IMF’S SEES THE GROWTH BOOM CONTINUING IN THE CAUCASUS AND CENTRAL ASIA, BUT HIGHLIGHTS THE NEED FOR POLICY TIGHTENING TO DAMPEN INFLATIONARY PRESSURES
ARKA
Nov 9, 2007
YEREVAN, November 9. /ARKA/. The International Monetary Fund’s October
2007 Regional Economic Outlook: Middle East and Central Asia (REO)
sees continued strong growth in the Caucasus and Central Asia, but
highlights the need to tackle rising inflation.
David Owen, Senior Advisor in the IMF’s Middle East and Central Asia
Department, presented the report’s main findings for the region:
"The Caucasus and Central Asia is one of the fastest growing regions
in the world, with real GDP set to rise by an average of 13 percent
this year. Both oil and gas exporters (Azerbaijan, Kazakhstan, and
Turkmenistan) and non-oil exporters (Armenia, Georgia, Kyrgyz Republic,
Tajikistan, and Uzbekistan) are doing well.
The region’s strong performance reflects improved macroeconomic
policies, reforms to improve the business environment, booming
commodity exports, and large inflows of foreign direct investment
and remittances.
However, strong foreign exchange inflows combined with the recent
surge in international food prices have resulted in a sharp uptick
in inflation in recent months, except in Armenia, Owen said.
According to him, Average annual inflation in the region increased
to over 12 percent in September and is set to go higher before the
end of the year.
Even before the shock from higher food prices, inflation was rising
steadily, as most central banks boosted domestic liquidity by
purchasing foreign currency inflows, so as to limit the appreciation
of their currencies, he said.
Policy makers in the region could not have prevented the inflationary
shock from higher food prices. But they should respond quickly
to prevent this shock from passing through into other prices more
generally.
In most countries there is room to tighten monetary policies,
by raising interest rates and reducing foreign exchange market
intervention to allow more exchange rate appreciation. Plans in
several countries to loosen fiscal policies by raising government
spending should be put on hold, Owen said.
According to him, Moderate policy tightening to dampen inflationary
pressures should allow the boom in the region to continue.
"While average growth in the region is likely to slow from this year’s
rapid pace, it is projected to remain in double digits in 2008–high
enough to keep the region on a path of rising income per head and
declining poverty," the IMF states.