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IMF / CENTRAL ASIA ECONOMIC OUTLOOK
STORY: IMF / CENTRAL ASIA ECONOMIC OUTLOOK
TRT: 2:24
SOURCE: IMF
RESTRICTIONS: NONE
LANGUAGES: ENGLISH / NATS
DATELINE: OCTOBER 2011, WASHINGTON DC / RECENT
RECENT – WASHINGTON DC
1. Wide shot, exterior IMF headquarters
OCTOBER 2011, WASHINGTON DC
2. SOUNDBITE (English) David Owen, Deputy Director, Middle East and Central Asia Department, International Monetary Fund:
“The economic outlook for the Caucasus and Central Asia is broadly positive. The oil and gas producing countries in the region – Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan are benefiting from high oil prices. The oil and gas importing countries in the region – Armenia, Georgia, Tajikistan and Kyrgyzstan are benefiting from strong export growth and recovery in remittances from their workers in Russia. Overall for the region, we are forecasting growth in the range about 5.5 percent and 6.5 percent in both 2011 and 2012. Of course, there are significant risks in the global economy, and if they are materialized, the region will be certainly adversely affected. But we think on balance it’ll still hold up reasonably well, as it did in 2008, in part because of the large financial reserves that some of the countries in the region have accumulated.”
RECENT – WASHINGTON DC
3. Wide shot, exterior IMF headquarters
OCTOBER 2011, WASHINGTON DC
4. SOUNDBITE (English) David Owen, Deputy Director, Middle East and Central Asia Department, International Monetary Fund:
“I think the key medium term policy priority is to sustain the strong growth that’s currently underway, and to insure the benefit of the growth is felt by the entire population. In particular, that is accomplished by creating more jobs. Now, to create the right macroeconomic environment for sustained growth, I think it’s important for policymakers now to focus more on bringing inflation down. Inflation has risen quite sharply in the last couple of years driven mainly by high food and fuel prices, but also we are beginning to see that’s transmitting into broader measures of inflation. So, provided the strong recovery in the region continues, it’s time for policymakers to think about tightening the macroeconomic policy stance. They need to bring down budget deficits, and they need to tighten monetary policy.”
RECENT – WASHINGTON DC
5. Wide shot, exterior IMF headquarters
OCTOBER 2011, WASHINGTON DC
6. SOUNDBITE (English) David Owen, Deputy Director, Middle East and Central Asia Department, International Monetary Fund:
“I think the lack of jobs and lack of job creation are certainly a problem in the region. Unemployment data for many of the countries don’t often suggest a serious problem, but that I think is a problem with statistics. In many cases, there are under employment, for example particularly in rural areas which is not being picked up. In the south Caucasus countries, there are unofficial estimates that put unemployment as high as 10 percent or even up to 30 percent in some countries. And the rates for the young people are even higher. I think the key reforms that are needed to address this in creating more jobs relate to improving business environment, particularly in the non-natural resource sector of the economy where there’s more scope for creating jobs; also reform to the education system, training are important to insure young people come out of schools and colleges with right skills that are needed for the jobs that are being created.”
RECENT – WASHINGTON DC
7. Wide shot, exterior IMF headquarters
In its latest assessment, the International Monetary Fund’s (IMF) says that growth in the Caucasus and Central Asia is expected to remain fairly robust, but policymakers should be mindful of inflation risks and take advantage of the strong recovery to prepare for any downside risks that might materialize.
According to the Regional Economic Outlook for the Middle East and Central Asia, released October 26 in Dubai, the CCA is set to grow 5.6 percent in 2011 and 6.2 percent in 2012 (see table). For the region’s oil- and gas-exporting countries, the expansion is driven by high oil and gas prices, while the oil- and gas-importing countries are benefiting from the continued recovery in Russia, a key trading partner.
However, external risks to the outlook in the CCA region have increased and derive from a heightened perception of fragility in the global recovery, the report noted.
“For the CCA, a sharp decline in global growth could mean a fall in commodity prices, a decline in export demand, and a decrease in remittances and capital flows to the region,” David Owen, Deputy Director of the IMF’s Middle East and Central Asia Department told a press conference in Almaty, Kazakhstan.
“If these external risks do not materialize, however, we foresee good prospects for the region, with fairly solid growth,” he added.
Oil and gas importers need to address external vulnerabilities
The growth outlook for region’s oil- and gas-importing countries, Armenia, Georgia, the Kyrgyz Republic and Tajikistan,,is favorable. Activity has picked up strongly in 2011, reflecting a recovery from last year’s fall in agricultural production in Armenia and a rebound from the Kyrgyz Republic’s contraction resulting from civil unrest. Continued global recovery, including in Russia, is also benefiting the region by boosting both trade and remittances. The IMF forecasts growth at an average of 5.3 percent in 2012 for the oil and gas importers.
Driven largely by high food prices, inflation has been rising since mid-2010 (see chart). In response to surging inflation, governments throughout the region tightened monetary policy, but additional tightening is still needed in some countries, such as the Kyrgyz Republic and Tajikistan, the IMF assessment says.
With the recovery gaining speed, CCA oil and gas importers should aim for fiscal consolidation to rebuild fiscal buffers that were depleted during the global financial crisis, to help safeguard their economies against future shocks. Such fiscal adjustment, which has already begun in Armenia and Georgia, would also help rein in large external current account deficits, the IMF report states.
Maintaining exchange rate flexibility and accelerating the pace of structural reforms to boost competitiveness will also help reduce external vulnerabilities.
The oil and gas exporters, Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan, are growing fast. This growth, coupled with an accommodative policy stance, poses a risk of overheating. Although international food and fuel prices are moderating, core inflation is projected to rise in 2012 in all of the CCA oil and gas exporters.
Given this risk, monetary policy should exit from its accommodative stance, the report recommends. However, monetary policy has only limited traction in most of the region’s countries, so policymakers should aim to enhance its effectiveness by fostering financial deepening, enhancing central bank independence, improving the capacity of monetary policy tools, promoting more competition in banking systems, and avoiding unnecessary government intervention.
For 2011, all of the region’s oil and gas exporters are maintaining an expansionary fiscal stance. To limit inflationary pressures and ensure stability, however, governments need to exercise caution over spending increases, cut non-priority spending, and avoid further increases in hard-to-reverse items, such as wages and pensions, the report observes. Over the medium term, measures to enhance the transparency, quality, and efficiency of public spending, as well as to raise non-hydrocarbon revenues, would also contribute to fiscal consolidation.
“If, however, global growth deteriorates sharply, then tightening of macroeconomic policy might have to be put on hold,” the report cautions.
The reliability of unemployment estimates in the CCA is uncertain, but available data suggest that unemployment is high.
In Azerbaijan, the unemployment rate is near 10 percent, and in Armenia, it stood at 19 percent in 2009. Georgia’s unemployment rate in 2009 was about 17 percent, according to official estimates, but alternative estimates put unemployment in the range of 20–30 percent. In all countries, youth unemployment is even higher.
Creating jobs and fostering high and inclusive growth is therefore a priority for governments in the region, the report says. The key components of the medium-term reform agenda to address this challenge include policies that aim to improve the business environment; ensure equal access to public services; enhance transparency, governance and institutional quality; boost regional trade integration; and address skill mismatches between job-seekers and available jobs.
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