final--cca reo presentation-eng (with notes)
TRANSCRIPT
Policy Challenges for Armenia in
the context of Recent Global and
Regional Shocks
January, 2016
Teresa Daban Sanchez
IMF Resident Representative to Armenia
Outline
Global Environment
Outlook of the CCA Region and Armenia
2
Policy Priorities
3
Global Shock : Lower oil prices …
0
20
40
60
80
100
120
140
160
2014 2015 2016 2017 2018 2019
95% confidence interval 86% confidence interval
68% confidence interval Brent spot price
Brent futures
Brent Crude Oil Price 1
(U.S. dollars per barrel)
Sources: Bloomberg; and IMF staff calculations.1 As of August 20, 2015.2 Average of WTI, Brent, and the Dubai Fateh prices.
WEO Baseline Average Oil Price2
2015: $51.6
2016: $50.4
4
…and other key commodities
Global Commodity Prices
(Index Values, 2005=100)
Source: IMF Primary Commodity Prices database.
1/ Simple average of Brent, Dubai Fateh, and West Texas Intermediate prices.
50
100
150
200
250
300
Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15
Food Metals Crude oil 1/ Natural gas (Asia)
5
Regional Shock: Slowdown in Russia
Real growth in Russia
(Percent)
Source: July WEO update
-5
-4
-3
-2
-1
0
1
2
3
4
5
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Current projections
Average growth 1996-2013
6
Russian Ruble, U.S. Dollar, and Oil Prices
(Indices, Jan. 1, 2014 = 100)
Regional Shock: Exchange rate movements
Sources: National authorities; Bloomberg; and IMF staff calculations.
1/ Simple average of Brent, Dubai Fateh, and West Texas Intermediate prices.
40
60
80
100
120
Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15
Oil Price 1/
Russia, USD/NC Index
US NEER Index
7
Conditions in China are changing…
7
7.2
7.4
7.6
7.8
8
8.2
2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q11500
2000
2500
3000
3500
4000
4500
5000
5500
Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15
China: Quarterly Real GDP Growth
(Seasonally Adjusted YoY Percent Change)
Shanghai Stock Exchange Index
(Index Values)
8
…while linkages between CCA region and China are
growing
Exports to
China (Percent of
Exports)
Imports from
China (Percent of
Imports)
Net FDI stock
from China
(Percent of GDP)
FDI inflows
from China
(Percent of FDI
Inflows)
Debt from China
(Percent of PPG
Debt)
ARM 11 9 0.035055357 0 0
GEO 3 9 0.306305509 3.96307884 0
KGZ 4 55 9.35030664 23.2789137 32
TJK 7 47 6.270927192 37.09879997 42
AZE 0 5 0.23160122 0 na
KAZ 16 28 2.388730784 8.3744781 0
TKM 70 11 na na 30
UZB 26 19 0.285588707 36.41365023 0
Linkages with China
0 Between 0-0.5% 11 Between 10% and 40%
1 Between 0.5% and 5% 50 Above 40%
6 Between 5% and 10%
9
Global growth: moderate and uneven
World U.S.Euro
Area
Emerging
marketsChina Russia Armenia
2014 3.4 2.4 0.9 4.6 7.3 0.6 3.4
2015 3.1 2.6 1.5 4.0 6.8 -3.8 2.5
2016 3.6 2.8 1.6 4.5 6.3 -0.6 2.2
10
How these shocks are affecting Armenia and the
Caucasus and Central Asian Region?
Oil & gas exporters
Oil & gas importers
Amid a tough external environment, economic
growth slowed in 2015 in the CCA region
11
CCA Growth Rates
(In Percent Change)
Sources: National authorities; Bloomberg; and IMF staff estimates.
30
40
50
60
70
80
90
100
110
-6
-4
-2
0
2
4
6
8
10
2013 2014 2015 2016
Oil Importers Oil Exporters
Russia Oil Price (USD, RHS)
CCA Growth Rates by Country
(In Percent Change)
ARM
AZE
GEO
KAZKGZ
TJK
TKM
UZB
0
2
4
6
8
10
2015
Oil Importers
Oil Exporters
00-08 09-13 14-16 17-20
Oil Exporters
Gradual recovery over the medium term;
Growth prospects well below past averages
Average).
12
CCA Growth Rates
(In Percent Change)
Sources: National authorities; IMF staff estimates.
0
2
4
6
8
10
12
00-08 09-13 14-16 17-20
Non-Oil Growth
Oil Importers
Armenia
Risks tilted to the downside
Further weakening of prices for oil and other
commodities
Weaker growth in trading partners
(Russia, China, Europe)
Risks related to the normalization of U.S. monetary
policy
13
0
200
400
600
2005 2010 2015 2020
Exports have dropped across the region and
are expected to recover only gradually
CCA Oil Importers: Exports
(Index Values, 2005=100)
CCA Oil Exporters: Exports
(Index Values, 2005=100)
Long-Term Trend
Sources: National authorities; and IMF staff estimates.
