## THE CAUCASUS AND CENTRAL ASIA: TRANSITIONING TO EMERGING MARKETS ## Source details **Canonical URL:** [THE CAUCASUS AND CENTRAL ASIA: TRANSITIONING TO EMERGING MARKETS](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/dp/2014/_1402mcd.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/dp/2014/_1402mcd.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/dp/2014/_1402mcd.pdf.json) --- ### Preface and introduction - Prepared by IMF Middle East and Central Asia Department staff under overall guidance of Juha Kähkönen; staff team led by Jonathan Dunn, Mark Horton, and Hossein Samiei. - Since independence in 1991, almost all CCA countries have functioning macroeconomic institutions and have completed first-generation reforms (privatization of small and medium firms, price liberalization, exchange rate unification). - Growth stronger than many regions but volatile and driven mostly by commodity and labor exports, reflecting highly undiversified economies. - High commodity prices and comfortable remittance flows create macro space to pursue bold policy and structural reforms to: manage volatility better; sustain high growth; diversify economies; strengthen job opportunities; and support market institutions through better governance. - Vision: many CCA countries could become dynamic emerging markets in the next decade with successful reform implementation and stronger regional and global ties. ### Key regional indicators (figures for 2011) - Azerbaijan: Population 9.16 million; GDP 4,819 million US$; GDP per capita 7,114 US$; Major components of GDP: Industry, incl. energy (52), construction (8). - Kazakhstan: Population 16.7 million; GDP 188,049 million US$; GDP per capita 11,278 US$; Major components of GDP: Industry, incl. energy (31), retail & wholesale trade (14). - Turkmenistan: Population 5.52 million; GDP 9,233 million US$; GDP per capita 5,290 US$; Major components of GDP: Industry, incl. energy (50), construction (16). - Uzbekistan: Population 29.1 million; GDP 45,421 million US$; GDP per capita 1,561 US$; Major components of GDP: Industry, incl. energy (24), services (22), agriculture (18). - Armenia: Population 3.31 million; GDP 10,138 million US$; GDP per capita 3,096 US$; Major components of GDP: Agriculture (20), construction (13), retail & wholesale trade (13). - Georgia: Population 4.51 million; GDP 14,435 million US$; GDP per capita 3,230 US$; Major components of GDP: Retail & wholesale trade (15), public sector (10), industry (9). - Kyrgyz Republic: Population 5.5 million; GDP 6,199 million US$; GDP per capita 1,120 US$; Major components of GDP: Industry (22), agriculture (17). - Tajikistan: Population 7.8 million; GDP 6,523 million US$; GDP per capita 836 US$; Major components of GDP: Agriculture (24), retail & wholesale trade (17). ### Growth experience, drivers, and volatility - Over 1996–2011 average real GDP growth in the CCA totaled 7 percent. - Regional growth levels and drivers: - Growth: 6.4 percent for oil and gas importers and 7.7 percent for oil and gas exporters, bringing the CCA region’s average growth to 7.5 percent. - High growth reflects strong initial physical and human capital, untapped natural resources, and a rebound from transition. - Volatility explained by: - Specialized Soviet-era structure and loss of a large integrated economic space. - Close ties to Russia, which exhibited even greater volatility during much of the transition. - Reliance on volatile commodity exports and remittances. - Cross-country outcomes: - Output per capita increased by three and a half times in Azerbaijan between 1996 and 2011; increased by only half in the Kyrgyz Republic over the same period. - Energy exporters (Azerbaijan, Turkmenistan, Kazakhstan) showed strong performance; Armenia and Georgia among importers performed relatively well due to stronger policy frameworks, low inflation, contained debt, and substantial FDI attraction. ### Structural vulnerabilities and external exposures - Commodity dependence: - Commodity exports constitute over 60 percent of total exports in Kazakhstan, Azerbaijan, and Turkmenistan. - Fiscal revenues from these exports are over 40 percent of total revenues in those countries. - Remittances: - Armenia, Kyrgyz Republic, and Tajikistan are vulnerable to fluctuations in remittances driven by growth in Russia. - Tajikistan receives more than 80 percent of remittance income from Russia. - Regional integration: - Share of exports to CCA economies fell from 12.9 percent in 1996 to 6.8 percent in 2001 and 4.9 percent in 2011. - High tariff-equivalent trade costs in 2007: CCA 162%, SAARC 150%, ASEAN 61%, East Asia 128%, NAFTA 62%, EU5 72%. - China’s share of total CCA trade rose from 3 percent in 2000 to about one quarter by 2012; Russia’s share fell from 25 percent in 2000 to 15 percent in 2012. ### Inclusive growth, productivity, and labor markets - Inclusive outcomes mixed: - Income inequality decreased only marginally or increased in many countries; Armenia and Uzbekistan are notable exceptions. - Poverty reduction: dramatic in Azerbaijan and Kazakhstan; less progress in Armenia, Georgia, and Tajikistan. - Labor force participation: in CCA middle-income countries (MICs) rates are around or above the MIC average; in CCA low-income countries (LICs) participation is low and poverty rates remain high. - Productivity: - Most CCA countries enjoyed positive TFP growth over the last decade; substantial TFP increases in Georgia, Kazakhstan, and Tajikistan; declining TFP trend in Armenia; relatively stable TFP in Uzbekistan. - Growth accounting: TFP contributed most to growth in Georgia and least in Armenia. ### Outlook under current policies and reform implications - Under current policies, per capita GDP growth over the medium term is projected to fall well short of the CCA average of 6.5 percent achieved during 1996–2011. - Rationale: no longer benefiting from untapped resources or transition rebound; weaker human capital in many countries. - Opportunity: current high energy export prices, robust remittances, and stable food prices provide a unique opportunity for ambitious reforms. - Constraints: weak institutions, vested interests, vulnerability to commodity price movements, weak global integration, frozen conflicts, and geopolitical risks (e.g., NATO withdrawal from Afghanistan). ### Vision and quantified potential payoffs - Vision: join the world’s dynamic emerging markets via ambitious reforms to increase economic openness, attract foreign investment, expand private sector activity, and strengthen macro-policy frameworks and institutions. - Potential direct payoff: - Panel regression of 108 countries: improving government effectiveness could raise per capita GDP by at least 15–30 percent with gradual improvement; at least 20–45 percent with more rapid improvement over the next decade. ### Monetary and exchange rate policy: progress, challenges, and transformation - Progress: - Inflation fell from triple-digits in the mid-1990s to single-digits in most CCA countries; when double digits recently, typically below 15 percent. Nominal interest rates declined. - Improvements in operational frameworks: greater central bank independence, improved technical expertise, better national statistics, greater transparency. - Challenges: - Monetary policy pro-cyclicality; central bank independence often weak; high dollarization; inflation volatility; high real interest rates and spreads. - Need to strengthen communications, accountability, data quality, analytical research, and the monetary transmission mechanism. - Transformation goals for the next decade: - Consolidate price stability expectations; enhance flexibility to respond to shocks; support lower domestic interest rates and efficient credit allocation. - Strengthen transmission—key measures: - Communications: forward-looking guidance, inflation and monetary policy reports, press releases, publication of minutes/testimony where appropriate. - Financial-sector repair: address high NPLs, restore bank risk management. - Reduce dollarization: sound monetary and fiscal policies, local-currency funding instruments, reserve requirement/risk-weighting measures (example: Kazakhstan in 2012). - IMF de facto exchange rate classifications (2012): - Armenia: Floating - Azerbaijan: Stabilized arrangement - Georgia: Floating - Kyrgyz Republic: Other managed arrangement - Kazakhstan: Crawl-like arrangement - Tajikistan: Stabilized arrangement - Turkmenistan: Conventional peg - Uzbekistan: Crawl-like arrangement ### Financial sector: achievements, obstacles, and policy requirements - Achievements: - Transition to commercial banking; growth in microfinance and credit unions; development of retail payment systems and RTGS; mandatory IFRS; AML/CFT legislation. - Challenges: - NPL surges after crises (1998 and global crisis); underreporting of NPLs in some countries; weak provisioning; profitability below precrisis levels; weak risk management and work-out capabilities. - Financial intermediation limited relative to peers; public footprint in banking significant; state ownership and directed lending persist; corporate governance weaknesses; low participation by reputable foreign banks; large informal economy and preference for cash/dollar assets. - Policy requirements: - Develop diversified, market-based financial system with deep capital and interbank markets, hedging mechanisms, credit bureaus, collateral registries, foreclosure procedures, and supportive legal/judicial systems. - Strengthen supervision: modern risk-based supervision, stronger oversight of liquidity, stress testing, risk monitoring; avoid regulatory forbearance; apply prudential norms evenly. - Reduce public sector involvement: limit state ownership, eliminate state-directed lending, divest state shares in commercial banks, strengthen central bank authority on bank corporate governance. - Improve resolution frameworks: bankruptcy law reform, early triggers for provisional administration, inter-agency crisis plans for systemically important banks. - Improve transparency and regional consolidated supervision; publish ownership and bank information consistent with international standards. ### Fiscal policy and fiscal frameworks: achievements, weaknesses, and actions - Achievements: - Fiscal deficits declined in oil importers and turned to large surpluses in oil exporters during the pre-crisis boom; public debt fell sharply; improved revenue and streamlined expenditures; strengthened PFM foundations. - Deterioration after 2008–09: - Fiscal positions weakened due to automatic stabilizers and discretionary stimulus; Kyrgyz Republic affected after 2010 domestic crisis. Oil importers made consolidation progress; oil exporters made less progress restoring non-oil balances. - Long-standing weaknesses: - Low tax revenue performance; large, poorly targeted subsidies (notably energy subsidies); weaknesses in public investment management and procurement; insufficient fiscal control and transparency; undisclosed quasi-fiscal activities and contingent liabilities. - Policy objectives: - Focus public spending on high-quality health, education, infrastructure, defense, police, justice, and well-targeted social safety nets; cut inefficient expenditures (energy subsidies, transfers to uncompetitive SOEs, untargeted social assistance). - Deliver core functions sustainably without excessive borrowing or sharp fiscal swings; adhere to international standards for fiscal transparency and accountability. - Required policy actions: - Develop fiscal frameworks anchoring clear paths for deficit, debt, and revenue based on cautious growth projections and robust risk assessments: - For oil importers: fiscal consolidation to sustainable overall deficits per rigorous debt sustainability assessments and build buffers. - For oil exporters: consolidation paths tied to fiscal sustainability frameworks, possibly anchored on permanent income hypothesis assumptions or price-based rules. - Revenue reforms: widen tax bases, limit exemptions, strengthen non-oil tax revenue (Azerbaijan and Kazakhstan), consider increasing low indirect tax rates (Armenia, Kazakhstan, Kyrgyz Republic, Tajikistan), strengthen tax administration. - Current spending reforms: expand and better target social safety nets; phase down energy subsidies in Uzbekistan and Turkmenistan with mitigation measures; ensure pension sustainability in Azerbaijan and Kyrgyz Republic. - Capital spending efficiency: align infrastructure with absorptive capacity; integrate sovereign wealth funds within budget frameworks; ensure capital spending in oil importers consistent with debt sustainability; explore regional infrastructure cooperation. - Second-generation PFM reforms: medium-term fiscal frameworks, program budgeting, public procurement improvements; quantify and report quasi-fiscal activities, implicit energy subsidies, fiscal risks (PPPs, SOEs), contingent liabilities; strengthen public sector statistics; consider fiscal responsibility laws, IMF Fiscal Transparency Code, Extractive Industries Transparency Initiative, and independent fiscal oversight (fiscal councils). ### Management of energy resource wealth (ER-CCA: Azerbaijan, Kazakhstan, Turkmenistan) - Objectives over the next 10 years: - Leverage resource wealth to sustain living standard improvements, achieve economic diversification (including within energy), and reduce reliance on natural resources; establish fiscal anchors and sound resource fund management; improve governance and business climates. - Successes: - New discoveries and production booms in early 2000s; favorable hydrocarbon prices since 2003; new export destinations (Turkey, China); improved transport infrastructure (Baku-Tbilisi-Ceyhan pipeline, Central Asia-China gas pipelines); significant living standard improvements. - Risks and challenges: - Price and production volatility cause macro volatility; real exchange rate appreciation harming nonresource competitiveness (Dutch disease); concentrated FDI in energy sector; wages growing faster than productivity; implicit energy subsidies large (Turkmenistan among highest globally); rent seeking and short-sighted public spending. - Policy requirements: - Establish fiscal anchors and sound resource fund management: - Adopt appropriate fiscal rules: for Azerbaijan a permanent income hypothesis (PIH) rule is considered appropriate; for Kazakhstan and Turkmenistan price-based rules combined with a target for the structural primary fiscal balance may be more appropriate. - Resource funds should be transparently linked to the budget, derive accumulation from actual fiscal surpluses, and ensure fund spending is integrated into the budget process. - Strengthen nonresource tax revenue (Azerbaijan and Kazakhstan) by broadening bases, limiting exemptions, reducing compliance costs (e-filing), and enhancing transparency. - Ensure resource revenue supports productive asset transformation: - Assess tradeoffs between returns on financial assets versus net gains from resource-financed public investment; justify domestic investment only if aligned with absorptive capacity and high efficiency standards. - Consider frontloading consumption (healthcare and education) where appropriate (example: Turkmenistan). - Improve fiscal transparency and PFM systems to capture total public resources and contingent liabilities; reform implicit energy subsidies via public information campaigns. - Advance diversification reforms: - Trade and competition reforms, WTO accession acceleration, new customs codes to reduce trade barriers. - Streamline regulatory requirements to reduce costs for non-oil companies and SMEs. - Financial sector reforms to increase access to finance for nonresource sectors: reduce directed lending (priority in Turkmenistan; important in Azerbaijan and Kazakhstan), develop well-regulated capital markets, strengthen banking supervision. ### External linkages: trade, finance, and remittances - Rationale: enhanced economic and financial cooperation within the CCA and with the world offers opportunities for diversification and structural transformation. - Trade: - Intra-regional trade share in total CCA trade dropped substantially over two decades, contrasting with rising intra-regional trade in ASEAN. - Reasons for limited intra-regional trade: strong ties with China and Russia; geographic landlocked challenges and high transport costs; similar product structures limiting complementarities. - Policy actions: reduce intra-regional trade costs, improve transport and customs infrastructure, pursue