1

Caucasus and Central Asia

Regional Economic Outlook

November, 2017

2

RoadmapOutlook, Opportunities, and

Challenges

Maintaining Macroeconomic

Stability

Securing Higher and More

Inclusive Growth

Key Takeaways and IMF’s Role

3

Russia

Growth strengthening in CCA’s main economic

partners

Euro AreaChina

GDP Growth(Percent change)

5.0

5.5

6.0

6.5

7.0

1.0

1.4

1.8

2.2

2.6

3.0

-0.5

0.0

0.5

1.0

1.5

2.0

Sources: National authorities and IMF staff calculations.

▬ Current — April 2017 WEO Update

4

Commodity prices stabilizing, but outlook

subdued

Source: IMF staff calculations.

Note: REO = Regional Economic Outlook: Middle East and Central Asia; WEO = World Economic Outlook. ¹APSP = Average

Petroleum Spot Prices; Average of U.K. Brent, Dubai Fateh, and West Texas Intermediate crude oil prices.

Metal Price Assumptions(Index, 2005=100)

Oil Price Assumptions(APSP¹, U.S. dollars a barrel)

▬ Current — April 2017 WEO Update

120

130

140

150

160

170

180

190

200

40

50

60

70

80

90

100

AZEKAZ

TKM

UZB

ARMGEO

KGZ

TJK

AZEKAZ

TKM

UZB

ARMGEO

KGZ

TJK

-2

0

2

4

6

8

10

0 2 42017 2018

■ Oil Exporters

■ Oil Importers

5

CCA growth expected to accelerate, but remain

below historical norms

Real GDP Growth(Percent change)

Sources: National authorities and IMF staff calculations.

-2

0

2

4

6

8

10

2016 17 18 19-22

Oil Exporters

2016 17 18 19-22

Oil Importers

Average 2000-10

■ Non-Oil Contribution

■ Oil Contribution

6

External deficits declining gradually, helped by

exchange rate adjustment

Current Account Deficits(Percent of GDP)

Sources: National authorities and IMF staff

calculations.

-4

-2

0

2

4

6

8

10

2014

15

16

17

18

19

20

21

22

0

20

40

60

80

100

120

Jan

-2010

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

AZE

KAZ

TKM

UZB

Oil Exporters

Jan

-2010

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

ARM

GEO

KGZ

TJK

Oil Importers

Nominal Exchange Rates(US Dollars per national currency index, Jan-2010 = 100 )

Sources: Information Notice System database; and IMF staff calculations.

Note: Country abbreviations are International Organization for Standardization (ISO) country

codes.

■ Oil Exporters

■ Oil Importers

Window of opportunity—with challenges

7

Rapid tightening of global

financial conditions

Shift towards inward-looking

policies

Improved economic

conditions in main

trading partners

Financial sector distress

in some countries

New integration initiatives

Slow implementation

of structural reforms

InternalExternal

Op

po

rtu

nit

ies

Ch

all

en

ges

8

RoadmapOutlook, Opportunities, and

Challenges

Maintaining Macroeconomic

Stability

Securing Higher and More

Inclusive Growth

Key Takeaways and IMF’s Role

9

Fiscal consolidation should continue to ensure debt

sustainability, but become more growth friendly

Sources: National authorities and IMF staff calculations.

Note: For Oil Exporters, the deficit for 2017 excludes a one-time fiscal transfer to the financial sector in Kazakhstan.

Fiscal Deficit and Public Debt for CCA(Percent of GDP)

Oil Exporters Oil Importers

0

6

12

18

24

30

-4

-2

0

2

4

Overall fiscal deficit, percent of GDP

Total government debt,percent of GDP (RHS)

0

10

20

30

40

50

60

0

1

2

3

4

5

6

7

Overall fiscal deficit, percent of GDP

Total government debt,percent of GDP (RHS)

10

Despite differences in the monetary stance,

frameworks should be further strengthened

Monetary Policy Rate

(Percent)

0

2

4

6

8

10

12

14

16

18Oil Exporters

AZE

KAZ

0

2

4

6

8

10

12

14

16

18Oil Importers

ARM

GEO

KGZ

TJK

Source: IMF IFS and IMF staff calculations.

