IMF slashes Eurasian growth forecasts over Russian downturn and oil price fall

By bne IntelliNews April 15, 2015

bne IntelliNews -


Pressure on the Caucasus and Central Asia stemming from the economic crisis in Russia and weakening commodity prices on international markets will build up throughout 2015, the IMF said in the April edition of its World Economic Outlook (WEO) released on April 14.

“Growth in the Caucasus and Central Asia is expected to drop — from 5.3% in 2014 to 3.2% in 2015, a downward revision of 2.4% relative to the October 2014 WEO,” the report reads. “The decline is projected as a result of spillovers from Russia (through remittances, trade, and foreign direct investment) and lower export prices for oil, metals, and minerals.”

Countries in both regions are among the world’s most dependent on remittances, which largely come from migrants working in Russia. They made up over 45% and 33% of the 2014 GDP in, respectively, Tajikistan and Kyrgzstan. As the Russian economy enters recession – the IMF expects it to contract by 3.8% in 2015 – these migrant workers will see their salaries shrink or lose their jobs, finding themselves unable to maintain the flow of remittances back home.

On the other hand, countries such as Azerbaijan, Kazakhstan and Turkmenistan have based their recent fortunes on the export of hydrocarbons. With oil prices falling to around $55 in London trading from over $100 in the first half of 2014, they are all taking a big hit in terms of incoming inflows of hard currency. Turkmenistan alone is expected to see its hydrocarbons exports fall by 24.7% y/y to $13.954bn in 2015, from $18.535bn in 2014, the IMF estimated earlier this month.

“Faced with adverse spillovers from Russia, countries in the Caucasus and Central Asia should implement counter-cyclical fiscal policy if fiscal space, available financing, and the external position permit,” the WEO said. “These countries should generally allow greater exchange rate flexibility supported by appropriate macroeconomic and structural policies and, if necessary, further depreciation to minimise loss of reserves and the erosion of competitiveness. Increased exchange rate flexibility over time would also help economies adjust to adverse shocks. Tighter monetary policy may be needed to address inflation pressure resulting from currency depreciation.”

A wave of devaluation spread across the region over the past few months as central banks found themselves increasingly unable to maintain the official exchange rate. The National Bank of Kazakhstan made an early move in February 2014, when it devaluated the tenge by 19% against the dollar. Its counterparts in Turkmenistan and Azerbaijan followed suit in the first quarter of 2015. Meanwhile, local currencies floating more freely in the currency market, such as the Georgian Lari or the Kyrgyz som, have sharply depreciated against the dollar since the second half of 2014.


In Kazakhstan, the region’s largest economy and hydrocarbons exporter, “despite a recently announced government stimulus in Kazakhstan, lower oil prices and production delays in the Kashagan oil field, as well as weakness in the global economy, are expected to keep growth at 2% in 2015 (a downward revision of almost 3 percentage points) and 3.1% in 2016,” the report reads.

President Nursultan Nazarbayev launched a public spending programme renamed “Nurly Zhol” (“The Bright Future”) back in November to shore up economic growth. The programme entails extra investments of an annual $3bn in seven key economic sectors over the next three years.

Yet the government had to further adjust to falling oil prices by reviewing downwards the official economic growth expectations for 2015, now standing at 1.5%. Economic growth stood at 2.5% in the first two months of the year, according to the latest figures by the State Statistics Committee.

The decreasing value of the country’s oil exports will also lead to a current account deficit of 4.1% and 3.1% in 2015 and 2016, respectively, from a 1.6% surplus in 2014.


The IMF still sees the Uzbek economy growing at 6.2% in 2015 and 6.5% in 2016, down from 8.1% in 2014. Inflation, a highly sensitive topic in Uzbekistan where prices often run out of control, is expected at 9.5% in 2015 and 9.8% in 2016.

The Uzbek som has depreciated by around 40% against the dollar since last September, at least according to the som’s unofficial “street course”, ringing an alarm bell over the real status of the Uzbek economy.

Remittances from Russia fell by around 10% in 2014, according to local press reports, local exporters are struggling to maintain the previous business levels with Russian clients and revenues for major export commodities such as gas, cotton and mining productions are falling.


The IMF reiterated a previous economic growth estimate of 9% for 2015, down from 10.1% in 2014, and expects inflation to be between 6% and 6.5% at the end of 2015.

“With lower hydrocarbon revenue and the restraint in the growth of investment spending, the overall fiscal surplus would shrink to about 1% of GDP and the external current account would worsen to a deficit of 11% of GDP,” the IMF said in a statement earlier in April.