trade facilitation, and exploit opportunities to become “land-linked” via regional cooperation and infrastructure (e.g., CAREC corridors). - Finance: - Financial inflows increased since 2000, predominantly FDI; post-crisis FDI mainly to energy sectors; portfolio inflows limited (primarily to Kazakhstan); debt financing predominates for LICs. - Constraints: low capital market liberalization, underdeveloped financial markets, weak governance, limited institutional capacity, security fragility. - Policy actions: enhance capital market development, attract diversified external financing, strengthen domestic financial systems and regulatory frameworks. - Remittances: - Important for Armenia, Kyrgyz Republic, Tajikistan; central role of Russia as destination and source; remittances critical for growth and external financing in Kyrgyz Republic and Tajikistan. ### Regional integration, institutional arrangements, and policy recommendations (Box 8.1 and Chapter 9 excerpts) - Regional integration constraints: - Low intra-regional trade share and landlocked positions prevent pooling of resources and beneficial interactions. - Multiplicity of regional organizations has dissipated limited managerial capacity. - Institutional arrangements and evolution: - CIS failed to maintain open borders, trade, transport, and capital mobility. - Sub-regional arrangements include Eurasian Economic Community (EEC)/Eurasian customs union, Shanghai Cooperation Organization (SCO), and Central Asia Regional Economic Cooperation program (CAREC). - CAREC membership includes Afghanistan, Azerbaijan, China, Kazakhstan, Kyrgyz Republic, Mongolia, Pakistan, Turkmenistan, Tajikistan, and Uzbekistan; Russia invited but has yet to respond. - Challenges impeding cooperation: - Asymmetry of member-state economic size and high external tariffs (ECU); China and Russia often have not reached agreements on energy and trade transit; competition among external powers (Russia, China, EU) for influence. - Policy recommendations: - Foster stronger cooperative engagement that meaningfully involves Russia, China, and the European Union. - Address institutional capacity constraints from multiple organizations to reduce dispersion of managerial and decision-making resources. - Prioritize resolving bilateral and multilateral disagreements on energy and trade transit (notably oil and gas transit). - Encourage participation of key regional players (for example, secure Russia’s response to CAREC membership invitation) to enhance comprehensiveness of regional initiatives. - Infrastructure and trade-cost reduction example: - Six CAREC corridors are being constructed to link key economic hubs and connect landlocked CAREC countries to Eurasian and global markets. *Italicized source attribution: Excerpted from the IMF PDF chapter "THE CAUCASUS AND CENTRAL ASIA: TRANSITIONING TO EMERGING MARKETS" (selected sections provided).* ### 1. Economic development—Caucasus. 2. Economic development—Asia, Central. ### THE CAUCASUS AND CENTRAL ASIA: TRANSITIONING TO EMERGING MARKETS ### Preface and Introduction - The paper was prepared by IMF Middle East and Central Asia Department staff under overall guidance of Juha Kähkönen; staff team led by Jonathan Dunn, Mark Horton, and Hossein Samiei. - The countries of the Caucasus and Central Asia (CCA) have made significant strides in transitioning to market economies since their independence in 1991. - Almost all CCA countries now have functioning key macroeconomic institutions (central banks and ministries of finance) and have completed reforms such as the privatization of small and medium firms, price liberalization, and exchange rate unification. - Growth has been stronger than in many other regions but relatively volatile and driven mostly by commodity and labor exports, reflecting highly undiversified economies. - High commodity prices and still-comfortable remittance flows create macroeconomic space to pursue bold policy and structural reforms to: manage volatility better; sustain high growth; diversify economies; strengthen job opportunities; and support market institutions through better governance. - Vision: With successful implementation of reforms, many CCA countries could become dynamic emerging markets in the next decade; this vision is bolstered by stronger regional and global ties. ### Key Regional Indicators (Table 1.1—figures for 2011) - Azerbaijan: Population 9.16 million; GDP 4,819 million US$; GDP per capita 7,114 US$; Major components of GDP: Industry, incl. energy (52), construction (8). - Kazakhstan: Population 16.7 million; GDP 188,049 million US$; GDP per capita 11,278 US$; Major components of GDP: Industry, incl. energy (31), retail & wholesale trade (14). - Turkmenistan: Population 5.52 million; GDP 9,233 million US$; GDP per capita 5,290 US$; Major components of GDP: Industry, incl. energy (50), construction (16). - Uzbekistan: Population 29.1 million; GDP 45,421 million US$; GDP per capita 1,561 US$; Major components of GDP: Industry, incl. energy (24), services (22), agriculture (18). - Armenia: Population 3.31 million; GDP 10,138 million US$; GDP per capita 3,096 US$; Major components of GDP: Agriculture (20), construction (13), retail & wholesale trade (13). - Georgia: Population 4.51 million; GDP 14,435 million US$; GDP per capita 3,230 US$; Major components of GDP: Retail & wholesale trade (15), public sector (10), industry (9). - Kyrgyz Republic: Population 5.5 million; GDP 6,199 million US$; GDP per capita 1,120 US$; Major components of GDP: Industry (22), agriculture (17). - Tajikistan: Population 7.8 million; GDP 6,523 million US$; GDP per capita 836 US$; Major components of GDP: Agriculture (24), retail & wholesale trade (17). ### The CCA Growth Experience: successes and challenges - Over 1996–2011 average real GDP growth in the CCA totaled 7 percent. - Achievements: rapid income per capita gains for some countries; poverty decline; lower inflation from 1990s highs; lower interest rates; somewhat deeper financial sectors (higher deposits and lending); effective use of fiscal buffers during the global crisis; significant living standard improvements in CCA oil and gas exporters through energy wealth. - Remaining challenges: growth remains volatile and reliant on energy resources, other commodities, and remittances; inflation has been volatile and real interest rates remain high; central banks often lack independence and monetary policy tends to be pro-cyclical; high dollarization persists; uneven progress in restoring fiscal positions and rebuilding buffers; low non-oil revenue in resource-rich countries; infrastructure gaps persist despite large capital outlays; widespread quasi-fiscal activities (directed lending and investment) divert resources from priorities like health and education. - Structural and external constraints: weak regional cooperation; low global integration; slow pace of second-generation structural reforms (governance of financial institutions and firms, public-private partnerships); unresolved conflicts with neighbors in some countries. ### The Vision for the CCA and Priority Policy Actions - Vision: Achieve dynamic emerging market status characterized by high and sustainable growth, robust institutions, strong capital stocks, integration into regional and global production networks, and sustained investor interest backed by capital flows that support diversified economic activity and job creation. - Priority policy actions highlighted: - Monetary policy: Emulate best-practice frameworks of emerging market countries to consolidate lower inflation, reduce volatility, strengthen monetary transmission, lower dollarization and interest rates, and address “fear of floating”. - Financial sector: Develop competitive banking sectors and nonbank financial institutions; adopt international standards of regulation and supervision to deepen and broaden financial intermediation and ensure financial soundness. - Fiscal policy: Provide increasingly effective core governmental functions in a non-distortive, transparent, and accountable way; prioritize security, justice, regulatory functions, and efficient spending on health, education, and infrastructure; develop fiscal frameworks to anchor clear fiscal paths; undertake revenue and