DUSHANBE, October 25, 2013, Asia-Plus — Economic growth in the Caucasus and Central Asia (CCA) is expected to remain robust, but lower growth in key trading partners such as Russia and China could pose a threat to this outlook, the International Monetary Fund (IM) said in its latest regional assessment.
The IMF’s
Regional Economic Outlook for the Caucasus and Central Asia
, released October 25, projects that growth in the region will average about 6 percent in 2013-14.
This strong growth reflects the expansion of production in hydrocarbons and other extractive industries as well as firm growth in domestic demand, supported by stable remittance inflows, the report says.
Growth for the region’s oil- and gas-exporting countries—Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan—is projected to pick up slightly, to about 6 percent in 2013 and 6.2 percent in 2014. This growth is driven mainly by the recovery in oil and gas production in Kazakhstan and elsewhere.
For the oil- and gas-importing countries—Armenia, Georgia, Kyrgyzstan, and Tajikistan—growth is set to slow to about 5 percent in 2013 before rising to about 5½ percent in 2014, if private investment and external demand pick up as expected.
The report cautioned that lower-than-anticipated growth rates in emerging markets, including, among others, China and Russia, would reduce commodity prices further and cause economic activity in the region’s oil- and gas-exporting countries to weaken.
A slowdown in emerging markets could also affect the region’s oil-importing countries by dampening exports and bilateral official project lending. Russia’s slowdown, in particular, is an important source of risk for the oil importers, in light of its close linkages with the region. Remittances from migrants working in Russia have so far remained strong, but a marked slowdown in that country could reverse this situation.
The report notes that most countries in the CCA region need to consolidate their budgets to build up their fiscal cushions and ensure that fiscal positions are sustainable. These steps are particularly necessary in light of the risk of lower oil prices and, in some countries, higher expenditures and challenges in implementing tax reforms. The region’s countries should take advantage of their continued strong expansion to strengthen their fiscal cushion, the IMF report says.
For most of the region’s countries, inflation is expected to stay within central banks’ comfort zones—except in Uzbekistan, where it will remain double digits, and in Georgia, which has been experiencing deflation since early 2012.
Countries of the CCA region have recorded significant economic achievements during the two decades since their independence following the breakup of the Soviet Union, the IMF report noted. In fact, the CCA remains among the fastest growing regions in the world, although growth has slowed from the rates experienced in the decade leading up to the global financial crisis (see chart). Still, there is scope for improvement, the IMF said.
To help achieve its emerging market vision of high, sustainable, and inclusive growth, the IMF recommends that region’s policymakers: enhance structural reforms and regional cooperation; strengthen fiscal frameworks; improve the effectiveness of monetary policy; and foster financial sector development.
