DUSHANBE, May 19, 2015, Asia-Plus — Growth in the Caucasus and Central Asia (CCA) is expected to decline by 2 percent this year as a result of lower commodity prices and the economic slowdown in Russia, says the latest regional forecast by IMF staff.
The
Regional Economic Outlook Update for the Caucasus and Central Asia
, released on May 19, predicts growth in the region will reach just over 3 percent this year. This latest forecast represents a downward revision of 2½ percentage points from the one released by the IMF in October 2014.
The CCA’s oil and gas exporters—Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan—should see growth decline to 3 ½ percent in 2015 from 5½ percent last year.
The oil and gas exporters’ external position is set to weaken sharply in 2015. The current account balance is expected to turn from a surplus of 3 percent of GCP in 2014 to a deficit of 2 ½ percent in 2015, reflecting both oil export revenue losses and stronger import growth.
The drop in oil prices is also having a budgetary impact. Some of the region’s oil and gas exporters—such as Kazakhstan and Uzbekistan—are dipping into the large reserves built up in recent years to blunt the impact of the oil price shock. As a result, the oil and gas exporters’ fiscal balance is shifting from a surplus of about 1½ percent in 2014 to a deficit of close to three percent in 2015, according to the report.
In the CCA’s oil importers—Armenia, Georgia, Kyrgyzstan, and Tajikistan—growth will slow to 1½ percent this year, the report says. These countries are heavily dependent on remittances from Russia, which have fallen sharply. The drop in remittances has erased any gains from lower oil prices, and the current account deficit for these countries is expected to reach 11 percent this year, the IMF says.
These countries are also experiencing a reduction in export revenues as a result of lower commodity prices in general, as many of them export minerals such as gold, copper, and aluminum.
The oil importers will see a rise in their fiscal deficits, from just over 2 percent in 2014 to about 4½ percent in 2015.
Across the region, the current economic environment in the CCA is proving difficult for banks, as financial systems are facing pressures from multiple sources. Currency depreciations are increasing credit and solvency risks—especially in the context of dollarized banking systems and foreign currency lending. And the region’s slowing economic growth is heightening credit risks, particularly in countries where bank governance and underwriting standards are weak.
The report also suggests that greater exchange rate flexibility would be needed to help the region’s economies absorb shocks, retain competitiveness in the face of exchange rate pressures, and prevent a drain on reserves.
As for the region’s medium-term prospects, bold structural reforms will be vital. Policymakers should intensify efforts to enhance the business environment, improve governance, and diversify economies away from their reliance on commodity exports and remittances, the IMF says.
In Tajikistan, growth in real gross domestic product (GDP) will decline to 3 percent this year. In 2016, growth in real GDP of Tajikistan will be 4 percent, the report says.
The latest forecast by the IMF staff says Tajikistan’s year-end inflation will stand at 12.8 percent in 2015. In 2016, Tajikistan’s year-end inflation is projected to stand at 6.3 percent.
