IMF predicts 1.2% growth in Central Asia and Caucasus

By bne IntelliNews April 27, 2016

Growth in the Caucasus and Central Asia (CCA) region is expected to fall to a two-decade low of 1.2% in 2016 on the back of external shocks such as the large and sustained decline in commodity prices, wide-ranging spillovers from Russia’s recession, and the slowdown and rebalancing of China’s economy, the IMF said in its latest regional economic outlook update published on April 25. “With the shocks expected to persist, the medium-term outlook has also weakened significantly, with average growth for 2017-21 projected at 3.7%, well below the growth of 8.3% in 2000-14,” the outlook said.

The region’s oil-exporting countries – Azerbaijan and Kazakhstan and, to a lesser extent, Turkmenistan and Uzbekistan – have been hit by the low oil and other commodity prices and lower demand for their exports from Russia and China. The oil-importing countries – Armenia, Georgia, Kyrgyzstan and Tajikistan – heavily depend on Russia for investment, remittances and trade.

The IMF noted that the average oil price was projected to stand at about $35 per barrel in 2016, more than 30% below the price in 2015. “Russia’s economy is expected to contract further this year, by about 1.75%, reducing trade, remittances, and investment to the region. And China’s slowdown is expected to weaken external demand and commodity prices further.”

In oil exporters, growth will fall to 1.1% this year, from 3.2% in 2015, “because of declining oil production and public investment, softening private demand – in part, reflecting weakening confidence – and increased exchange rate and monetary policy uncertainty”. In oil importers, growth is expected at 2.6%, down from 3% in 2015. “The positive impact of lower oil prices on economic activity has been limited because domestic fuel prices have declined only modestly (some 20% since 2014), owing to low competition and currency depreciation.”

“Although currency weakening and fiscal easing have helped to mitigate the impact of these [external] shocks, inflation and financial sector vulnerabilities have increased, in some cases exacerbated by policy uncertainty,” the update says. “Strengthening macroeconomic policy frameworks and financial sector supervision is essential to maintain stability in these challenging circumstances. Fiscal policy should strike a balance, depending on the size of buffers and available financing, between supporting economic activity in the near term and ensuring debt sustainability over the medium term,” it suggests.

“Intensifying structural reforms would facilitate the adjustment by boosting medium-term economic prospects, improving competitiveness, and creating jobs,” the IMF predicts.

Related Articles

Azerbaijan's Aliyev, Russia's Putin hold surprise meeting in Sochi

Azerbaijani President Ilham Aliyev and Russian President Vladimir Putin held an unannounced meeting in Sochi on July 21, according to RIA Novosti press agency. The two heads of state reportedly ... more

Nagorno-Karabakh parliament votes in incumbent for third presidential term

The parliament of the disputed enclave of Nagorno-Karabakh voted in President Bako Sahakyan for a third term in power on July 19, with 28 voting in favour and four against.  The result was ... more

Evolution Equity Partners closes $125mn cybersecurity-focused fund

Evolution Equity Partners announced on 17 July the final closing of a new fund with total capital commitments of $125mn to make investments in cybersecurity and next generation enterprise software ... more