## Managing Director's Speech on the “Golden Promise” of Economic Reform in Caucasus and Central Asia

_IMF News, June 8, 2023_

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## Bibliographic details
- Authors: Kristalina Georgieva
- Published: June 8, 2023

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### Introduction and framing
- Speaker: Kristalina Georgieva, Managing Director, IMF; location: Nazarbayev University, Astana; date: June 8, 2023.
- Region: Caucasus and Central Asia described as historic crossroads shaped by nomads of the steppe and traders of the Silk Road.
- Central thesis: In a more shock-prone, fragmented world, the region should pursue a new growth model that invests in people, reimagines the role of the state, and unlocks the private sector to create high paying jobs and improve living standards for all.
- Three priority reform areas highlighted: inclusion (invest in people), private sector development (reduce and modernize the role of the state), and climate change.

### Economic outlook and IMF engagement
- Recent performance and shocks:
  - Growth in the region: 4.8 percent in 2022.
  - Russia’s invasion of Ukraine: major adverse shock reshaping trade, finance and migration.
  - Pandemic effects: increased poverty and inequality.
- Structural reform potential:
  - IMF research: structural reforms could boost output in the region by 5 to 7 percent in the medium term.
- IMF financial and technical support provided:
  - Emergency financing to the Kyrgyz Republic: $121 million (first member country to receive emergency support during the pandemic).
  - Emergency financing to low-income countries in the region: $800 million.
  - Global allocation of Special Drawing Rights: $650 billion total; $4 billion of the allocation went to the Caucasus and Central Asia.
  - Capacity Development Center (official opening tomorrow in Almaty): since early 2021 has delivered more than 200 capacity-development activities, including 140 bilateral missions and 34 regional workshops.
- Policy implication: deeper regional economic integration and diversification of trade partners to reduce vulnerability from geopolitical shifts.

### Reform area 1 — Invest in people (inclusion)
- Key goals:
  - Build human capital to support social cohesion and inclusive growth.
  - Enable youth to thrive through education and create opportunities.
- Social protection and delivery:
  - Region has higher poverty and lower government spending on social protection compared with peers in emerging Europe.
  - Recommendations: consolidate household data, strengthen administrative capacity, and digitalize government systems to improve delivery and timeliness of benefits.
  - Design principle: benefits should create labor-force incentives and act countercyclically—scale up during shocks and scale back during expansions (examples: unemployment insurance, targeted social assistance).
- Fiscal constraints and revenue mobilization:
  - Acknowledge fiscal pressure from recent shocks, high debt, and competing spending needs.
  - Example of revenue improvement: Kyrgyz Republic digitized tax administration, reducing informality and increasing tax collection by about 3 percent of GDP in 2022 compared with pre-COVID levels.

### Reform area 2 — Reduce and modernize the role of the state (private sector development)
- Governance and institutional reforms:
  - Good governance and rule of law attract private investment and support dynamic growth.
  - Case study: Georgia’s Public Service Halls delivering about 450 public services under one roof—cut red tape, increased transparency, improved business climate, and contributed to strong economic growth.
- State-owned enterprise (SOE) reform:
  - Many SOEs operate in sectors that could be served more efficiently by the private sector.
  - Policy actions: privatize and restructure SOEs, reform corporate governance to lift medium-term growth and resilience to shocks.
- Role of the state: facilitator and enabler, not the primary driver of economic activity.

### Reform area 3 — Climate change and the low-carbon transition
- Vulnerability and projected impact:
  - The region is highly vulnerable; temperatures rising faster than elsewhere, increased droughts and flooding.
  - IMF estimate: climate change could cause a loss of annual output of nearly 6.5 percent in the region by 2060.
- Mitigation and adaptation policy options:
  - Scale back energy subsidies and introduce carbon-price mechanisms.
  - Examples: Kyrgyz Republic raised electricity tariffs by 30 percent; Tajikistan raised electricity tariffs by 17 percent—steps toward gradual elimination of energy subsidies.
  - Scale up climate-resilient infrastructure: Armenia funded drip irrigation to help farmers adapt and save water.
- Transition challenges for oil exporters:
  - Oil exporters such as Kazakhstan will face tradeoffs and must diversify to reduce dependence on fossil fuels and strengthen the business climate for non-oil investment.
- Labor-market opportunities:
  - IMF research: green-intensive jobs pay 7 percent more on average than pollution-intensive work.
- Cross-border coordination: “No country can do it alone!” — global policies to cut emissions plus domestic adaptation/transition steps are needed to reduce projected losses.

### Policy recommendations (concise)
- Invest in people: expand education, digitalize service delivery, consolidate household data systems, and design social programs that are targeted and countercyclical.
- Raise revenues where feasible: pursue tax policy and administration reforms (example: Kyrgyz Republic’s tax digitization).
- Improve governance and rule of law to attract private investment; replicate successful service delivery models (example: Georgia’s Public Service Halls).
- Reform SOEs through privatization, restructuring, and corporate-governance reforms to boost efficiency and resilience.
- Prepare for low-carbon transition: remove energy subsidies, introduce carbon pricing, scale up climate-resilient infrastructure, and diversify economies away from fossil-fuel dependence.
- Leverage IMF support: financial instruments, SDR allocation, and capacity development to assist implementation.

### Closing message
- The region stands at a crossroads; continued market-oriented reforms are presented as the surest path to insulate economies against future shocks and to realize private-sector led growth.
- Inspirational closing: quote by Abai — “Through summer heat and winter cold, you stood firm, your spirit bold.”
- IMF commitment: “We at the IMF will continue to support your efforts, working in partnership for the benefit of all people in this region and beyond.”

*Source: Managing Director's Speech on the “Golden Promise” of Economic Reform in Caucasus and Central Asia, Kristalina Georgieva, Nazarbayev University, Astana, June 8, 2023.*

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## References

- [https://www.imf.org/en/about/senior-officials/bios/kristalina-georgieva](https://www.imf.org/en/about/senior-officials/bios/kristalina-georgieva)
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_Source: https://www.imf.org/en/news/articles/2023/06/07/sp060823-md-astana_