spending measures to consolidate fiscal positions; advance public financial management reforms to promote transparency and accountability. - Resource-rich country actions: CCA oil and gas exporters should leverage resource wealth to ensure sustained improvements in living standards, achieve economic and asset diversification, and reduce reliance on natural resources; establish fiscal anchors and sound resource fund management; decisively improve governance and business climates. - External and regional linkages: Enhance economic and financial cooperation with the rest of the world and within the CCA to create opportunities for diversification and structural transformation. - Structural reforms and governance: Pursue forceful structural reform efforts and major improvements in governance frameworks and institutions to underpin better macro policy frameworks and ensure sustainable growth. ### Monetary and Exchange Rate Policy (overview from Introduction and chapters referenced) - Progress: Inflation reduction from 1990s highs; lower nominal interest rates; establishment of macroeconomic institutions. - Challenges: Monetary policy pro-cyclicality; central bank independence often weak; high dollarization; volatility in inflation and real interest rates; need to strengthen monetary transmission and deal with “fear of floating.” - Transformation goal: Consolidate decline in inflation and reduce volatility; foster environment for lower dollarization and interest rates; emulate best practice monetary frameworks from emerging markets. ### Financial Sector: achievements and reform priorities - Achievements: Financial deepening evidenced by higher deposits and lending. - Current obstacles and priorities: Increase competitiveness of banking sectors; create nonbank financial institutions; adopt international regulation and supervision standards; address governance weaknesses; reduce quasi-fiscal activities; deepen and broaden financial intermediation to better support private-sector-led growth and job creation. ### Fiscal Policy and Fiscal Frameworks: aims and priorities - Past success: Use of fiscal buffers prior to the global crisis and effective deployment during the crisis. - Ongoing challenges: Restoring post-crisis fiscal positions unevenly; low non-oil revenue in resource-rich countries; infrastructure needs; need for transparent, accountable delivery of core government functions. - Policy requirements: Develop fiscal frameworks that anchor clear fiscal paths; implement revenue and spending measures to consolidate fiscal positions; advance public financial management reforms to promote transparency, accountability, and better fiscal outcomes. ### Management of Energy Resource Wealth - Successes: Significant improvements in living standards in oil and gas exporting CCA countries through use of energy wealth. - Challenges and policy needs: Ensure sustained living standard improvements; achieve economic and asset diversification; reduce reliance on natural resources; establish fiscal anchors and sound resource fund management; decisive governance and business climate improvements required. ### External Linkages and Remittances - Role of external factors: Commodity prices and remittance flows provide macroeconomic space for reform. - Need to strengthen: Trade linkages, financial linkages, remittance channels, and broader economic and financial cooperation both within the CCA and with the global economy to support diversification and structural transformation. ### Structural Reforms and Political Economy - Past reform trajectory: Rapid implementation of first-generation reforms (privatization, exchange rate unification) after independence; slower progress on more difficult second-generation reforms. - Political economy constraints: Powerful vested interests, instances of state capture, and narrow political space have slowed reform implementation in the past decade. - Key steps: Ease structural and political economy constraints by improving governance, widening political space for reform, and implementing reforms that deepen institutions and support job-creating investment. *Source: IMF, Middle East and Central Asia Department, “THE CAUCASUS AND CENTRAL ASIA: TRANSITIONING TO EMERGING MARKETS.”* ### 6.4 percent for oil and gas importers and 7.7 percent for oil and gas exporters ### _1402mcd - 6.4 percent for oil and gas importers and 7.7 percent for oil and gas exporters ### Regional growth levels and drivers - Growth: 6.4 percent for oil and gas importers and 7.7 percent for oil and gas exporters, bringing the CCA region’s average growth to 7.5 percent. - High growth largely reflects: - strong initial physical and human capital, - untapped natural resources, - a rebound from transition. ### Volatility and explaining factors - Growth in the region has exhibited more ups and downs than in most other countries. - Volatility is explained by: - the specialized structure inherited from the Soviet period and loss of a large, integrated economic space; - close economic ties to Russia—which has exhibited even greater volatility than the CCA—during much of the transition; - reliance on volatile commodity exports and on remittances. ### Structural vulnerabilities and external exposures - Commodity dependence: - Commodity exports constitute over 60 percent of total exports in Kazakhstan, Azerbaijan, and Turkmenistan. - Fiscal revenues from these exports are over 40 percent of total revenues in those countries. - Vulnerabilities include heavy reliance on commodities with volatile prices and fiscal revenues concentrated in the energy sector. - Remittances: - Armenia, Kyrgyz Republic, and Tajikistan are vulnerable to possible fluctuations in remittances due to volatile growth in Russia. - Regional integration: - Intra-CCA trade declined: the share of exports going to CCA economies in total exports of goods fell from 12.9 percent in 1996 to 6.8 percent in 2001 and 4.9 percent in 2011. - The share of CCA imports in total goods imports followed a similar declining trend, indicating barriers to trade and weakening regional economic ties. ### Cross-country outcomes: income, remittances, and diversification - Per capita income performance varied with natural resource endowments: - Output per capita increased by three and a half times in Azerbaijan between 1996 and 2011. - Output per capita increased by only half in the Kyrgyz Republic over the same period. - Energy exporters (Azerbaijan, Turkmenistan, Kazakhstan) displayed strong performance tied to dynamic energy sectors and rapid increase in energy exports. - Armenia and Georgia among energy importers showed relatively strong performance, attributed to relatively strong economic policy frameworks, low inflation, contained debt, and substantial FDI attraction. - Remittances and other figures (as shown in figures) highlight heterogeneous country exposures to external flows. ### Inclusive growth, poverty, and labor markets - Inclusive growth has been mixed: - Income inequality has decreased only marginally, or even increased, despite high growth—Armenia and Uzbekistan are notable exceptions. - Poverty reduction: - Dramatic improvement in Azerbaijan and Kazakhstan. - Less progress in Armenia, Georgia, and Tajikistan. - Labor force participation: - In CCA middle-income countries (MICs) labor force participation rates are around or above the MIC average. - In CCA low-income countries (LICs) labor force participation rates are low and poverty rates remain high relative to LIC peers. ### Productivity and sources of growth - Total factor productivity (TFP): - Most CCA countries enjoyed positive TFP growth over the last decade. - Substantial TFP increases in Georgia, Kazakhstan, and Tajikistan. - Declining TFP trend in Armenia. - Relatively stable TFP in Uzbekistan. - Growth accounting findings: - Sources of economic growth differ across countries; on average, TFP contributed most to growth in Georgia and least in Armenia. ### Outlook under current policies and reform implications - Under current policies, per capita GDP growth in CCA countries over the medium term is projected to fall well short of the CCA average of 6.5 percent achieved during 1996–2011. - Rationale: - CCA countries no longer benefit from largely untapped natural resources