28 Apr 2011

IMF / CAUCASUS AND CENTRAL ASIA ECONOMIC OUTLOOK

Countries in the Caucasus and Central Asia (CCA) are seeing a second year of strong growth following the crisis, but the region must tackle inflation and other issues if it is to sustain the recovery, the IMF said today in its latest forecast for the region. IMF

Posted at: April 28, 2011 10:56 am

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STORY: IMF / CAUCASUS AND CENTRAL ASIA ECONOMIC OUTLOOK
TRT: 1.42
SOURCE: IMF
RESTRICTIONS: NONE 
LANGUAGE: ENGLISH / NATS

DATELINE: APRIL 28, 2011 – WASHINGTON, DC

SHOTLIST:

RECENT, WASHINGTON, DC

1. Wide shot, exterior IMF headquarters

28 APRIL 2011, WASHINGTON, DC

2. SOUNDBITE (English) David Owen, Middle East and Central Asia Department, IMF:
"In 2011, we expect a strong recovery in the Caucasus and Central Asia to continue. We expect growth on average in the region to be just under 6 percent this year. That's a little slower than the 6.5% that was recorded last year."

RECENT, WASHINGTON, DC

3. Wide shot, interior IMF

28 APRIL 2011, WASHINGTON, DC

4. SOUNDBITE (English) David Owen, Middle East and Central Asia Department, International Monetary Fund (IMF):
"Looking ahead, I think it will be important for the region to try to diversify its sources of growth beyond the current drivers of mining, oil, gas. To do that, it's particularly important for countries to strengthen their business environments in order to give the private sector a bigger role in the economy."

RECENT, WASHINGTON, DC

5. Wide shot, exterior IMF headquarters

28 APRIL 2011, WASHINGTON, DC

6. SOUNDBITE (English) David Owen, Middle East and Central Asia Department,International Monetary Fund (IMF):
"I think it's very important that governments and central banks take steps to contain the pressures. Experience tells us that when food and fuel prices rise, they eventually pass through into more general measures of inflation. Central banks have already tightened their monetary policy and we think they may have to do that more vigorously in the future if the pressures continue."

RECENT, WASHINGTON, DC

7. Wide shot, interior IMF headquarters

28 APRIL 2011, WASHINGTON, DC

8. SOUNDBITE (English) David Owen, Middle East and Central Asia Department, International Monetary Fund (IMF):

"I think a priority for the future is for the countries to try to develop more effective and more targeted social safety nets. As they are able to do that, it will then be time to phase out the administrative measures put in place so far and allow more of the global price increases to pass through in terms of retail prices."

RECENT, WASHINGTON, DC

9. Wide shot, exterior IMF headquarters

STORYLINE:

Countries in the Caucasus and Central Asia (CCA) are seeing a second year of strong growth following the crisis, but the region must tackle inflation and other issues if it is to sustain the recovery, the International Monetary Fund (IMF) says in its latest forecast for the region.

The Regional Economic Outlook for Middle East and Central Asia notes that the region's post-crisis recovery took hold in 2010, with growth registering 6 and a half percent, up from three and a half percent in 2009. This unexpectedly strong rebound was driven by commodity exports and public investment, with oil and gas exporters enjoying particularly strong growth.

In 2011, as oil and gas production growth slows, the region's expansion is expected to moderate to five and three quarters percent.

"In 2011, we expect a strong recovery in the Caucasus and Central Asia to continue. We expect growth on average in the region to be just under 6% this year. That's a little slower than the 6.5 percent that was recorded last year," said David Owen, Deputy Director of the IMF's Middle East and Central Asia Department.

Since the crisis, financial sector difficulties have continued to plague the region. High and rising nonperforming loans have impaired bank financial positions and pose risks to capital adequacy.

In Kazakhstan, the Kyrgyz Republic, and Tajikistan, despite ample bank liquidity, banks are unwilling to extend loans to avoid further risks to their balance sheets. Uncertainties surrounding the stability of funding sources and provisioning needs have increased incentives to maintain cash reserves and restrain lending activity. Restoring the health of banking systems, and strengthening regulatory, supervisory, and governance frameworks for the sector, is thus a key priority, the IMF report stresses.

"Looking ahead, I think it will be important for the region to try to diversify its sources of growth beyond the current drivers of mining, oil, gas. To do that, it's particularly important for countries to strengthen their business environments in order to give the private sector a bigger role in the economy," Owen said.

The CCA region is also coping with the emerging problem of inflation, which adversely affects the poor. With global fuel and food prices expected to increase by 18 and 15 percent, respectively, in 2011, average inflation in the region is projected to increase to around ten percent this year. Annual inflation, as measured by the consumer price index, is approaching double digits in Azerbaijan and Kazakhstan, and has already passed this threshold in the region's other countries, except for Turkmenistan.

"I think it's very important that governments and central banks take steps to contain the pressures. Experience tells us that when food and fuel prices rise, they eventually pass through into more general measures of inflation. Central banks have already tightened their monetary policy and we think they may have to do that more vigorously in the future if the pressures continue," Owen said.

All CCA countries are facing pressures to respond to the inflation upsurge, which may involve increases in public spending, ranging from the use of strategic grain reserves to targeted transfers, more generalized subsidies, and possible wage and pension hikes. These pressures for higher spending are delaying fiscal tightening in some countries, and governments' efforts to prioritize and improve the quality of public expenditure will be crucial, the report notes.
 
"I think a priority for the future is for the countries to try to develop more effective and more targeted social safety nets. As they are able to do that, it will then be time to phase out the administrative measures put in place so far and allow more of the global price increases to pass through in terms of retail prices," Owen said.