Eurasian currencies continue to face devaluation pressure

By bne IntelliNews October 7, 2015

Naubet Bisenov in Lima -


Despite significant devaluations already in 2015, Central Asian and Caucasus currencies are continuing to face depreciation pressures because of sluggish economic growth and worsening foreign trade, the IMF predicts in its autumn World Economic Outlook, presented during the IMF/WB Annual Meetings in Lima, Peru, on October 6.

The IMF said in the outlook that weakening commodity prices had triggered “sizeable” currency depreciations since last spring, especially in August. Central Asian and Caucasus currencies have fallen by 40-50% in value this year, most notably the Azerbaijani manat by nearly 35% and the Kazakh tenge by over 45%.

“Countries with weakening growth prospects and worsening terms of trade are facing [further] currency depreciation pressures,” the outlook suggests. At the same time, “exchange-rate depreciation has generally been a useful buffer for countries experiencing growth slowdowns – and has already been substantial – but could cause adverse balance-sheet effects where there is foreign-currency borrowing,” Maurice Obstfeld, IMF chief economist, warned as he presented the report at a news conference in Lima.

Kazakhstan issued 10-year Eurobonds worth $1.5bn and 30-year bonds worth $1bn last October, while Azerbaijan sold its first international bond sale of $1.25bn in in March 2014.

The outlook predicts net energy exporters in Central Asia and Caucasus – Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan – will post a combined current account deficit of 2.7% of GDP in 2015 and 3.2% in 2016 against a combined surplus of 3.3%. While Azerbaijan and Uzbekistan are expected to maintain their balance sheets in the black, Kazakhstan’s current account is expected to post deficits of 3% of GDP in 2015 and 4.1% in 2016 against a surplus of 2.1% in 2014.

According to the outlook, economic growth in the Caucasus and Central Asia will be held back by lower commodity prices and spillovers from Russia (through trade, foreign direct investment, and especially remittances), which will interact with existing structural vulnerabilities.

The IMF predicts Kazakhstan’s real GDP growth will slow down very sharply to 1.5% this year (from 4.3% in 2014) before recovering somewhat to 2.4% in 2016. The rest of Central Asia will also experience much slower growth this year, before accelerating in 2016. Uzbekistan is predicted to grow by 6.8% this year and 7.0% in 2016; Turkmenistan by 8.5% and 8.9%; Tajikistan by 3.0% and 3.4%; and Kyrgyzstan by 2.0% and 3.6%.

In Central Asia, Azerbaijan is the only country that is forecast to grow faster this year compared to last, as well as to slow down in 2016. The IMF predicts it will grow by 4.0% in 2015 (after 2.8% in 2014) and then by 2.5% in 2016. For Armenia it predicts 2.5% and 2.2%, and for Georgia a big drop to 2.0% in 2015 and a slight recovery to 3.0% in 2016.

Related Articles

COMMMENT: Great challenges for Eurasia call for decisive solutions

Juha Kähkönen of the IMF - The Caucasus and Central Asia (CCA) region continues to navigate a wave of external shocks – the slump in global prices of oil and other key commodities, the slowdown ... more

IMF calls for Central Asia to tighten monetary policy

Naubet Bisenov in Almaty -   Caucasus and Central Asian (CCA) countries need to tighten their monetary policy to anchor inflation expectations, but excess tightening may weaken financial ... more

COMMENT: Once I lived the life of a millionaire…

Peter Szopo of Erste Asset Management -   No, the title of this column is not the first line of the autobiography of an erstwhile emerging markets investor – although it could be. Somebody who ... more