*Source: cca-ppt0419 (Caucasus and Central Asia Update to the Regional Economic Outlook, APRIL 2019).*

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_Source: https://www.imf.org/-/media/files/publications/reo/mcd-cca/2019/april/english/cca-ppt0419.pdf_