28 Oct 2010

IMF / CENTRAL ASIA

A new IMF report says the economic upturn in the Caucasus and Central Asia (CCA) is gathering momentum, with growth for the region projected to increase to 5¾ percent in 2010 from 3½ percent in 2009. IMF/ FILE

Posted at: October 28, 2010 12:59 pm

Duration: 03:00

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STORY: IMF / CENTRAL ASIA
TRT: 3.00
SOURCE: IMF/ WORLD BANK / UNICEF
RESTRICTIONS: NONE
LANGUAGE: ENGLISH / NATS

DATELINE: 28 OCTOBER 2010, WASHINGTON DC/ FILE

SHOTLIST:

28 OCTOBER 2010, WASHINGTON DC

1.	Wide shot, MF
2.	Med shot, Owen in his office
3.	SOUNDBITE: (English) David Owen, Deputy Director Caucasus and Central Asia Department, IMF:
"Well, overall we see a strong recovery in the caucuses in Central Asia in 2010 and '11. In both years we're projecting growth in the range of about five to six percent. The growth is driven in part by the fiscal stimulus that has been given in the last couple of years by governments, and also by the improving external environment.  And there the recovery in Russia has been important; we're projecting growth of four percent this year.  Many of the countries depend on remittances from their workers that work in Russia and they're recovering strongly.  And we're also seeing significant recovery in exports."

FILE – UNICEF - 2 JULY 2010, OSH, KYRGYSTAN

4.	Various shots, Osh, as seen from the hill dominating centre of city

28 OCTOBER 2010, WASHINGTON DC

5.	SOUNDBITE: (English) David Owen, Deputy Director Caucasus and Central Asia Department, IMF:
"Well, unemployment and underemployment are certainly a significant problem in this region, and one of the manifestations of that is that workers in some of the countries have actually gone to work abroad, particularly in Russia and Tajikistan, for example, nearly 50 percent of the labor force is working outside the country. I think one of the problems in terms of job creation is the heavy role of the government in many of these countries and the generally weak business environment.  So structural reform is designed to strengthen the business environment and create an environment for private sector investment, private sector growth, that's really the critical thing.  There's also a need to address problems in the banking sector in many of the countries, vulnerabilities in the banking center are still holding back credit growth.  A resurgence of credit growth will also be critical in terms of generating employment."

FILE – WORLD BANK - RED RIVER VALLEY, TAJIKISTAN, APRIL 2010

6.	Various shots, women's group manufacturing wool products

28 OCTOBER 2010, WASHINGTON DC

7.	SOUNDBITE: (English) David Owen, Deputy Director Caucasus and Central Asia Department, IMF:
"The key step that I think countries need to take is to find ways to encourage banks and the population to increasingly use their local currency rather than foreign currencies such as dollars when they borrow, when they deposit.  Substantial use of dollars rather than local currency in the run-up to the crisis has actually significantly added to these countries' vulnerabilities.  One step that governments could take is to increasingly issue local currency securities and to lengthen the maturity of those securities to provide a strong market in these local securities."

FILE – WORLD BANK - APRIL 2010, AZERBAIJAN

8.	Various shots, men building school
9.	Various shots, road construction

STORYLINE:

The economic upturn in the Caucasus and Central Asia (CCA) is gathering momentum, with growth for the region projected to increase to 5¾ percent in 2010 from 3½ percent in 2009, IMF Middle East and Central Asia Department Deputy Director David Owen said.

SOUNDBITE: (English) David Owen, Deputy Director Caucasus and Central Asia Department, IMF:
"Well, overall we see a strong recovery in the caucuses in Central Asia in 2010 and '11. In both years we're projecting growth in the range of about five to six percent. The growth is driven in part by the fiscal stimulus that has been given in the last couple of years by governments, and also by the improving external environment.  And there the recovery in Russia has been important; we're projecting growth of four percent this year.  Many of the countries depend on remittances from their workers that work in Russia and they're recovering strongly.  And we're also seeing significant recovery in exports."

