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IMF: Caucasus, Central Asia Feel Crisis Impact, Set for Modest Uptur

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  • IMF: Caucasus, Central Asia Feel Crisis Impact, Set for Modest Uptur

    International Monetary Fund

    IMF Survey Magazine: Countries & Regions

    REGIONAL ECONOMIC OUTLOOK

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

    IMF Survey online

    October 3, 2009

    The global crisis has severely impacted the Caucasus and Central Asia
    (CCA), with growth for the region projected to drop from 6.6 percent
    in 2008 to 1.5 percent in 2009, IMF Middle East and Central Asia
    Department Director Masood Ahmed said.

    Ahmed told a press conference in Istanbul that CCA policymakers have
    responded to the downturn by easing fiscal and monetary policies and
    strengthening social safety nets. The international community has also
    provided assistance to the region. For some countries, however,
    additional donor support will be needed to contain the adverse impact
    of the crisis, he said.

    `The region as a whole should see a modest recovery in 2010, although
    the energy importing low-income countries in the region still face a
    difficult year ahead,' said Ahmed, speaking ahead of the IMF-World
    Bank Annual Meetings.

    Solid growth for energy exporters

    CCA countries differ substantially in terms of per capita GDP, which
    ranges from US$795 in Tajikistan to US$8,500 in Kazakhstan. Half of
    the region's countries are exporters of gas and oil (Azerbaijan,
    Kazakhstan, Turkmenistan, and Uzbekistan), while the others are
    importers (Armenia, Georgia, the Kyrgyz Republic, and
    Tajikistan). This key difference largely accounts for the disparity in
    the outlook across countries.

    Most CCA energy exporters have weathered the global downturn
    reasonably well and are 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. One exception
    is Kazakhstan
    ell as being hit by lower oil prices, and is likely to see GDP
    contract by about 2 percent in 2009, with recovery in 2010 held back
    by lingering problems in the banking system.

    In contrast, Azerbaijan, Turkmenistan, and Uzbekistan are 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 face worsening living standards

    The region's four energy importers, on the other hand, are facing a
    marked slowdown in growth and deteriorating living standards mainly as
    a result of a sharp drop in remittances (Charts 1 and 2) from Russia,
    which is also in recession and has had to shed jobs previously filled
    by CCA workers.

    These countries are being hit to varying degrees. Armenia, which
    experienced a strong construction boom and exceptionally fast growth
    in recent years, is likely to suffer a contraction of more than 15
    percent in 2009. Georgia has also been seriously hit by the slowdown
    in foreign direct investment that had fueled its growth in recent
    years. In contrast, the Kyrgyz Republic and Tajikistan are faring
    better, helped by bumper harvests.

    Donors, including neighboring Russia and China and the World Bank,
    have stepped in to help CCA's energy importers weather the crisis. The
    IMF is providing assistance through the concessional Poverty Reduction
    and Growth Facility (in the case of Tajikistan) and under the IMF's
    Exogenous Shocks Facility (the Kyrgyz Republic). Armenia and Georgia
    both have IMF Stand-By Arrangements.

    `Official support is critical in helping the countries implement
    counter cyclical fiscal policies to tide them over the crisis,' Ahmed
    stressed, noting that this support should help bring about a gradual
    recovery for CCA's energy importers in 2010.

    Policy response

    Governments and central banks in the region have responded to the
    impact of the g
    ssible, CCA countries should continue to pursue fiscal policies that
    support growth and keep social protection a priority, the IMF
    says. The energy importers will need additional donor support on
    concessional terms to prevent a buildup of unsustainable debt levels,
    while the energy exporters should use part of their anticipated uptake
    in revenue from rising energy prices to push ahead their structural
    reforms agenda.

    Because financial sectors across the region are under stress, notably
    in Kazakhstan, restoring financial health remains a priority. The
    region's vulnerabilities in this sector call for close monitoring of
    CCA financial systems as well as enhanced supervision and crisis
    preparedness.

    The IMF also recommends that countries in the region continue to
    preserve exchange rate flexibility or move towards flexible exchange
    rate regimes over time to maintain competitiveness and discourage
    speculative capital flows.

    The IMF will release a detailed forecast, Regional Economic Outlook:
    Middle East and Central Asia, on October 11.

    Comments on this article should be sent to [email protected]
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