Countries that have fared relatively well over the past year’s crisis because of comparative isolation from the world economy should not make a virtue of the experience, the IMF Middle East and Central Asia chief has said.
“If you are economically isolated, you may be be less hurt in a global downturn, but over a longer period your growth also risks being less,” Masood Ahmed told Emerging Markets. “This is all about learning lessons on how best to integrate with the world economy. It’s not a case of ‘Should I? Shouldn’t I?’.”
Ahmed stressed that countries with high levels of state intervention should not conclude that counter-cyclical measures over the past year removed the need for reforms to stimulate private-sector investment in order to achieve growth and higher levels of employment.
Ahmed was speaking in Istanbul after a press briefing on the Caucasus and Central Asia (CCA), which highlighted the IMF’s projection of 15.3% growth in Turkmenistan for 2010.
“Turkmenistan is less affected than the others [countries in CCA] because of low linkages with the global economy, and because it has substantial reserves and virtually no external debt,” Ahmed told the briefing.
Likewise, the IMF has earlier noted – in a staff report on Syria published earlier this year – that “the worsening of international financial conditions does not appear to have affected [the] financial sector, given its limited integration with the global system”.
Both in the Middle East and Central Asia, oil exporting countries with accumulated state revenues – notably Abu Dhabi in the UAE – have been less battered than some by the global downturn.
In his briefing, Ahmed said the region had been “severely affected by the global crisis”, with growth dropping from 6.6% in 2008 to a projected 1.5% this year.
The “big differences” he said were primarily between energy exporters and energy importers, with the former performing far more strongly.
Exporter Azerbaijan is projected 7.5% in 2009 and 7.4% in 2010, and Uzbekistan 7% and 7%. Kazakhstan was a partial exception, said Ahmed, because of its banking problems, giving it projections of -2% and 2% growth for 2009 and 2010.
Energy importers, meanwhile, had been hard hit by the effect on remittances of the downturn in Russia, especially in its construction sector.
Ahmed said there had been a 30% decline in remittances from Russia in the year ending June 2009, leading to a decline of between 20% and 60% in remittances reaching individual countries.
The Kyrgyz Republic, with a quarter of its GDP made up of remittances is projected 1.5% and 3% growth, and Tajikistan, where remittances are nearly half GDP, is projected 2% and 3%.
Ahmed warned that the fall in remittances meant that “many gains in poverty reduction had been halted or in some cases reversed.” And throughout the region, improving prospects should not mean the crisis was over. “Over 2009-10 you will notice an impact in terms of worsening living standards and social inequalities,” he said. “The struggle for these countries for next year is to continue to develop counter-cyclical policies.”
Overall, Ahmed praised the way governments in CCA had handled the problems of the past year, both in fiscal response and in allowing their exchange rates to move with the depreciation in the Russian rouble.“You save for a rainy day,” he said, “and it’s been a rainy day for these economies.”