IMF Survey: Caucasus, Central Asia Feel Crisis Impact, But Set for Modest Upturn

IMF News, October 3, 2009

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Growth for the Caucasus and Central Asia (CCA) region projected to drop from 6.6 percent in 2008 to 1.5 percent in 2009.
The region as a whole expected to see a modest recovery in 2010, though energy importing low-income countries are expected to face a difficult year ahead.
The IMF will release a detailed forecast, Regional Economic Outlook: Middle East and Central Asia, on October 11.

Per capita GDP ranges from US$795 in Tajikistan to US$8,500 in Kazakhstan.
Half the region’s countries are energy exporters: Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan.
Energy exporters
- Most projected to record solid growth in 2009 owing to long-term energy export contracts, supportive policies, and in some cases limited linkages to international markets.
- Kazakhstan is an exception: in the midst of a banking crisis and hit by lower oil prices, likely to see GDP contract by about 2 percent in 2009; recovery in 2010 held back by lingering problems in the banking system.
- Azerbaijan, Turkmenistan, and Uzbekistan projected to register robust growth in 2009, supported mainly by public spending made possible by ample public savings accumulated during the boom years; with global energy demand increasing again, these countries are expected to grow strongly in 2010, according to IMF projections.
Energy importers
- Armenia, Georgia, the Kyrgyz Republic, and Tajikistan are energy importers and face a marked slowdown in growth and deteriorating living standards mainly due to a sharp drop in remittances from Russia.
- Armenia likely to suffer a contraction of more than 15 percent in 2009, following a strong construction boom and exceptionally fast growth in recent years.
- Georgia seriously hit by the slowdown in foreign direct investment.
- The Kyrgyz Republic and Tajikistan faring better, helped by bumper harvests.

CCA policymakers have eased fiscal and monetary policies and strengthened social safety nets; the international community has provided assistance, and additional donor support will be needed for some countries.
Donor support examples:
- IMF assistance through the concessional Poverty Reduction and Growth Facility (Tajikistan) and under the IMF’s Exogenous Shocks Facility (the Kyrgyz Republic).
- Armenia and Georgia both have IMF Stand-By Arrangements.
- Donors including neighboring Russia and China and the World Bank have stepped in to help CCA’s energy importers weather the crisis.
Role of official support: critical to help countries implement countercyclical fiscal policies and bring about a gradual recovery for energy importers in 2010.

Financial sectors across the region are under stress, notably in Kazakhstan; restoring financial health is a priority.
Recommended actions:
- Close monitoring of CCA financial systems.
- Enhanced supervision and crisis preparedness.
Exchange rate policy:
- Countries should continue to preserve exchange rate flexibility or move towards flexible exchange rate regimes over time to maintain competitiveness and discourage speculative capital flows.

Continue fiscal policies that support growth while keeping social protection a priority.
Energy importers need additional donor support on concessional terms to prevent a buildup of unsustainable debt levels.
Energy exporters should use part of anticipated revenue gains from rising energy prices to push ahead with structural reforms.
Restore financial sector health through monitoring, enhanced supervision, and crisis preparedness.

IMF Survey online, October 3, 2009 — IMF Survey: Caucasus, Central Asia Feel Crisis Impact, But Set for Modest Upturn