IMFSurvey Magazine: In the News
ECONOMIC CRISIS AND CENTRAL ASIA
IMF Chief Visits Central Asia Amid Sharp Slowdown
IMF Survey Online
June 12, 2009
- Central Asia’s gains put at risk by global crisis
- Region confronting lower foreign exchange inflows, fallout from Russian downturn
- IMF providing loans, support to region
IMF Managing Director Dominique Strauss-Kahn makes his first visit to Central Asia June 14-20 as countries in the region tackle the fallout from lower commodity prices, declining exports, and a slump in overseas remittances.
During his week-long visit to Kazakhstan, Tajikistan, the Kyrgyz Republic, and Uzbekistan, Strauss-Kahn will meet politicians, representatives of civil society, and academics to discuss the impact of the global crisis on these countries and how the IMF can help them respond.
“As the global crisis spread through the region, the hard-earned macroeconomic gains of recent years have been put at risk, with growth coming to a virtual halt and financial vulnerabilities on the rise,” said Masood Ahmed, Director of the IMF’s Middle East and Central Asia Department.
“Under these circumstances, it is even more important for the IMF to step up its engagement and support to the countries in the region, and the Managing Director's trip will allow for a dialogue at the highest level, " he added.
Growth in Central Asia is expected to drop to around only 1 percent this year, from almost double digit rates, on average, during 2005-07. Of the four countries, only Uzbekistan is forecast to escape a drastic slowdown in economic activity because of the country’s limited integration with global financial markets and its considerable financial resources, which have allowed for a vigorous fiscal stimulus program.
The region—with a population of around 60 million—is tightly linked to Russia through trade, financial flows, and remittances and has been severely affected by the slowdown in that country. It has also faced the fallout from the weakness of the Russian ruble, which has depreciated by about 30 percent against the U.S. dollar since mid-2008.
The region’s limited exposure to broader global financial linkages has largely insulated it from the direct impact of the global financial turmoil, with the notable exception of Kazakhstan, which has a large share of private, external financing in the banking sector and is facing difficulties meeting its external debt rollover needs.
The IMF chief’s visit begins in the Kazakh capital of Astana, where he will meet Prime Minister Karim Massimov and senior members of his economic team. Kazakhstan, like other countries in the region, has been hard hit by shrinking trade flows, as growth—not just in Russia, but other key partner countries (the European Union and China)—has slowed and commodity prices have fallen. Kazakhstan, a major oil exporter, is projected to face a drop of the value of its exports from $76.4 billion in 2008 to $42.5 billion this year. The drying up of capital inflows has hit the country hard, credit growth has ground to a halt, property prices have slumped, and the economy is contracting.
Falling commodity prices
The sharp drop in oil prices has affected the region in a variety of ways. The fall has helped the Kyrgyz Republic and Tajikistan—both energy importers—to offset the decline in their export receipts. Meanwhile, neighboring Kazakhstan, which exports oil—has seen a sharp turnaround in its external and fiscal balances and faces a halving of its oil revenue compared to 2008.
Prices for Tajikistan’s exports (cotton and aluminum) have also seen sharp falls, although gold prices (the Kyrgyz Republic’s main commodity export) have held up.
While falling commodity prices have taken pressure off inflation, and food prices have come down from their 2008 highs, low-income households continue to suffer as prices remain above the levels seen earlier this decade.
Over the past decade, several Central Asian countries—notably the Kyrgyz Republic and Tajikistan—have become increasingly reliant on money sent home from citizens working abroad. For example, in 2008, remittances accounted for 47 percent of Tajikistan’s GDP, with most Tajik migrants reportedly working in Russia.
The subject of migrant workers is likely to be on the agenda when Strauss-Kahn meets Tajik President Emomali Rahmon on June 17. With less work available for migrants, authorities in Dushanbe face having to reintegrate the likely stream of returning workers, increasing pressure on social spending.
IMF work in Central Asia
The Fund is currently supporting the Kyrgyz Republic with an Exogenous Shock Facility. Last month, it released a further tranche of disbursements from the 18-month arrangement for about $102 million. Strauss-Kahn is likely to discuss the loan and the regional fallout of the crisis on the country when he meets President Kurmanbek Bakiev and Prime Minister Igor Chudinov during the course of his visit.
Earlier, in April, the IMF’s Executive Board approved a three-year loan of $116 million for Tajikistan under the concessional Poverty Reduction and Growth Facility. The IMF has also backed an increase in social spending on transfers to households, education and health, to alleviate the economic impact of the global crisis on the population.
An IMF Regional Economic Outlook, issued last month, warned that the region should be braced for the impact of a prolonged global slowdown. Current account and fiscal surpluses are set to shrink, but the IMF has said some Central Asian countries could take advantage of their relatively low debt levels by supporting domestic demand through higher public spending.
Several countries in the region accumulated savings over the boom years, which they could draw upon to provide a fiscal stimulus to domestic demand and target government spending to help protect the poor and vulnerable groups, according to the IMF.
The IMF chief winds up his Central Asian visit in the capital of Uzbekistan, Tashkent, where he will meet with President Islam Karimov and First Deputy Prime Minister Rustam Azimov, and will likely discuss the fiscal policies they are implementing to mitigate the impact of the global crisis.
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