or the transition rebound. - Many now have weaker human capital than at the start of the transition period. - Opportunity and constraints: - Current high energy export prices, robust remittances, and stable food prices provide a unique opportunity to pursue ambitious reforms. - Domestic constraints to reforms include weak institutions and strong vested interests. - External challenges include vulnerability to commodity price movements, weak integration into regional and global markets, frozen conflicts among some CCA countries, and geopolitical shifts that may lead to regional instability (e.g., the withdrawal of NATO troops from Afghanistan). - Policy direction: - Pursue ambitious reforms to support higher, more stable, sustainable, and inclusive growth through building stronger institutions and broader reforms. *Source: _1402mcd - 6.4 percent for oil and gas importers and 7.7 percent for oil and gas exporters* ### 5.6 percent in CCA oil and gas importers. ### 5.6 percent in CCA oil and gas importers. ### The Vision - CCA countries can create the opportunity to join the world’s dynamic emerging markets through ambitious reforms that: - Generate greater economic openness and attract foreign investment to support higher productivity. - Expand the private sector via improvements to the business environment, stronger macro-policy frameworks, and stronger institutions. - Evidence: factors important to sustained high growth in the 12 fastest growing emerging markets that achieved broad-based growth of 7 percent or higher over two or more decades (see reference to Chapter 8). - Obstacles and risks: - Domestic: weak institutions, lack of accountability, strong vested interests, potential political instability. - External: vulnerability to commodity price movements (food and fuel), EU crisis spillovers through Russia, weak regional and global integration. - Global trends: geopolitical shifts (e.g., NATO withdrawal from Afghanistan in 2014), roles of China and Russia, unresolved regional conflicts. ### Policy Actions to Support the Vision - Strengthen macroeconomic policy frameworks and financial sectors: - Stronger fiscal frameworks—including around energy wealth—to stabilize revenues and support sustainable core government functions. - Improved monetary frameworks and deeper financial systems to support lower inflation, lower interest rates and increased financial intermediation for investment. - Improve management of natural resource wealth: - Use fiscal buffers to dampen growth volatility. - Stable and transparent tax regimes for the resource sector to shore up investment and growth. - Further open trade and financial channels within the CCA and with the rest of the world: - Greater trade openness and deeper financial linkages to support capital market development and investment. - Improved regional cooperation to enhance energy and water security. - Implement structural reforms to improve business climates: - Capital markets reforms, strengthened corporate governance, better regulation to drive investment, diversification, and job-creating inclusive growth. - Ease political economy constraints: - Strengthen transparent political institutions and public administration to limit rent seeking, free resources for education, healthcare, infrastructure, and enable competition. ### Potential Direct Payoff from Achieving the Vision - Panel regression analysis of 108 countries: improving policy frameworks and moving to average levels of government effectiveness could yield significantly higher sustainable growth and GDP per capita. - Quantified gains with improvement in government effectiveness over the next decade: - Most CCA countries could raise per capita GDP by at least 15–30 percent relative to expected outcomes under current policies (gradual improvement). - With more rapid improvement, gains could be in the range of at least 20–45 percent (rapid improvement). - Without macro policy framework improvements, regional vulnerabilities likely to remain high amid volatile growth. ### Monetary and Exchange Rate Policy in the CCA: Progress, Challenges, and Transformation - Progress: - Operational frameworks: greater central bank independence, improved technical expertise, better national statistics, greater transparency. - Outcomes: inflation declined from triple-digits in the mid-1990s to single-digits in most CCA countries; when double digits recently, typically below 15 percent. Nominal interest rates declined significantly. - Financial deepening: decline in inflation and interest rates supported financial intermediation. - Challenges: - Need to strengthen central bank independence, communications, accountability, data quality, and analytical research. - Inflation volatility remains high; real interest rates and interest rate spreads remain high and increased since the global financial crisis. - Significant scope to reduce financial dollarization, which reversed in the late 2000s. - Transformation goals for the next decade: - Consolidate stability so price stability becomes ingrained in expectations. - Enhance flexibility to respond to external shocks and domestic cycles; develop capacity for countercyclical monetary policy and strengthen transmission mechanism. - Support growth by enabling lower domestic interest rates and efficient credit allocation. - Strengthen monetary transmission mechanism—key elements: - Communications: forward-looking guidance, periodic inflation and monetary policy reports, press releases and press conferences, publication of minutes and testimony where appropriate. - Robust and deep financial sector: repair weak bank balance sheets, address high NPLs to restore policy transmission; strengthen bank risk management. - Reduce dollarization: implement sound monetary and fiscal policies, facilitate local-currency funding (e.g., relax collateral standards on central bank lending, encourage long-term local-currency certificates of deposit), consider reserve requirement and risk-weighting measures (example: Kazakhstan in 2012). - Exchange rate regime considerations: - Clarify objectives, confront “fear of floating,” and be transparent if pursuing flexible inflation targeting with exchange rate objectives. - Energy exporters with managed regimes face sterilization and liquidity management challenges; central banks should clarify trade-offs among price stability, nominal exchange rate support, and diversification objectives. - IMF de facto exchange rate classifications (2012): - Armenia: Floating - Azerbaijan: Stabilized arrangement - Georgia: Floating - Kyrgyz Republic: Other managed arrangement - Kazakhstan: Crawl-like arrangement - Tajikistan: Stabilized arrangement - Turkmenistan: Conventional peg - Uzbekistan: Crawl-like arrangement - Strengthen central bank independence and avoid noncore/quasi-fiscal activities that undermine independence, governance, and accountability. ### The CCA Financial Sector: Achievements, Obstacles, and Policy Requirements - Achievements: - Transition from Soviet one-tier banking to modern commercial banking and core supervisory frameworks. - Growth in microfinance institutions and credit unions; development of retail payment systems and RTGS; mandatory IFRS; adoption of AML/CFT legislation. - Current challenges and indicators: - Financial crises interrupted reform momentum (1998 and global crisis), leading to nonperforming loans (NPLs) surges, underreporting of NPLs in some countries. - Banks appear well capitalized and liquid, but provisioning often inadequate; profitability recovered but below precrisis levels; risk management and work-out capabilities remain weak. - Financial intermediation remains limited relative to peers; EBRD transition indicators show weak banking sector development. - Public footprint in banking is significant; state ownership and directed lending persist. - Corporate governance weaknesses in domestically-owned banks; low participation by reputable foreign banks. - Large informal economy and strong preference for cash and dollar assets. - Key obstacles: - Volatile inflation and exchange rate uncertainty undermine confidence in local currencies and formal financial systems. - Frequent state intervention, lack of central bank independence, weak governance, and connected lending hamper