The economic upturn in the Caucasus and Central Asia is gathering momentum, with growth for the region projected to increase to 5¾ percent in 2010, up from 3½ percent in 2009, the International Monetary Fund (IMF) said in its Regional Economic Outlook for Caucasus and Central Asia (CCA).
Among the oil and gas importers, Armenia and Georgia are forecast to grow at 4 percent and 5½ percent, respectively, in 2010, compared with negative growth in 2009. In Tajikistan, growth is estimated at 5½ percent for 2010—about 2 percentage points higher than in 2009. Buoyed by Russia’s recovery, all three countries are projected to grow at 4–5 percent in 2011.
With regard to the policy response, the report recommends that countries across the region use the current recovery to start winding down policies that were implemented in response to the crisis. When unwinding, the authorities should first exit from fiscal stimulus, in light of fiscal sustainability considerations, the report adds. This is particularly true for oil and gas importers, which are facing rising public debt as a result of their policy response to the crisis and declining donor support.
Turning to monetary policy, the IMF says that it can remain accommodative for now, not least because banking sectors in many countries remain impaired – particularly in Kazakhstan, where there are high levels of nonperforming loans. At the same time, the report warns that authorities need to pay close attention to inflation developments and act quickly, if necessary, to prevent an increase in inflation expectations.
In CCA oil and gas importers, current account deficits remain high, especially in Georgia and Armenia. Foreign direct investment inflows in most countries have not yet returned to pre-crisis levels, and external debt is high and rising. Going forward, policymakers should therefore focus on reining in current account deficits to help preserve external sustainability.
