Economic slowdown expected in Central Asia in 2015: IMF29 may 2015, 15:20
The causes of the protracted slowdown in economic growth are the oil prices drop, slowdown of Russian economy and the appreciation of the US dollar.
The predicted growth in the region will be just over 3 percent this year, a negative 2½ percentage revision from the forecast IMF made in October 2014.
The IMF noted that financial systems of CCF countries were facing several pressures.
“Currency depreciations are increasing credit and solvency risks - especially in the context of dollarized banking systems and foreign currency lending. And the region’s slowing economic growth is heightening credit risks, particularly in countries where bank governance and underwriting standards are weak,” it said.
Therefore, surveillance of financial systems were recommended to be strengthened and crisis management to be intensified. In the near term, the countries had to cope with pressures by introducing fiscal stimulus and exchange rate flexibility.
“As for the region’s medium-term prospects, bold structural reforms will be vital. Policymakers should intensify efforts to enhance the business environment, improve governance, and diversify economies away from their reliance on commodity exports and remittances,” the IMF said.
Noting that in 2014, the economic growth in the CCA decreased, the IMF predicted a further deterioration in the prospects for the development of CCA in 2015 in view of the sharp decline in oil prices and an expected slowdown of the Russian economy.
In oil-importing countries, such as Kazakhstan, these negative factors were compounded by the slowdown in domestic oil production, caused by a delay in the development of new deposits. In particular, Kazakhstan had to postpone the restart of production from its gargantuan Kashagan oil field. And it is yet unclear when the production will resume.
In addition, the IMF experts expected a surge in the inflation in Armenia, Kazakhstan, Georgia and Tajikistan, which would be a consequence of the decline in world food and commodity prices and weakening business activity.
Also projected was a sharp weakening of CCA external positions due to lower oil prices and a decline in remittances. This growing external pressure, experts said, would force CCA countries to show greater flexibility in exchange rates to absorb shocks and remain competitive.
The IMF report also said that the region needed bold structural reforms to prevent economic conditions from reaching a critical point. Some countries, according to experts, had undertaken appropriate reforms, such as privatization and price liberalization, but “deep structural and fiscal reforms are vital for creating jobs, reducing poverty."
By Dinara Urazova, editing by Tatyana Kuzmina