development. - Limited investor participation due to non-transparent regulation, inadequate disclosure, weak shareholder protection, and directed lending. - Supervision remains largely compliance-based with limited emphasis on corporate governance and risk management. - Transition objectives: - Develop a diversified, market-based financial system supporting private-sector-led growth, reduced state intervention, and strengthened corporate governance. - Build modern infrastructure: deep capital and interbank markets, hedging mechanisms, credit bureaus, collateral registries, foreclosure procedures, and supportive legal/judicial systems. - Strengthen supervision frameworks to ensure soundness and consistent application of prudential norms (provisioning and classification, loan concentration limits). - Policy requirements and reforms: - Deepen banking intermediation and capital markets: - Develop interbank and secondary markets for government securities; strengthen public debt management. - Introduce products to facilitate savings and hedging (corporate bonds, life insurance, forward contracts). - Make local currency assets more attractive through macro stability and business environment reforms. - Clarify institutional responsibilities across regulators to promote competition and address market failures. - Bring supervision practices in line with international standards: - Strategic plans to strengthen supervisory capacity; amend central bank laws where needed; modern risk-based supervision; stronger oversight of liquidity, stress testing, and risk monitoring. - Avoid regulatory forbearance; apply prudential norms evenly across banks, shareholders, and borrowers. - Reduce public sector involvement and enhance governance: - Limit state intervention and ownership; eliminate state-directed lending; divest state shares in commercial banks. - Strengthen central bank authority over corporate governance in banks (fit and proper criteria, source-of-capital verification, authority to replace management). - Require commercial principles for financial institutions, including development banks. - Strengthen bank resolution and crisis management: improve bankruptcy laws, early triggers for provisional administration, formal inter-agency crisis management plans for systemically important banks. - Improve transparency and communication: full disclosure of ownership, AML/CFT compliance, publication of bank information consistent with international standards; better monetary authority communication. - Improve regional coordination and consolidated supervision, allowing for information sharing and application of prudential requirements on a consolidated basis. ### CCA Fiscal Policy and Fiscal Frameworks: Progress, Challenges, and Required Actions - Achievements: - Fiscal deficits declined in oil importers and turned to large surpluses in oil exporters during the pre-crisis boom. - Public debt fell sharply due to better primary fiscal positions, higher growth and lower interest rates. - Increases in revenue and streamlined expenditures with reduced subsidies and better-targeted social spending. - Strengthened fiscal institutions, including tax systems and treasury/budget systems; improved PFM foundations. - Deterioration after 2008–09 crisis: - Fiscal positions weakened due to automatic stabilizers and discretionary stimulus; Kyrgyz Republic affected after the 2010 domestic crisis. - Oil importers (Armenia, Georgia, Kyrgyz Republic, Tajikistan) have made consolidation progress; remaining issues include low revenue (Armenia), rising debt ratio due to temporary public investment (Kyrgyz Republic), and contingent liabilities from directed lending and weak SOE oversight (Tajikistan). - Oil exporters (Azerbaijan, Kazakhstan, Turkmenistan, Uzbekistan) have made less progress in restoring non-oil balances given high oil prices and sustained higher public spending. - Long-standing weaknesses: - Tax revenue performance remains low; non-oil tax revenue in oil exporters, and tax revenue in importers, are low relative to peers and insufficient to sustainably finance social and capital spending. - Spending inefficiencies from large, poorly targeted subsidies (notably energy subsidies in oil/gas exporters) and weaknesses in public investment management and procurement. - Fiscal control and transparency insufficient: undisclosed quasi-fiscal activities, incomplete coverage of public accounts (extra-budgetary funds, local governments, government financial institutions), limited medium-term spending plans, exposure to fiscal risks. - Objectives for sustainable and accountable delivery of core government functions: - Focus public spending on high-quality health, education, infrastructure, defense, police, justice, and well-targeted social safety nets, while cutting inefficient expenditures (energy subsidies, transfers to uncompetitive SOEs, untargeted social assistance). - Deliver these functions in a sustainable manner without excessive borrowing or sharp fiscal swings. - Adhere to international standards for fiscal transparency and accountability (strengthened PFM, medium-term budget frameworks, reporting of quasi-fiscal activities and contingent liabilities). - Policy requirements: - Develop fiscal frameworks anchoring clear paths for deficit, debt, and revenue based on cautious growth projections and robust risk assessments. - For oil importers: fiscal consolidation to sustainable overall deficits per rigorous debt sustainability assessments and build buffers. - For oil exporters: consolidation paths tied to fiscal sustainability frameworks, possibly anchored on permanent income hypothesis assumptions or price-based rules. - Strengthen fiscal position while minimizing growth impacts: - Revenue reforms: widen tax bases by reducing exemptions; strengthen non-oil tax revenue in Azerbaijan and Kazakhstan; consider increasing low rates in indirect taxes in Armenia, Kazakhstan, Kyrgyz Republic, and Tajikistan; strengthen tax administration. - Current spending reforms: expand and better target social safety nets; scale down energy subsidies in Uzbekistan and Turkmenistan with phased price increases and mitigation for vulnerable groups; ensure pension financial sustainability in Azerbaijan and Kyrgyz Republic. - Increase efficiency of capital spending: align large-scale infrastructure with absorptive capacity; integrate sovereign wealth funds within budget frameworks; ensure capital spending in oil importers consistent with debt sustainability; explore regional cooperation on infrastructure. - Implement second-generation PFM reforms: - Medium-term fiscal frameworks, program budgeting, public procurement improvements. - Quantify and report quasi-fiscal activities, implicit energy subsidies, fiscal risks (PPPs, SOEs), and contingent liabilities. - Strengthen public sector statistics covering local governments, extra-budgetary accounts, SOEs, PPPs, government financial institutions. - Introduce fiscal responsibility laws, endorse IMF Fiscal Transparency Code and, for oil exporters, Extractive Industries Transparency Initiative; consider independent fiscal oversight (fiscal councils). ### Management of Energy Resource Wealth in the CCA (ER-CCA: Azerbaijan, Kazakhstan, Turkmenistan) - Objectives over the next 10 years: - Leverage resource wealth to sustain improvements in living standards, achieve economic diversification (including within the energy sector), and reduce reliance on natural resources. - Establish fiscal anchors and sound resource fund management; improve governance and business climates. - Successes: - New discoveries and production booms in early 2000s, favorable hydrocarbon prices since 2003. - Opening of new export destinations (Turkey, China) and improved transport infrastructure (Baku-Tbilisi-Ceyhan pipeline, Central Asia-China gas pipelines). - Significant improvements in living standards: increases in GDP per capita and poverty alleviation relative to other resource-rich countries and CCA importers; infrastructure gaps remain despite resource-financed public investment. - Challenges and “natural resource curse” risks: - Volatility in resource prices and production translates into macro volatility; pronounced dependence of external and fiscal accounts on resource revenue. - Real