(EnergyAsia, May 13 2011, Friday) — The economies of the Caucasus and Central Asia (CCA) are expected to grow by less than six percent in 2011, down slightly from 6.5% in 2010, the International Monetary Fund (IMF) said in its latest economic outlook for the region.
 
The CCA region includes Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan and Uzbekistan.

The IMF said the region will be buoyed by “positive external factors” including high commodity prices, the pick-up in Russia, and strong growth in China.

The recovery will continue to be driven by higher oil and gas exports and prices, public investment and fiscal support.

“To sustain the recovery, policymakers in the Caucasus and Central Asia will need to address rising inflation, respond to social pressures arising from high food prices without threatening fiscal stability, and restore the health of banking systems,” said Middle East and Central Asia Department Deputy Director David Owen.

The IMF said the region will have to diversify their sources of growth beyond mining, oil and gas by improving its business environment to increase the role of the private sector and by strengthening regional trade and investment links. Action on these fronts is critical for job creation and poverty reduction, it said.
asia imf forecasts strong economic outlook for central asia in 2011  130511 
Fiscal pressures are a growing concern in the CCA, the report notes. Governments in the region are finding it difficult to resist pressures to raise wages, pensions, and other social payments. In particular, to help limit the impact of higher food prices on the poor, governments are controlling price increases of staple goods, reducing taxes, and drawing on strategic food reserves.

“Such untargeted measures are not very cost effective, as they benefit both the rich and the poor, and involve high fiscal costs. But for many countries these have been unavoidable in the absence of adequate social safety nets,” said the IMF.

Over time, therefore, more effective, targeted safety nets should be developed to protect the poor. The IMF said administrative measures can be phased out, and global commodity prices rises can be allowed to pass through into retail prices.

At the same time, pressures for general wage increases should be resisted, if possible, as these could risk entrenching inflation at a high level and threaten debt sustainability in the region’s oil and gas importing countries such as Armenia, Georgia, the Kyrgyz Republic, and Tajikistan.