0
200
400
600
2005 2010 2015 2020
…in Armenia too, with an interesting change
in composition…
0
200
400
600
2005 2010 2015 2020
Armenia : Exports
(Index Values, 2005=100)
Long-Term Trend
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Other
Middle East*
China
Russia
EU
*-Includes Iran, Iraq and UAE
Armenia : Export of goods by destination
The shocks have also had a negative impact
on remittancesCCA: Total Remittances
(Seasonally Adjusted Levels, Jan 2010 = 100)
0
50
100
150
200
250
300
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Rubles
National Currency
US Dollars0
50
100
150
200
250
300
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Rubles
National Currency
US Dollars
Armenia: Remittances from Russia
(Seasonally Adjusted Levels, Jan 2010 = 100)
…as a result external positions are weakening
Sources: National authorities; and IMF staff estimates.
1/ Excludes employee compensation.
CCA: Current Account Decomposition(Percent of GDP)
-30
-20
-10
0
10
20
2013 2014 2015 2016 2013 2014 2015 2016
Oil importers Oil exporters
Trade balance Net remittances 1/
Other Current account
-30
-20
-10
0
10
20
2013 2014 2015 2016
Oil Importers
Trade Balance Net Remittances 1/
Other Current Account
Armenia: Current Account Decomposition(Percent of GDP)
18
Currencies are adjusting to new realities…
Sources: National authorities; and IMF staff calculations.
50
60
70
80
90
100
110
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
ARM
GEO
KGZ
TJK
50
60
70
80
90
100
110
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
AZE
KAZ
TKM
UZB
Oil Exporters
(U.S. dollars per National Currency, Jan. 1,
2010=100)
Oil Importers
(U.S. dollars per National Currency, Jan. 1,
2010=100)
0
2
4
6
8
10
12
ARM GEO KGZ TJK
2014 Inflation Forecast 2015 Inflation Forecast 2016 Inflation Forecast
19
Inflation
(In Percent Change)
Sources: National authorities; and IMF staff calculations.
…and inflation is edging up, except in
Armenia
0
2
4
6
8
10
12
AZE KAZ UZB TKM
Oil Importers Oil Exporters
Fiscal positions have weakened: lower revenues
and countercyclical measures
20
Sources: National authorities; and IMF staff calculations.
Selected Fiscal Indicators
(In Percent of GDP)
-4
-3
-2
-1
0
1
2
3
4
-20
-15
-10
-5
0
5
10
15
20
2014 2015 2016 2017 2018
Public Debt Fiscal Balance (RHS)
Oil Exporters
-4-3-2-1012345
-40
-30
-20
-10
0
10
20
30
40
50
2014 2015 2016 2017 2018
Oil Importers
In Armenia, slower growth is reducing tax
collections, and pushing up the public deficit
and public.
21
-8.0
-6.0
-4.0
-2.0
0.0
2.0
Armenia: Budget Deficit (In percent of GDP)
0
10
20
30
40
50
60
70
2008 2010 2012 2014 2016proj.
2018proj.
2020proj.
Armenia: Debt Dynamic (In percent of GDP)
Public External Debt Public debt
Policy priority 1: Fiscal policy needs to ensure
medium-term sustainability
22
Near-term
GrowthDebt Sustainability,
Saving for the Future
• Where conditions allow, temporary fiscal easing over the near term will provide
support to growth.
• As cyclical conditions improve, countries need to tighten their fiscal stance to
ensure medium-term fiscal sustainability.
• Improving the quality of public expenditure, and preserving capital and social
expenditure, will help to safeguard growth and make it more inclusive.
Fiscal Policy
23
InflationFinancial Intermediation
and Near-term Growth
Policy priority 2: Monetary prudence and
greater exchange rate flexibility
• Monetary policy should be
primarily calibrated to
inflationary pressures, with due
consideration to its impact on
financial intermediation and
output.
• Greater exchange rate flexibility
will help absorb shocks, maintain
competitiveness and prevent a
rundown of external buffers.
• Stronger macro-prudential
regulations, supervision and crisis
management framework
necessary to ensure financial
sector remains healthy.
Competitiveness, External
Buffers and Balance
Monetary Policy
Exchange Rate Policy
Financial Stability
24
Policy priority 3: Structural reforms to boost
long-term growth
0%
20%
40%
60%
80%
100%
EducationQuality
FinancialServices
Control ofCorruption
ExportDiversity
ExportIntegration
DoingBusiness
Emerging Market Averages
Structural Reform Indicators
(In Global Percent Rank)
Sources: Education Quality: Global Competitiveness Report; Financial Services: Global Competitiveness Report and Doing Business;
Control of Corruption: Worldwide Governance Indicators; Export Diversity: IMF/DFID Export Diversity Index; Export Integration:
World Economic Outlook; and Doing Business: Doing Business Report.
Key takeaways
• A foray of external shocks is weighing on growth, budgets and
currencies.
• These shocks are likely to be long lasting, requiring policy
adjustment.
• While temporary fiscal easing can support growth, fiscal
consolidation will be needed over the medium term to rebuild
buffers and ensure debt sustainability.
• Exchange rate flexibility will preserve external buffers, but it
needs to be accompanied by strengthened financial supervision
to safeguard financial stability.
• Structural reforms are needed to boost weakening medium-term
growth prospects.
25