exchange rate appreciation harming nonresource tradable competitiveness (Dutch disease): evidence includes substantial real exchange rate appreciation, highly concentrated FDI in energy sector, and wages growing faster than productivity. - Transparency and efficiency of resource-financed public spending can be undermined by rent seeking and short-sighted uses (prestige projects); implicit energy subsidies are large (Turkmenistan among the highest globally). - Policy requirements to leverage resource wealth: - Establish fiscal anchors and sound resource fund management to smooth spending and delink it from resource revenue volatility: - Adopt appropriate fiscal rules: - For Azerbaijan: permanent income hypothesis (PIH) rule with focus on sustainability is considered appropriate given the short depletion horizon. - For Kazakhstan and Turkmenistan: price-based rules combined with a target for the structural primary fiscal balance may be more appropriate where sustainability is less of an immediate issue. - Resource funds should be transparently linked to the budget, derive accumulation from actual fiscal surpluses, and ensure fund spending is integrated into the budget process. - Reduce budget reliance on resource revenues by strengthening nonresource tax revenue (Azerbaijan and Kazakhstan): broaden tax base, limit exemptions, reduce compliance costs (e-filing), enhance transparency. - Ensure resource revenue supports transformation into productive assets: - Realistically assess tradeoffs between returns on financial assets versus net gain from resource-financed public investment; domestic investment justified only if aligned with absorptive capacity and high efficiency standards. - Consider frontloading consumption (healthcare and education) where appropriate (example: Turkmenistan). - Improve fiscal transparency and PFM systems to capture total public resources and contingent liabilities. - Recognize and reform implicit large energy subsidies via public information campaigns on costs and distortions. - Advance reforms to support diversification and reduce natural resource reliance: - Trade and competition reforms to encourage private investment in non-resource sectors; accelerate WTO accession and new customs codes to reduce trade barriers. - Streamline regulatory requirements to reduce costs for non-oil companies and SMEs. - Financial sector reforms to increase access to finance for nonresource sectors: reduce directed lending (priority in Turkmenistan; important in Azerbaijan and Kazakhstan), develop well-regulated capital markets, strengthen banking supervision. ### Policies to Strengthen CCA External Linkages: Trade, Finance, and Remittances - Rationale: - Enhanced economic and financial cooperation within the CCA and with the world offers opportunities for diversification and structural transformation to support sustainable growth. - CCA growth has accompanied increased trade openness, but intra-regional trade remains low and financial linkages are limited. - Trade linkages: - Trade openness supports growth; in the CCA, openness and growth are biased by energy exporters. - Intra-regional trade share in CCA global trade dropped significantly over two decades, contrasting with rising intra-regional trade in ASEAN. - Reasons for limited intra-regional trade: - Strong trade ties with China and Russia (China share risen from 3 percent of total CCA trade in 2000 to about one quarter by 2012; Russia fell from 25 percent in 2000 to 15 percent in 2012). - High intra-regional trade costs (tariff-equivalent trade costs in 2007: CCA 162%, SAARC 150%, ASEAN 61%, East Asia 128%, NAFTA 62%, EU5 72%). - Geographic challenges: landlocked, high transportation and transit costs, weak physical infrastructure. - Similar product structures across CCA economies limiting complementarities; energy exporters and importers produce similar final goods. - Financial linkages: - Financial inflows increased since 2000, predominantly via FDI. Countries with higher FDI generally experienced faster growth. - Since the global crisis, FDI largely flowed to energy sectors. - Portfolio inflows remain limited (primarily to Kazakhstan); debt financing predominates for low-income CCA countries. - Constraints on foreign portfolio investment: low capital market liberalization, underdeveloped financial markets, few corporate bond offerings, weak governance, limited institutional capacity, security fragility. - Remittances: - Important for Armenia, Kyrgyz Republic, Tajikistan; Russia is the primary destination for labor migration and the largest source of remittances (Tajikistan receives more than 80 percent of remittance income from Russia). - Remittances are important sources of growth and external financing for Kyrgyz Republic and Tajikistan; these countries have relied on official financing when remittances fell. - Policies and actions to strengthen external linkages: - Exploit opportunities to become “land-linked” to the world by improving regional cooperation and infrastructure. - Address macroeconomic challenges and vulnerabilities from deeper linkages: - Limited export/import diversification exposes countries to terms-of-trade and foreign demand shocks. - Highly volatile capital flows can induce boom-bust cycles in economies with underdeveloped financial sectors. - Smaller country size amplifies effects of terms-of-trade shocks and foreign aid flows on macro volatility. - Reduce intra-regional trade costs, improve transport and customs infrastructure, and pursue trade facilitation to enhance intra-CCA trade. - Foster diversification of exports and develop competitiveness in nonresource sectors through trade, competition, and financial sector reforms. - Enhance capital market development and attract diversified external financing while strengthening domestic financial systems and regulatory frameworks. *Italicized source attribution: Excerpted from the IMF PDF chapter "THE CAUCASUS AND CENTRAL ASIA: TRANSITIONING TO EMERGING MARKETS" (selected sections provided).* ### Chapter 9). This prevents ### Chapter 9). This prevents ### Regional integration and trade patterns - The current low share of intra-regional trade in the CCA total trade demonstrates that there remains much to be done to improve their inter-connectedness. - Many CCA countries are currently handicapped by their landlocked positions. - This prevents beneficial interaction and the pooling of resources. ### Efforts to foster regional cooperation - Various efforts have been made through sub-regional arrangements to foster regional cooperation (Box 8.1). ### Infrastructure and trade-cost reduction - Some notable progress is being made in reducing intra-regional trade costs. - For example, the six CAREC corridors are being constructed to link the region's key economic hubs to each other, and connect the landlocked CAREC countries to other Eurasian and global markets (Figure 8.19). *Source: _1402mcd - Chapter 9). This prevents* ### Box 8.1. Institutional Arrangements to Foster Regional Cooperation ### Box 8.1. Institutional Arrangements to Foster Regional Cooperation ### Institutional efforts and evolution - Early cooperative arrangements to prevent economic disintegration were not successful; notably, the Commonwealth of Independent States (CIS) failed to maintain open borders, trade, transport, and capital mobility. - More recent sub-regional cooperative arrangements have been established to forge improved economic links; regional cooperation has seen a renewed impetus in recent years, originating from different directions. ### Prominent regional organizations and characteristics - Eurasian Economic Community (EEC) - Comprised of Belarus, Kazakhstan, and Russia; presently involves mainly the Eurasian customs union (ECU). - Armenia announced its intentions to join the ECU in September 2013. - Asymmetry of economic size of member states and high external tariffs under the associated ECU complicate economic cooperation. - Disparity examples: Kazakhstan’s population and GDP are around one-tenth of Russia’s, while Belarus’s GDP is ⅕ of Kazakhstan’s. - Shanghai Cooperation Organization (SCO) - Established in 2001 with six members: China, Kazakhstan, Kyrgyz Republic, Russia, Tajikistan, and Uzbekistan. - China and Russia, the leading two