DUSHANBE, October 15, 2009, Asia-Plus — As elsewhere in the world, the global financial and economic crisis has taken a toll on the Central Asian region and the Middle East, the Regional Economic Outlook released by the International Monetary Fund (IMF) said.
Given the region’s diversity, the Regional Economic Outlook divides the countries of the Middle East and Central Asia into three subregions: (1) oil exporters of the Middle East, North Africa, Afghanistan, and Pakistan (MENAP); (2) MENAP oil importers; and (3) Caucasus and Central Asia (CCA).
The report notes that the global crisis has severely impacted the CCA, with growth for the region projected to drop from 6.6 percent in 2008 to 1.5 percent in 2009. But this average masks important differences across countries. Most CCA energy exporters are projected to record solid growth in 2009, given limited linkages to international markets, long-term energy export contracts, and supportive policies.
The energy importers, however, are facing a marked slowdown in growth and deteriorating living standards as a result of a sharp drop in remittances from Russia. A modest recovery for the CCA as a whole is expected in 2010.
Three of the four energy exporters—Azerbaijan, Turkmenistan, and Uzbekistan—are projected to register robust growth in 2009, supported mainly by public spending made possible by ample public savings accumulated during previous boom years. Kazakhstan, however, is in the midst of a banking crisis and is likely to see negative growth of about 2 percent in 2009. With global energy demand increasing again, the energy exporters should continue to see solid growth rates in 2010.
CCA energy importers are being hit to varying degrees. Armenia, which is more integrated into global markets, is likely to suffer a contraction of more than 15 percent in 2009, while Georgia, the Kyrgyz Republic, and Tajikistan are faring better. The recovery in 2010 is projected to be slow and gradual.
Policymakers have responded to the downturn by easing fiscal and monetary policies and strengthening social safety nets. In the energy importers, where governments have little space to implement such measures, donors, including the neighboring states of Russia and China, and the IMF have provided support.
In 2010, where possible, fiscal policy should continue to be supportive of growth and prioritize social protection. Additional donor support on concessional terms will be needed for the energy importers to prevent a buildup of unsustainable debt levels. The energy exporters should use part of their anticipated increase in revenue from rising energy prices to push ahead with structural reforms.
Financial sectors across the region are under stress, most notably in Kazakhstan, where restoring financial health remains a priority. Countries should continue to preserve exchange rate flexibility or move toward flexible exchange rate regimes over time to protect or develop export-oriented sectors.
In sum, where feasible, countries should continue to support domestic demand to mitigate the impact of the crisis on their citizens while keeping debt sustainability in view. For the region’s low-income countries, higher donor support will be necessary to maintain needed economic development and prevent poverty rates from rising further. Across the region, governments should further strengthen financial systems and take care not to lose momentum on structural reforms aimed at diversifying their economies, creating employment opportunities, and allowing them to take advantage of the global economic recovery.
