The “Golden Promise” of Economic Reform in Caucasus and Central Asia

June 8, 2023


As prepared for delivery

1. Introduction

Thank you, Shigeo [Katsu], for the introduction. I’m honored to join you today at Nazarbayev University.

It is always a great pleasure to speak to an audience of so many young people. This city, this country, and this region hold so much promise. And you are the face of that promise.

As I was flying into Astana yesterday, I admired the Kazakh steppe below, the altyn dala as it is called in the Kazakh language.  This “golden steppe” is truly the heartland of Kazakhstan.

Throughout history, the Caucasus and Central Asia have been great crossroads. Many peoples have shaped this region, from the nomads of the steppe to the traders of the Silk Road.

When Kazakhstan and other countries in the region gained independence in the early 1990s, they undertook a series of difficult reforms to transition away from a centrally planned economy. I remember well how challenging this transition was in my home country, Bulgaria. I applaud the courage of policymakers, and the resilience of the people, during these years.

Yet we also know that the pace of market-oriented reforms eventually slowed, and so did growth in the region. Then came the pandemic, which increased poverty and inequality. Now, the region is experiencing spillovers from Russia’s war in Ukraine, which is reshaping the flow of trade, finance and migration.

The war is a tragic example of a world that has become less unified and more volatile. Central Asia lies at the fault lines of this increasing global fragmentation. So, if the world economy breaks into rival blocs, this region will be fast to feel the aftershock of shifting tectonic plates in the global economy. The best way to protect yourselves in a more shock-prone world is to foster more robust, sustainable, and inclusive growth. This is why we encourage countries in the region to adopt a new growth model that invests in people and reimagines the role of the state to help unlock the full potential of the private sector create high paying jobs and improve living standards for all.  

Today, I would like to highlight three areas of reform where the Central Asia region can make progress: inclusion, private sector development and climate change.


2. The Importance of Boosting Medium-term Growth

Before I delve into these issues, let me say a few words about the economic outlook. Russia’s invasion of Ukraine severely affected global growth and contributed to a cost-of-living crisis. Yet despite the massive challenges, Central Asia proved to be more resilient than expected, with growth in the region at 4.8 percent in 2022.

Higher inflows of income, capital, and migrants from Russia boosted growth in some CCA economies, while a spike in energy prices improved the prospects for oil exporters such as Kazakhstan.

Yet, despite the strong recent growth, the shocks of the past few years have made it more difficult to close the gap in incomes with peer countries. At current rates of growth, some countries in the region may take decades to close the income gap with emerging European economies.

So, I am encouraged to see the region is exploring how to diversify trade—by deepening relationships with major economies around the globe, but also closer to home. Central Asia would greatly benefit from more economic integration within the region—which is even more important at a time when global trade routes face greater geopolitical risks.

There is also room to accelerate other growth-enhancing reforms. IMF research shows that structural reforms could boost output in the region by 5 to 7 percent in the medium term. In other words, these reforms could turn into an opportunity as golden as the vast grasslands of the Kazakh steppe. And there are many more details on this opportunity in a paper which we are releasing today.

Implementing reforms is never easy, but I want you to know the Fund will do everything we can to help—just as we did during the early years of independence and later during the 2008 global financial crisis and the pandemic.

Indeed, our response to the COVID shock in the region was swift. Less than two weeks after the WHO declared the pandemic, the IMF provided $121 million in emergency financing to the Kyrgyz Republic. It was our first member country to receive emergency support during the pandemic.

Overall, we provided $800 million in emergency financing to low-income countries in the region. We also responded quickly to the financing needs of Armenia and Georgia—first by augmenting existing programs, then through new precautionary arrangements. In addition, the region benefited from our global allocation of $650 billion in Special Drawing Rights, which strengthened the reserves of our member countries during the crisis. $4 billion of the allocation went to the Caucasus and Central Asia.

One of the pillars of our support to countries in the region is through capacity development. Tomorrow in Almaty, we will have the official opening of our new Capacity Development Center, which has been providing hands-on technical assistance and knowledge transfer to this region. Since early 2021, the center has already delivered more than 200 capacity-development activities, including 140 bilateral missions and 34 regional workshops.

When we work with countries on capacity development, we help them assess which institutional reforms and policy changes could have the most positive impact. With that in mind, let me turn to key reforms that could make a difference both at the macro level and in people’s lives.


3. Three Areas of Reform

First, invest in people.

Building human capital is key to social cohesion and inclusive growth. First and foremost, this means enabling young people like you to chart your own future. Education, such as the one you are enjoying here at Nazarbaev University, creates opportunities to thrive in an ever-faster changing world.