members, have often not reached agreements on key issues of energy and trade development, particularly regional oil and gas transit. - Central Asia Regional Economic Cooperation program (CAREC) - Emerged from a regional initiative in 1997; current membership consists of 10 countries: Afghanistan, Azerbaijan, China, Kazakhstan, Kyrgyz Republic, Mongolia, Pakistan, Turkmenistan, Tajikistan, and Uzbekistan. - Some key regional players are missing, foremost among them Russia; Russia was invited to join CAREC but has yet to respond to the invitation. ### Challenges impeding regional cooperation - Multiplicity of regional organizations among CCA countries has tended to dissipate the region’s limited managerial and decision-making capacity and may have fostered cynicism about regional cooperation. - Successful economic integration in the CCA critically depends on how to cooperatively involve both Russia and China as well as the European Union. - Russia and China compete to maintain influence in Central Asia; Russia and the EU compete in the European part of the former Soviet Union and in the Caucasus. - Greater cooperation could accelerate economic integration in the region and further buttress the relationship among China, Europe, and Russia. ### Policy implications and recommendations (regional cooperation focus) - Foster stronger cooperative engagement that meaningfully involves Russia, China, and the European Union to advance regional economic integration. - Address institutional capacity constraints arising from a multiplicity of regional organizations to reduce dispersion of managerial and decision-making resources. - Prioritize resolving bilateral and multilateral disagreements on energy and trade transit (notably oil and gas transit) among leading regional powers to unlock cooperation benefits. - Encourage participation of key regional players (for example, secure Russia’s response to CAREC membership invitation) to enhance comprehensiveness of regional initiatives. *Source: Box 8.1. Institutional Arrangements to Foster Regional Cooperation (excerpt).* ### References ### _1402mcd - References ### Institutions, Political Economy, and Governance - Acemoglu, D. and J. Robinson, 2012, Why Nations Fail: The Origins of Power, Prosperity, and Poverty, Crown Business. - Besley, T. and T. Persson, 2011, Pillars of Prosperity: The Political Economics of Development Clusters, Princeton University Press. - Evans, P., 1989, “Predatory, Developmental and Other Apparatuses: A Comparative Political Economy Perspective on the Third World State,” Sociological Forum, 4, 4. - La Porta, R., F. Lopez-de-Silanes, A. Shleifer, and R.Vishny (1998) Law and Finance. The Journal of Political Economy 106, 1113–1155. - Lipset, S.M., 1959, “Some Social Requisites of Democracy: Economic Development and Political Legitimacy,” American Political Science Review, 53, 1. - Rodrik, D., A. Subramanian, and F. Trebbi, 2002, “Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development,” NBER Working Paper 9305. ### Growth, Trade, Foreign Direct Investment, and Exports - Alfaro, L., Chanda, A., Kalemli-Ozcan, S., and Sayek, S. (2004) “FDI and economic growth: the role of local financial markets” Journal of International Economics, 64(1): 89–112. - Borensztein, E., De Gregorio, J., and Lee, J-W. (1998) “How does foreign direct investment affect economic growth?” Journal of International Economics, 45(1): 115–135. - Dollar, D. and Kraay, A. (2004) “Trade, Growth, and Poverty” Economic Journal 114(493): 22–49. - Frankel, J. and Romer, D. (1999) “Does trade cause growth?” American Economic Review (89): 379–99. - Hausmann, R., Whang, J., and Rodrick D. (2007) “What You Export Matters” Journal of Economic Growth. - Rajan, R. and L. Zingales (1998) Financial Dependence and Growth. American Economic Review 88:3, 559–586. - World Bank and Eurasian Development Bank, 2013, Diversified Development: Making the Most of Natural Resources in Eurasia (Washington). ### Fiscal Policy, Taxation, and Public Investment - Alesina, Alberto F., and Silvia Ardagna, 2009, “Large Changes in Fiscal Policy: Taxes versus Spending,” NBER Working Paper No. 15438. - Arnold, Jens, B. Brys, Ch. Heady, Å. Johansson, C. Schwellnus and L. Vartia, 2011, “Tax Policy For Economic Recovery and Growth,” The Economic Journal, 121, pp. F59–F80. - OECD, 2010, “Tax Policy Reform and Economic Growth”, OECD Publishing. - International Monetary Fund, 2012, “Fiscal Transparency, Accountability, and Risk” (Washington). - International Monetary Fund, 2011, “Investing in Public Investment: An Index of Public Investment Efficiency” (Washington). - International Monetary Fund, 2010, “Strategies for Fiscal Consolidation in the Post-Crisis World” (Washington). - International Monetary Fund, 2011, “Revenue Mobilization in Developing Countries” (Washington). ### Financial Systems, Central Banking, and Financial Surveillance - Golodniuk, Inna, 2005, Financial Systems and Financial Reforms in CIS Countries, Center for Social and Economic Research. - Dincer, Nergiz, and Barry Eichengreen, 2010, “Central Bank Transparency: Causes, Consequences and Updates” Theoretical Inquiries in Law, Vol. 11, No. 1. - Saborowski, Christian, and Sebastian Weber, 2013, “Assessing the Determinants of Interest Rate Transmission Through Conditional Impulse Response Functions,” IMF Working Paper 13/23 (Washington: International Monetary Fund). - International Monetary Fund, Financial Sector Assessment Programs, (Washington, various issues). - International Monetary Fund, 2012, Enhancing Financial Surveillance in Low Income Countries (LICs)—Case Studies, (Washington). - International Monetary Fund, 2012, Macroeconomic Policy Frameworks for Resource-Rich Developing Countries (Washington). ### Regional Integration, Central Asia, and the Caucasus - Capannelli G., Lee, J., and Petri, P, 2009, “Developing Indicators for Regional Economic Integration and Cooperation”, ADB Working Paper Series on Regional Economic Integration. - Linn, J., 2012, “Central Asian Regional Integration and Cooperation: Reality or Mirage?” EDB Eurasian Integration Yearbook. - Tang, S., 2000, “Economic Integration in Central Asia: The Russian and Chinese Relationship” Asian Survey, Vol. 40, No.2, pp. 360–376. - United Nations Economic and Social Commission for Asia and Pacific, “Integration Trade Costs in Asia: A Primer”, 2010. - World Bank, 2013, Diversified Development: Making the Most of Natural Resources in Eurasia, World Bank. ### Country and Regional IMF Staff Reports and Outlooks - International Monetary Fund, 2013, Jobs and Growth: Analytical and Operational Considerations for the Fund, (Washington). - International Monetary Fund, 2008–13, “Regional Economic Outlook: Middle East and Central Asia” (Washington). - International Monetary Fund, 2012, Republic of Azerbaijan: Staff Report for the 2011 Article IV Consultation, IMF Staff Country Report No. 12/5 (Washington). - International Monetary Fund, 2012, Republic of Azerbaijan: Selected Issues, IMF Staff Country Report No. 12/6 (Washington). - International Monetary Fund, 2013, Republic of Azerbaijan: Staff Report for the 2013 Article IV Consultation, IMF Staff Country Report No. 13/164 (Washington). - International Monetary Fund, 2013, Republic of Azerbaijan: Selected Issues, IMF Staff Country Report No. 13/165 (Washington). - International Monetary Fund, 2013, Republic of Kazakhstan: 2013 Article IV Consultation, IMF Staff Country Report No. 13/290 (Washington). - International Monetary Fund, 2013, Republic of Kazakhstan: Selected Issues, IMF Staff Country Report No. 13/291 (Washington). ### Macro Lessons, Crisis Experience, and Policy Analyses - Fischer, Stanley, 2011, “Lessons from the Global Crisis,” Central Bank Lessons from the Global Crisis, Dinner Lecture at the Bank of Israel Conference. - Hoshi, Takeo, and Anil Kashyap, 2013, “Will the U.S. and Europe Avoid a Lost Decade? Lessons from Japan’s Post-Crisis Experience,” paper presented at the Fourteenth Jacques Polak Annual Research Conference. - Rodrik, D., A. Subramanian, and F. Trebbi, 2002, “Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development,” NBER Working Paper 9305. *Source: _1402mcd - References* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/dp/2014/_1402mcd.pdf_