PanARMENIAN.Net

IMF expects sharp reduction in Caucasus and Central Asia countries’
growth rate 09.03.2009 22:06 GMT+04:00

/PanARMENIAN.Net/ At a conference held in Bishkek yesterday, organized
by the National Bank of the Kyrgyz Republic and the IMF, senior
officials from Armenia, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz
Republic, Tajikistan, and Turkmenistan, and from international
financial institutions discussed the impact and policy implications of
the global economic crisis.

Prime Minister Igor Chudinov of the Kyrgyz Republic noted in his
opening remarks that the subject of the conference is important and
timely. After the external price shocks, the Kyrgyz Republic, like
other countries in the region, was confronted with the impact of the
global financial crisis. Last year, it managed to maintain sustainable
macroeconomic performance, but the outlook is getting more difficult,
he said.

IMF Middle East and Central Asia Director Masood Ahmed also stressed
that the international financial crisis and global economic slowdown
would impact economic prospects for the countries of the Caucasus and
Central Asia. The IMF expects a sharp reduction in the region’s growth
rate from 6 percent in 2008 to less than 2 percent in 2009, he added.

Conference participants agreed that the countries in the Caucasus and
Central Asia region are increasingly being swept up by the spreading
global crisis, with countries that are very reliant on Russia or have
large external financing needs being hit hardest. Russia remains a key
trading partner and a major source of remittances for most of the
region, and the slowdown there is hurting growth via trade and
remittance channels, spilling over to domestic demand. Returning
migrant workers may create an additional burden. Commodity exporters
in the region are suffering from the decline in global demand and the
sharp drop in commodity prices, while those countries more closely
integrated with international financial markets are experiencing
serious financing constraints.

The external dimension of the crisis is clearly reflected in the
region’s balance of payments. The average current account balance of
the region will shift from a large surplus in 2008 to a small deficit
in 2009. Government finances are similarly affected. With lower growth
and commodity prices, the region’s average fiscal position is moving
from a surplus to a deficit.

Pressures on financial sectors in the region have intensified,
National Bank of the Kyrgyz Republic Governor Marat Alapaev noted,
especially in those countries where banks face large external rollover
needs, but also in other countries not directly exposed to the global
financial difficulties. With the deterioration in economic and
financial conditions, credit growth has come to a halt in many
countries, and loan losses have started to rise. The large
depreciation of the Russian ruble has put pressure on regional
currencies, and participants noted that countries are faced with the
challenge of maintaining competitiveness while ensuring stability in
financial sectors with large external liabilities and foreign currency
loans to unhedged borrowers.

Country authorities in the region have been proactive in addressing
the consequences of the crisis, but participants agreed that further
policy actions would be needed to support growth and the poor, and
safeguard financial systems. Actions already taken include liquidity
provision, capital injections, disposal of problem assets, and the
provision of deposit guarantees. Exchange rate adjustment is also
helping a number of countries to absorb the large external shocks and
stem the decline in reserves. The appropriate exchange rate response,
however, participants noted, depends on country circumstances.

Some countries have room for a fiscal stimulus to bolster
demand. Commodity exporters in the region plan to draw on the assets
they have accumulated in recent years of high commodity prices to
support activity through public spending and to assist the financial
sector. The smaller economies in the region, however, do not have such
resources to support growth and the poor. Participants agreed that
cushioning the impact of the crisis in these countries would therefore
depend critically on the availability of increased aid flows from
donors, said a press release issued by the IMF external relations
department.