Regional Economic Outlook Caucasus and Central Asia October, 2015 - PowerPoint PPT Presentation

Regional Economic Outlook Caucasus and Central Asia October, 2015

Outline Global Environment CCA Outlook Policy Priorities 2

Global Growth: Moderate and Uneven Euro Emerging World U.S. China Russia Area markets 2014 3.4 2.4 0.9 4.6 7.3 0.6 2015 3.1 2.6 1.5 4.0 6.8 -3.8 2016 3.6 2.8 1.6 4.5 6.3 -0.6 3

Global Shock 1: Lower Prices of Oil… Brent Crude Oil Price 1 (U.S. dollars per barrel) 160 WEO Baseline Average Oil Price 2 140 2015: $51.6 120 2016: $50.4 100 80 60 40 20 0 2014 2015 2016 2017 2018 2019 95% confidence interval 86% confidence interval 68% confidence interval Brent spot price Brent futures Sources: Bloomberg; and IMF staff calculations. 1 As of August 20, 2015. 2 Average of WTI, Brent, and the Dubai Fateh prices. 4

…And Other Key Commodities Global Commodity Prices (Index Values, 2005=100) 300 250 200 150 100 Food Metals Crude oil 1/ Natural gas (Asia) 50 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Source: IMF Primary Commodity Prices database. 1/ Simple average of Brent, Dubai Fateh, and West Texas Intermediate prices. 5

Global Shock 2: Slowdown in Russia Real growth in Russia (Percent) 5 4 Average growth 1996-2013 3 2 1 0 -1 Current projections -2 -3 -4 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: July WEO update 6

Global Shock 3: Exchange Rate Movements Russian Ruble, U.S. Dollar, and Oil Prices (Indices, Jan. 1, 2014 = 100) 120 100 80 60 Oil Price 1/ Russia, USD/NC Index US NEER Index 40 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Sources: National authorities; Bloomberg; and IMF staff calculations. 1/ Simple average of Brent, Dubai Fateh, and West Texas Intermediate prices. 7

Also: Conditions In China Have Been Changing… Shanghai Stock Exchange Index China: Quarterly Real GDP Growth (Index Values) (Seasonally Adjusted YoY Percent Change) 5500 8,2 5000 8 4500 7,8 4000 3500 7,6 3000 7,4 2500 7,2 2000 7 1500 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 8

…Which Is Particularly Important for CCA Given Its Growing Linkages With That Country Linkages with China FDI inflows Exports to Imports from Net FDI stock Debt from China from China China (Percent of China (Percent of from China (Percent of PPG (Percent of FDI Exports) Imports) (Percent of GDP) Debt) Inflows) 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 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

Caucasus And Central Asia Oil & gas exporters Oil & gas importers 10

Amid A Tough External Environment, Economic Growth Slowed in 2015 CCA Growth Rates CCA Growth Rates by Country (In Percent Change) (In Percent Change) 10 10 110 TKM 8 100 8 6 90 UZB 4 80 6 2 70 AZE 4 0 60 TJK -2 50 GEO 2 KGZ KAZ -4 40 ARM -6 30 0 2013 2014 2015 2016 2015 Oil Importers Oil Importers Oil Exporters Oil Exporters Russia Oil Price (USD, RHS) Sources: National authorities; Bloomberg; and IMF staff estimates. 11

Gradual Recovery Over the Medium Term; Growth Prospects Well Below Past Averages Average). CCA Growth Rates (In Percent Change) 12 Non-Oil Growth 10 8 6 4 2 0 00-08 09-13 14-16 17-20 00-08 09-13 14-16 17-20 Oil Exporters Oil Importers Sources: National authorities; IMF staff estimates. 12

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

Exports Are Expected To Recover Only Gradually CCA Oil Importers: Exports CCA Oil Exporters: Exports (Index Values, 2005=100) (Index Values, 2005=100) 600 600 Long-Term Trend 400 400 200 200 0 0 2005 2010 2015 2020 2005 2010 2015 2020 Sources: National authorities; and IMF staff estimates.