Turkmenistan’s exports of hydrocarbons will decrease to $13.954bn in 2015, from $18,535mn in 2014, the IMF estimates, as falling oil prices are affecting the monetary value of the country’s natural gas and oil exports.

“Both fiscal and external positions would however gradually recover with the projected increase in natural gas export volumes. Reserves would remain at comfortable levels providing ample cover of imports and short-term debt,” the IMF added.

The IMF estimates the country's international foreign reserves at 22 months of imports at the end of December 2014.


The Kyrgyz economy is expected to decelerate to 1.7% in 2015 and then bounce back to 3.4% in 2016, from 3.6% in 2014, according to the estimates published on the WEO.

The som has lost about 30% against the dollar since the end of 2013. Its depreciation is making imports, upon which the country highly depends, increasingly expensive and adds up to existing inflation pressures. The IMF estimates annual inflation to reach 10.7% in the 2015, from 7.5% a year earlier.

Besides, the weakening som, combined with low exports from the sale of commodities like gold, will further imperil the current account balance, with an estimated deficit at 17% of GDP in 2015, the highest among Eurasian countries, the IMF estimates.


Tajikistan's economy is set to grow at 3% in 2015 and 4.1% in 2016, down from 6.7% in 2014, the IMF forecasts.

As it is the case with Kyrgyzstan, imports are becoming increasingly expensive because of a weakening Tajik somoni, which has lost over 26% against the dollar since the end of 2013. That is creating inflation pressures, with consumer prices expected to grow at 12.8% in 2015, from 6.1% in 2014.


Armenia is projected to enter recession in 2015, with the economy contracting by 1% and set for 0% growth in 2016. The IMF forecasts a recovery in 2020 with 3.5% growth.

The downward turn reflects Russia’s economic decline. Dwindling remittances, down by over 35%, shrinking exports, especially to Russia, and decreasing copper prices have given grounds for an outlook lower than six months ago. Inflation pressure is set to grow by 6.4% in 2015 and slow to 4% in 2016

On April 7, the IMF’s country director, Mark Horton, stated that interest rates on foreign financing are relatively high because of geopolitical risks, and “attracting financial resources became more difficult”. The Central Bank of Armenia forecasts the economy will expand between 0.4% and 2% in 2015. 

Since 1997 Armenia’s real GDP has known alternate fortune, hitting a double-digit growth in 2007 – 13.7% - and contracting by 14% in 2009. Since then Armenia has slowly recovered and last year the economy grew by 3.4%, short of the 5.2% government’s projection.


In 2015 the economy of oil-and-gas rich Azerbaijan will feel the heat of falling oil prices as the IMF forecasts a 0.6% growth rate and 2.5% in 2016.  Economic growth has slowed dramatically with oil production beginning to plateau since the oil-fuelled boom of 2003-2007, when the economy expanded by an average 21%.

With oil and gas accounting for 95% of the country’s exports and 75% of government revenues, the 60% drop in oil prices since June 2014 has squeezed the economy. In March Fitch Ratings stated that the government would revise the 2015 budget designed at an average oil price of $90 per barrel. According to the IMF, inflation pressure is due to increase with consumer prices set to grow by 7.9% in 2015, up from 1.4% in 2014, and by 6.2% in 2016.

On February 23 the central bank devalued the national currency, the manat, by 33.5% to the dollar and by 30% to the euro. The move came a few days after the regulator abandoned the manat’s dollar peg and switched to dollar-euro basket to manage the exchange rate.


Georgia’s growth will slow to 2% in 2015, amid “severe external shocks”, but even this projection is subject to risks on the downside, stated the IMF following a mission to Tblisi in March. The economy will recover in 2016 and the IMF forecasts a 3% growth. In 2014 Georgia’s economy grew 4.7%, short of government’s 5% forecast. Consumer prices would slow to 3%, from 3.1% in 2014, but will pick up in 2016 as the IMF predicts 5% inflation.

The downward revision from 5% resulted from the national currency’s sharp devaluation against the greenback – about 29% between early November and early March –  while macroeconomic data signalled Georgia is increasingly suffering from the spill-over effects of the Russia’s economy stormy waters.

Remittance flows, over half of which from Russia, were down by 21.7% y/y in February, confirming the downward trend of 2014. Foreign trade took its tool as well, marking a 10% decrease y/y – exports dropped by 28% y/y, and specifically exports to CIS countries dived by 53% y/y.

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