Note: Country abbreviations are International Organization for Standarization (ISO) country codes.

11

Financial sector vulnerabilities exposed

Problem Loans(In percent of total loans)

0

10

20

30

40

50

60

70Problem loans

Official definition

of NPLs

Source: IMF staff calculations.

Note: Country abbreviations are International Organization for Standardization (ISO) country codes.

-40

-30

-20

-10

0

10

20

30

Jan

-15

May-1

5

Sep

-15

Jan

-16

May-1

6

Sep

-16

Jan

-17

Azerbaijan

Kazakhstan

Tajikistan

-10

0

10

20

30

40

Jan

-15

May-1

5

Sep

-15

Jan

-16

May-1

6

Sep

-16

Jan

-17

Armenia

Georgia

Kyrgyz Republic

Private Credit Growth(Percent, year over year)

12

Important steps have been taken to address these

vulnerabilities, but further action is needed

Diagnosethe Problem

Address Financial Stability Risks

Enhance Prudential Regulation and

Supervision

Strengthen Banks’ Corporate

Governance

Immediate

Priorities

Policy Responses

Macro Policies

Financial Support

Supervisory and

Prudential Measures

13

RoadmapOutlook, Opportunities, and

Challenges

Maintaining Macroeconomic

Stability

Securing Higher and More

Inclusive Growth

Key Takeaways and IMF’s Role

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2018 2019 2020 2021 2022

14

Securing higher and more inclusive growth is

critical to the CCA region

Projected Labor Force Increase (Million of people, cumulative)

Labor Force in 2017 (estimate):CCA: 40 million

Sources: International Labor Organization estimates.

Note: CCA = Caucasus and Central Asia; EM = Emerging market economy; and, LIDC= Low-income developing countries.

Youth Unemployment Rate(average, percent)

12

14

16

18

20

22

24

26

28

30

2002 04 06 08 10 12 14 16

Oil Exporters

Oil Importers

EM & LIDC (excluding CCA)

15

Multiple policy levers are needed to spur higher

and more inclusive growth

Five Pillars of Inclusive Growth

50

60

70

80

90

100

110

120

130

2000 2002 2004 2006 2008 2010 2012 2014 2016

EMDE Oil Exporters Oil Importers

16

Structural reforms would support trade,

leveraging better external conditions …

Trade Openness(Index 2000=100 of the sum of exports and imports as a percent of GDP in nominal terms)

Sources: IMF October 2017 World Economic Outlook; and staff calculations.

Note: Afghanistan uses 2002 as its base year due to data issues. CCA = Caucasus and Central Asia; EMDE = Emerging and developing economies; MENAP = Middle East, North Africa,

Afghanistan, and Pakistan.

17

… and fully capitalize on current integration

opportunities

Source: Hong Kong Trade Development Council.

The Belt And Road Initiative: Six Economic Corridors Spanning Asia, Europe, and Africa

0

10

20

30

40

50

60

70

KAZ UZB AZE GEO KGZ ARM TJK

EMDC

Adopting financial technology would boost

growth and inclusiveness, but there are risks

18

Source: World Bank.

Adults (+15 years old) With Bank Account(Percent of the population, most recent value)

Oil Exporters Oil Importers

19

RoadmapOutlook, Opportunities, and

Challenges

Maintaining Macroeconomic

Stability

Securing Higher and More

Inclusive Growth

Key Takeaways and IMF’s Role

➢ Recovery continuing, but medium-term growth subdued

➢ Window of opportunity: better external conditions; Belt and

Road Initiative; Uzbekistan; fintech

➢ To capitalize on opportunity, countries need to take action:

✓ More growth-friendly fiscal consolidation

✓ Stronger monetary policy frameworks

✓ Financial sector repair

✓ Structural reforms

➢ Bold action would secure higher, more inclusive growth

Takeaways

20

IMF’s role

21

Policy Analysis

Bilateral

Engagement

Capacity

Development

Regional

Cooperation

✓ Monetary Policy Workshop,

Joint Vienna Institute

✓ Peer-to-Peer Event, IMF Annual

Meetings