A Confidence-Financial Inclusion Nexus in the Caucasus and Central Asia?

IMF Working Papers, December 20, 2024

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Confidence in macrofinancial stability has a positive impact on financial inclusion in CCA countries and more broadly.
For CCA countries specifically, confidence gains of 1 unit lead to 0.7 unit improvement in financial inclusion.
Institutional factors explain a large fraction of the variability in confidence in the region.

Level of governance is a key determinant of confidence and thus of financial inclusion.
Reliance on transparent policy rules contributes to higher confidence.
Robust financial safety nets increase confidence.
The impact of inflation targeting, fiscal rules, and deposit insurance schemes on financial inclusion is positive and material only when governance levels exceed certain thresholds.

Governance reforms are critical for deepening financial inclusion.
Strengthening transparency in policy rules can raise confidence and thereby support inclusion.
Building robust financial safety nets can enhance confidence and promote inclusion.
Implementing inflation targeting, fiscal rules, and deposit insurance schemes should be pursued in tandem with governance improvements, given their material impact is conditional on governance reaching sufficient levels.