Azernews.Az

By Gulgiz Dadashova

Economies of the Caucasus and Central Asia (CCA) countries are currently experiencing strong growth-near 6 percent, which is achieved mostly thanks to high oil and gas prices and strong remittances.

In its regional economic outlook update, the International Monetary Fund (IMF) keeps the near-term outlook broadly favorable for CCA oil and gas exporters (Azerbaijan, Kazakhstan, Turkmenistan, Uzbekistan), reflecting the region's limited direct exposure to Europe, and continued high oil prices.

"Growth is projected to be resilient, at an average of 5.8 percent in 2013 and 6.1 percent in 2014. Most oil and gas exporters are projected to grow between 5 percent and 8 percent in 2013-14, supported by high non-oil growth and, in Kazakhstan, higher oil production. Azerbaijan's growth-still largely sustained by strong non-oil growth-is expected to recover in 2013-14, as oil output is beginning to stabilize," the report reads.

But, the IMF noted that policymakers, particularly in the oil-importing countries, should take advantage of the favorable outlook to re-establish fiscal policy buffers that were eroded in the aftermath of the global crisis.

The Fund believes that the region is vulnerable to shocks due to dependency on remittances and commodity earnings.

"Current account developments are following different paths among oil and gas exporters and importers. The current account balance in the CCA oil and gas exporters declined to 7.1 percent of GDP in 2012, from 10.6 percent in 2011, mainly because of stagnating oil and gas production coupled with strong import growth in light of solid non-oil economic growth. By contrast, the current account deficit in the oil and gas importers remained high at 9.9 percent in 2012, though Tajikistan posted a much lower and declining deficit, helped by benign global conditions for import prices and growing remittances that reflect the continuing recovery of Russia's economy, " the report reads.

The IMF noted that the CCA countries should reinvigorate their reform efforts to address longstanding structural issues, with a view to improving governance, building an investor-friendly environment, developing a more inclusive financial system, and fostering regional trade and finance integration.

"Downside risks, arising from slower global growth, domestic political uncertainties, and geopolitical risks in the region, continue to weigh on the outlook for CCA economies. Should any of these risks materialize, growth would sharply decline through lower exports, remittances, and foreign investment.

Policymakers across the CCA economies should take advantage of the still-favorable outlook to re-establish fiscal policy buffers. This should be done through enhancing the quality and efficiency of public spending, avoiding further increases in hard- to-reverse items, revising the numerous existing tax exemptions, improving tax collection, and reining in general subsidies," the report reads.

The Fund believes that countries also need to reinvigorate their efforts to diversify their economies away from natural resources, further improve their infrastructure, reduce the role of the state in the economy, and promote transparency and good governance.

"Lowering regional trade barriers would also promote greater economic diversification and growth," the report noted.