External Positions Are Set To Remain Weak Remittances Current Account Decomposition (Seasonally Adjusted Levels, Jan 2010 = 100) (Percent of GDP) 300 20 250 10 0 200 -10 150 -20 100 Rubles -30 50 2013 2014 2015 2016 2013 2014 2015 2016 National Currency Oil importers Oil exporters US Dollars 0 Trade balance Net remittances 1/ янв.10 янв.11 янв.12 янв.13 янв.14 янв.15 Other Current account Sources: National authorities; and IMF staff estimates. 1/ Excludes employee compensation.

Currencies Are Adjusting To New Realities… Oil Exporters Oil Importers (U.S. dollars per National Currency, Jan. 1, (U.S. dollars per National Currency, Jan. 1, 2010=100) 2010=100) 110 110 100 100 90 90 80 80 ARM AZE 70 70 GEO KAZ KGZ TKM 60 60 TJK UZB 50 50 Jan-10 Jan-12 Jan-14 Jan-10 Jan-12 Jan-14 Sources: National authorities; and IMF staff calculations. 16

…And Inflation Is Edging Up Inflation (In Percent Change) 2014 Inflation Forecast 2015 Inflation Forecast 2016 Inflation Forecast 12 12 10 10 8 8 6 6 4 4 2 2 0 0 ARM GEO KGZ TJK AZE KAZ UZB TKM Oil Importers Oil Exporters Sources: National authorities; and IMF staff calculations. 17

Dollarization Has Risen… Deposit Dollarization Loan Dollarization (In Percent of Total Deposits) (In Percent of Total Loans) 80 80 Jun-14 Latest Jun-14 Latest 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 ARM GEO KGZ TJK AZE KAZ ARM GEO KGZ TJK AZE KAZ Source: National authorities; IFS; and IMF staff calculations. 18

… And Financial Sector Vulnerabilities Are Up. Capital Adequacy Ratio Non-Performing Loans Return on Assets (In Percent of Risk-Weighted Assets) (In Percent of Total Loans) (In Percent) 35 3 30 30 25 2 Jun-14 25 20 Latest 1 20 15 15 0 10 10 -1 5 5 0 -2 0 ARM GEO KGZ TJK AZE KAZ ARM GEO KGZ TJK AZE KAZ ARM GEO KGZ TJK AZE KAZ Source: National authorities; IMF staff calculations. 19

Fiscal Positions Have Weakened: Lower Revenues And Countercyclical Measures Selected Fiscal Indicators (In Percent of GDP) Oil Exporters Oil Importers 3 45 15 3 2 10 2 30 5 1 1 15 0 0 0 0 -5 -1 -1 -15 -10 -2 -2 -30 -15 -3 -3 -45 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 Public Debt Fiscal Balance (RHS) Sources: National authorities; and IMF staff calculations. 20

Policy Priority 1: Fiscal Policy Needs To Ensure Medium-Term Sustainability Near-term Debt Sustainability, Growth Saving for the Future Fiscal Policy • 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. 21

Oil Exporters: Fiscal Policy Needs To Adjust Fiscal Breakeven Oil Prices Medium-Term Gap Between Projected Fiscal Balance (In U.S. Dollars per Barrel) and Optimal Policies Consistent with PIH 1/ (In Percentage Points of Non-Oil GDP) 100 2 2014 2015 2016 80 0 WEO Oil Price 60 -2 2015 40 -4 20 -6 0 -8 AZE KAZ TKM AZE KAZ TKM Sources: IMF staff calculations 1/ Difference between actual Non-Oil Primary Balance (NOPB) and NOPB recommended by the Permanent Income Hypothesis. The high growth scenario assumes an annual increase in non-oil growth by one percentage point. 22

Policy Priority 2: Monetary Prudence And Greater Exchange Rate Flexibility • Monetary policy should be Financial Intermediation Inflation primarily calibrated to inflationary and Near-term Growth pressures, with due consideration to its impact on financial intermediation and output. • Greater exchange rate flexibility Monetary Policy will help absorb shocks, maintain competitiveness and prevent a rundown of external buffers. Competitiveness, External • Buffers and Balance Stronger macro-prudential Financial Stability regulations, supervision and crisis management framework necessary to ensure financial sector remains healthy. Exchange Rate Policy 23

Policy Priority 3: Structural Reforms To Boost Long-Term Growth Structural Reform Indicators (In Global Percent Rank) 100% Emerging Market Averages 80% 60% 40% 20% 0% Education Financial Control of Export Export Doing Business Quality Services Corruption Diversity Integration 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. 24