IMF sees 4.5% growth in Caucasus and Central Asia

Economies in the Caucasus and Central Asia (CCA) will expand overall by 4.5% in both 2019 and in 2020 despite global trade tensions and slowing growth in key trading partners, the International Monetary Fund (IMF) said on Friday.

The IMF called on the former Soviet republics to improve competitiveness, use their natural advantages more effectively and diversify their economies to reap the gains from trade and integration into global value chains. The Fund’s report covers the Caucasus nations of Armenia, Azerbaijan and Georgia, and the Central Asian states of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan.

“Despite weaker trade, overall growth for the CCA region is expected to remain about 4.5% in 2019-20, largely owing to a looser fiscal stance and private sector credit growth,” it said.

“However, growth will not be sufficient to lift per capita incomes to emerging Europe levels or reduce unemployment given 4 million new entrants over the next 10 years,” the Fund said.

Among external risks facing the CCA nations, the Fund cited intensified trade tensions, slower global growth, lower commodity prices, and rising geopolitical risks, while domestic risks included slowing reform momentum.

The IMF said macroeconomic policies should focus on addressing weak banking sectors, strengthening fiscal institutions, investing in infrastructure and human capital, and upgrading monetary policy frameworks to sustain stable and low inflation and support greater exchange rate flexibility. Given the stable growth outlook and lower global energy prices, inflation expectations are generally well-anchored, though inflation remains in double digits in Turkmenistan and Uzbekistan, at 13.4 and 14.7% respectively, mainly owing to high credit growth and increases in utility tariffs, it said. Growth in exports of goods and services by the region’s energy exporting nations is projected to drop to about 1.7% in 2019-20 from 23% in 2017-18, while the drop in the growth of exports by those countries that import their oil and gas is projected to be noticeable but less dramatic.

The growth of imports for the energy exporting nations is projected to decelerate to 5.6% in 2019-20 from 10% in 2017-18 due to restrained domestic demand in some countries.

Reuters