Source: IMF Survey: Crisis Brings Reversal of Fortune to Caucasus and Central Asia
Recent reports by the International Monetary Fund indicate that growth in the CCA region, comprising Armenia, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan, will slow from 6 percent in 2008 to 2 percent in 2009 as a result of the global financial crisis.
Prior to the crisis, this region had been an example of growth for developing countries as it prospered from oil and other commodity exports and an influx of foreign capital investment. But the region remained heavily dependent on Russia as a trading partner and is still sensitive to downturns in the Russian economy.
The current financial and economic crisis has caused a severe slump in Russia, thereby shrinking trade and remittances in the CCA region. Additionally, the global drop in demand for commodities and the sharp drop in commodities prices means less revenues for the heavy exporters.
The IMF expects the majority of these countries to move from fiscal surpluses in 2008 to deficits in 2009 as a result of the worsening global conditions. Further, regional currencies have faced downward pressure as a result of the large drop in the ruble. Finally, the financial sectors of many of these nations are facing a credit crunch and many regional banks are faced with large external liabilities.
In the face of these issues, the IMF and the National Bank of the Kyrgyz Republic organized a CCA region conference last week to discuss how to move forward and reduce the impact of the global downturn on the CCA. The conference participants, policy-makers from the region, agreed on three major actions to help deal with the downturn: fiscal stimulus, financial sector changes, and possible further exchange rate adjustment. Not all of the CCA countries are in a position to provide fiscal stimulus, but the conference participants agreed that donors should step up their support to avoid a total reversal of gains made against poverty in the past decade. The nations all agreed to strengthen financial sector regulation and supervision, though some countries’ sectors were more affected than others. Finally, the participants agreed to continue to evaluate the desirability of exchange rate fluctuations in the face of external pressures.
Discussion:
Can the CCA region recover independently of Russia or are they inextricably linked to Russian fortunes? Will international donors be able to provide the support needed in some of the CCA countries given the global demand for aid and the reduction in availability? If not, are we in danger of losing a decade of progress in the region?
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