Investing in people also means developing carefully designed social programs that provide a safety net for those in society who are most vulnerable to the kind of shocks I mentioned earlier and who may face adverse effects from structural changes in the economy.  Compared with peers in emerging Europe, poverty is higher in this region, while government spending on social protection is lower.

It is important to develop information systems that consolidate household data, as well as to develop administrative capacity to deliver benefits in a cost-effective, timely matter. Greater digitalization of government systems could significantly improve the delivery of vital services.

Benefits work best when they create incentives for people to join the labor force. Programs that scale up during shocks to protect people from falling into poverty, but scale back during economic expansions can act as countercyclical buffers. Unemployment insurance and targeted social assistance are good examples.

To be sure, finding fiscal room can be difficult, because of multiple recent shocks, high debt levels and competing spending needs. Here, some countries in the region have an opportunity to raise more public revenues through tax policy and administration reforms.

A good example is the Kyrgyz Republic, which has made significant progress in digitizing its tax administration. This helped reduce informality and increase tax collection by about 3 percent of GDP in 2022 compared with pre-COVID levels

Second, reducing and modernizing the role of the state in the economy could boost medium-term growth.

Good governance is a precondition for dynamic growth. Why? Because it means confidence in the rule of law and the strength of institutions. And this, in turn, fosters confidence among private investors, both domestic and from outside the region.

Think of the sustained progress achieved in Georgia. From low levels twenty years ago, Georgia has leapt ahead of many emerging markets and even advanced economies on many aspects of governance. The creation of Public Service Halls, which provide about 450 public services under one roof, cut red tape, increased transparency, improved the business climate, and contributed to strong economic growth.

Reforming state-owned enterprises is another opportunity for reform. While some SOEs pursue key public-policy objectives, many operate in sectors that could be served more efficiently by the private sector.

Indeed, private companies can often respond more swiftly to price swings and other changing market conditions. Countries in the region could lift medium-term growth and help make the region more resilient to shocks by stepping up efforts to privatize and restructure SOEs and reform their corporate governance.

Third, it’s critical to prepare for the transition to a low-carbon future.

Many of you are coming of age at a time when the real impacts of global warming are becoming brutally clear.

This region is highly vulnerable to climate change. Temperatures are rising faster here than elsewhere. Droughts have become more frequent, while flooding has damaged infrastructure and inflicted a toll on those living in mountainous areas.

We estimate that climate change could cause a loss of annual output of nearly 6.5 percent in the region by 2060.

These losses could be substantially reduced by global policies to cut emissions and domestic steps to adapt to climate change and transition to a low-carbon economy. No country can do it alone!

Countries in the region can contribute to global mitigation efforts by scaling back energy subsidies and introducing carbon-price mechanisms. The Kyrgyz Republic and Tajikistan recently raised electricity tariffs by 30 percent and 17 percent, respectively—critical steps toward the gradual elimination of energy subsidies.

There is also room to scale up climate-resilient infrastructure. Armenia, for example, has helped its farmers adapt by funding drip irrigation, a technology that saves water by slowly releasing it where it’s needed most.

At the same time, oil exporters such as Kazakhstan will face challenging policy tradeoffs as the world moves toward a low-carbon future. It will be crucial for these economies to diversify and reduce their dependence on fossil fuels, including by strengthening the business climate to support non-oil investment.

Done right, the energy transition can be a major opportunity, including for workers and their families. Our research shows that green-intensive jobs pay 7 percent more on average than pollution-intensive work.



To conclude, let me return to the image of the golden steppe. Its openness and rugged beauty embody the Kazakh spirit. When you became a sovereign nation, you showed tremendous perseverance in laying the foundation of a prosperous, peaceful society.

It brings to mind a quote by Abai, the great Kazakh poet: “Through summer heat and winter cold, you stood firm, your spirit bold.”

Today, the Caucasus and Central Asia stand at their own crossroads. Once again, global forces beyond its control are gathering on the horizon. The path of continued market-oriented reforms may seem difficult, because it requires changes to established ways of doing business and governing. But it’s the surest way to insulate your economies against future shocks and to enjoy the huge upsides of private-sector led growth where the role of the state is to be a facilitator and enabler but not the driver.

Now is the time to build on the reform of the early transition years and to forge ahead with spirits bold. We at the IMF will continue to support your efforts, working in partnership for the benefit of all people in this region and beyond.

Thank you. Rakhmet!


IMF Communications Department


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