(EnergyAsia, May 30) — The latest ‘Regional Economic Outlook’ report by the International Monetary Fund (IMF) highlights strong macroeconomic performance and prospects in the Central Asia region, helped by high commodity prices and buoyant demand in neighboring Russia and China. David Owen, senior adviser in the IMF’s Middle East and Central Asia Department, recently submitted a summary of a report.
He said macroeconomic performance in the Central Asia region was strong in 2005, with economic growth in Kazakhstan, Kyrgyz Republic, Tajikistan, and Uzbekistan averaged more than 8% last year despite a weak patch in Kyrgyz Republic in the wake of the March 2005 Tulip revolution.
Growth was fueled by generally accommodative monetary policies and high oil prices, inflation increased throughout the region but remained in single digits except in Uzbekistan.
He said that fiscal policies have improved markedly in recent years, helping to further reduce the public debt burden in all four countries. Debt relief has also been important in Tajikistan (including recently under the Multilateral Debt Relief Initiative), and in Kyrgyz Republic, which has recently become eligible for further relief under the Highly Indebted Poor Countries (HIPC) Initiative. Large external inflows:reflecting strong growth in commodity exports, remittances, and capital inflows:have led to rising foreign reserves in all countries.
Mr Owen said: “Near-term growth prospects are good. Growth in 2006 is set to remain strong in Kazakhstan, Tajikistan, and Uzbekistan:in the 7 to 8% range. Recovery is underway in Kyrgyz Republic, with growth projected at 5%.
“Policies should focus on containing inflationary pressure while taking full advantage of the favorable external environment:especially in Russia and China:to secure a lasting improvement in growth performance.”
The authorities in all four countries could limit inflationary pressure by tightening monetary policies and allowing more nominal exchange rate appreciation in response to continued foreign inflows. With improved fiscal and debt positions, governments are now better placed to address their urgent development needs.
In Kazakhstan, he said that provided adequate monetary tightening is undertaken, there is room to use more of the country’s strong oil revenues to improve infrastructure and address social priorities.
He added: “Kyrgyz Republic and Tajikistan must carefully balance opportunities for increased donor financing of investment projects with the need to maintain debt sustainability. It is essential that they avoid a new cycle of excessive borrowing.
“The strong performance of neighbours Russia and China highlights the potential benefits of closer regional cooperation, particularly through greater trade liberalisation. The Central Asia Regional Economic Cooperation program (CAREC) provides a valuable forum for promoting closer integration in the areas of trade policy and trade facilitation, energy, and transport.”
While reform priorities vary across countries, he said all four countries need to pursue a broad range of structural and institutional reforms to boost productivity, improve the business environment, and raise investment spending. These measures will increase their long-term growth potential and reduce poverty.