The fiscal stimulus applied by many governments in the region—together with a favorable external environment—had helped spur the recovery from the global crisis. The upturn in Russia's economy has benefited the region, mainly through trade and remittance channels, as has the rise in oil prices.

CCA countries differ substantially in terms of per capita GDP, which ranges from under $700 in Tajikistan to $7,000 in Kazakhstan. Half of the region's countries are exporters of oil and gas (Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan), while the others are importers (Armenia, Georgia, the Kyrgyz Republic, and Tajikistan).

Growth in 2010 is expected to be strongest among the region's oil and gas exporters, with projections ranging from 4½ percent in Azerbaijan to 9½ percent in Turkmenistan (see table). With oil prices expected to remain near $80 per barrel in 2011, these countries should grow at similar rates in 2011.

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.

Unemployment continues to be an important issue in the region.

SOUNDBITE: (English) David Owen, Deputy Director Caucasus and Central Asia Department, IMF:
"Well, unemployment and underemployment are certainly a significant problem in this region, and one of the manifestations of that is that workers in some of the countries have actually gone to work abroad, particularly in Russia and Tajikistan, for example, nearly 50 percent of the labor force is working outside the country. I think one of the problems in terms of job creation is the heavy role of the government in many of these countries and the generally weak business environment.  So structural reform is designed to strengthen the business environment and create an environment for private sector investment, private sector growth, that's really the critical thing.  There's also a need to address problems in the banking sector in many of the countries, vulnerabilities in the banking center are still holding back credit growth.  A resurgence of credit growth will also be critical in terms of generating employment."

In the Kyrgyz Republic, political and ethnic turmoil earlier in the year are weighing heavily on this year's performance. Economic activity is expected to shrink by 3.5 percent in 2010, but bounce back strongly in 2011 and grow by a projected 7 percent.

Inflation across the CCA region as a whole has come down from high pre-crisis levels, and underlying inflationary pressures are expected to remain contained over the next year. In a few countries, however, headline inflation has been impacted significantly by the recent spike in food—especially wheat—prices, and policymakers will need to monitor developments closely. In Uzbekistan, continued fiscal stimulus, combined with lower interest rates and directed lending, raise the risk of a further buildup in inflationary pressures—a possibility that Turkmenistan also faces.

While the region's recovery appears to be on track, risks remain. In particular, a weaker-than-expected recovery in Russia would adversely affect trade and remittance flows to the region. Slower-than-expected growth in advanced economies would also weaken economic activity in the region, mainly through a drop in demand for oil and gas. And continued banking sector weaknesses could hold back credit growth and weigh on the economic outlook.

With recovery on a firm footing, countries across the region can start winding down policies that were implemented in response to the crisis. The authorities should first exit from fiscal stimulus, in light of fiscal sustainability considerations. 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.

Monetary policy can remain accommodative for now, not least because banking sectors in many countries remain impaired—particularly in Kazakhstan, the Kyrgyz Republic, and Tajikistan, where there are high levels of nonperforming loans (NPLs). At the same time, the authorities need to pay close attention to inflation developments and act quickly, if necessary, to prevent an increase in inflation expectations.

Comprehensive and transparent resolution strategies to tackle high NPLs would help spur a recovery in credit growth, and stricter lending standards would help prevent a recurrence of the NPL problem.

SOUNDBITE: (English) David Owen, Deputy Director Caucasus and Central Asia Department, IMF:
"The key step that I think countries need to take is to find ways to encourage banks and the population to increasingly use their local currency rather than foreign currencies such as dollars when they borrow, when they deposit.  Substantial use of dollars rather than local currency in the run-up to the crisis has actually significantly added to these countries' vulnerabilities.  One step that governments could take is to increasingly issue local currency securities and to lengthen the maturity of those securities to provide a strong market in these local securities."

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.

For CCA oil and gas exporters, the medium-term policy challenge will be to develop the non-oil economy while managing their hydrocarbon wealth wisely.