Growth Boom Continuing in the Caucasus and Central Asia, but Highlights the Need for Vigilance Against Inflationary Pressures and Excessive External Borrowing, May 29,2007

June 1, 2007

IMF´s Middle East and Central Asia Department Sees the Growth Boom Continuing in the Caucasus and Central Asia, but Highlights the Need for Vigilance Against Inflationary Pressures and Excessive External Borrowing, May 29,2007
 
Presenting The International Monetary Fund´s May 2007 Regional Economic Outlook: Middle East and Central Asia (REO)  Mr. David Owen, Senior Advisor in the IMF´s Middle East and Central Asia Department,  described the report´s main findings for the region as
Macroeconomic performance in the Caucasus and Central Asia region has been extremely impressive in recent years, with growth averaging around 11 percent over the past four years, combined with generally moderate inflation. The growth rates in the region have been the highest among transition countries and compare very favorably with the fastest growing economies in Asia and the rest of the developing world. Both oil and gas exporters (Azerbaijan, Kazakhstan, and Turkmenistan) and non-oil exporters (Armenia, Georgia, Kyrgyz Republic, Tajikistan, and Uzbekistan) have fared well. Growth in the region is projected to exceed 12 percent in 2007.
The region´s strong performance reflects a combination of improved macroeconomic management, structural reforms, booming commodity exports, and large inflows of foreign direct investment and remittances.
  • Inflation has fallen significantly in most countries since 2000, in part owing to greater fiscal and monetary discipline. Fiscal consolidation, privatization and, in some cases, debt relief, have led to declines in debt-to-GDP ratios in all countries. Foreign exchange reserves have been built up and now provide some cushion against possible external shocks.
  • Several countries have embarked on important reforms to improve governance and the business environment. Countries have reformed their public finance institutions, enhanced regulatory environments, and improved financial sector supervision.
  • High oil prices and rising oil production have stimulated activity in the construction and services sectors in Kazakhstan and transportation in Azerbaijan. High prices for non-oil commodities are benefiting several countries, especially Uzbekistan. Elsewhere, large inflows of remittances have contributed to rising domestic demand. Stable macroeconomic conditions and an improved business environment have also attracted substantial foreign direct investment, notably in Georgia and Armenia.
Rapid economic growth has led to rising per capita incomes and some reduction in poverty, even though the overall levels of poverty remain high. To sustain the recent growth performance and reduce poverty further, the region will need to address two main challenges.
  • Large foreign inflows are fueling a resurgence of inflation in the region-which is projected to be 11 percent in 2007-and causing real exchange rates to appreciate. Tighter fiscal and monetary policies, and more nominal exchange rate appreciation would help to limit inflationary pressures. So far, there is little sign that real exchange rate appreciation is holding back exports or GDP growth, but further productivity-enhancing structural reforms will help to ensure that competitiveness in maintained.
  • Progress in cementing macroeconomic stability, lowering debt, and improving the business environment are opening up new opportunities for large-scale foreign borrowing. While these could provide much-needed financing for infrastructure and social projects, they need to be carefully balanced against the risks that excessive borrowing could once again lead to unsustainable debt positions. To mitigate such risks, the authorities should adopt well-defined debt management strategies, ensure spending is consistent with absorptive capacity, and implement improved financial management to avoid waste.

CONTENTS of the REPORT

Contents

Recent Macroeconomic Developments and Prospects
  Highlights Background
  Recent Economic Developments
  Economic Outlook
    World economic outlook
    Outlook for the region
  Policy Issues
Boxes
  1. What is Behind the Growth Boom in the Caucasus and Central Asia?
  2. Paradox of Depreciating Real Effective Exchange Rates in GCC Countries
  3. Islamic Bonds
  4. Lebanon—Recovery from Conflict
  5. The Fund's Role in Post-Conflict Countries in MCD
  6. Oil Income in the Middle East and Central Asia—An Update
  7. Financial Sector Reforms and Financial Integration in Maghreb Countries
Text Figures
  1. Global Real GDP Growth
  2. Real GDP Growth in MCD
  3. External Current Account Balance
  4. Non-Oil Commodity Prices
  5. Gross Official Reserves
  6. Central Government Fiscal Balance
  7. Total Government Debt
  8. Counterparts to Money Supply
  9. Credit to the Private Sector
  10. Consumer Price Index
  11. Nominal Effective Exchange Rates
  12. Real Effective Exchange Rates
  13. Selected MCD Countries Stock Market Indices
  14. Global Outlook
  15. Expected Brent Crude Oil Prices
Statistical Appendix
  Data and Conventions
Tables
  1. Real GDP Growth
  2. Nominal Gross Domestic Product
  3. Hydrocarbon and Non-hydrocarbon Real Growth for Oil Exporters
  4. Crude Oil Production and Exports
  5. Consumer Price Index
  6. Broad Money
  7. Central Government Fiscal Balance
  8. Central Government Total Revenue Excluding Grants
  9. Central Government Non-Oil Fiscal Balance
  10. Central Government Non-Oil Revenue
  11. Central Government Total Expenditure and Net Lending
  12. Total Government Debt
  13. Export of Goods and Services
  14. Import of Goods and Services
  15. Current Account Balance (in billions of U.S. dollars)
  16. Current Account Balance (in percent of GDP)
  17. Real Effective Exchange Rates
  18. Gross Official Reserves
  19. Total Gross External Debt

Details:
Regional Economic Outlook: Middle East and Central Asia (REO)