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Emerging Markets

Central Asia urged to use upturn to embark on reform

Azour 100

Economic growth in Central Asia is picking up but experts at the IMF are concerned that leaders are not doing enough to address fiscal deficits

Jihad Azour

Nations in the Caucasus and Central Asia (CCA) are enjoying a timely return to growth, thanks to ongoing reforms and rising energy and commodity and prices. But economists said there was no room for complacency, noting governments still struggled to raise enough cash or balance the books.  

Jihad Azour, director, Middle East and Central Asia at the IMF, told GlobalMarkets that growth “was starting to pick up nicely” across a region blessed with natural resources but hobbled by a lack of economic diversity. A few states remain stuck in low gear — most notably Azerbaijan, whose economy is set to shrink for the second straight year.

But energy-rich nations at the heart of Central Asia are back on form, with economic output in 2017 tipped by the IMF to expand 3% year-on-year in Kazakhstan’s, 6% in Uzbekistan, 6.5% in Turkmenistan, and 4.5% in Tajikistan, a country that raised $500m form its inaugural 10-year international bond, printed in September.

Experts have been quick to applaud the ambitious reform programmes of the region’s wealthier nations. After seeing its economy crater in 2016, Kazakhstan announced plans to break up dominant state firms and widen the safety net, securing much-needed inward FDI. 

BRI benefits 

Meanwhile the death of Uzbekistan’s long-term ruler Islam Karimov in 2016 has led to an economic reawakening under new president Shavkat Mirziyoyev, with Tashkent busy building Chinese-style free trade zones, and aiming for full convertibility of its currency, the som, by 2019. 

Liberalising its exchange rate regime would help Uzbekistan “improve its business climate, facilitate foreign trade, overhaul its tax system”, and free up private capital, boosting growth and integration, said the EBRD’s chief Central Asia economist, Hans Holzhacker. 

Azour added that the wider region would also “benefit considerably” from China’s sprawling Belt and Road Initiative, with new rail lines extending from Beijing to Europe via Central Asia. “Harnessing the belt-and-road will help states generate new sources of income, and secure sustainable long-term growth, by helping them diversify away from an overdependence on inward remittances,” he added. 

But this is just the start of a very long road. Central Asian states still languish in a host of metrics, ranging from corruption to equality to per-capita income. Medium-term growth rates, added Azour, “will remain below the norm”, with the region’s average fiscal deficit tipped by the IMF to come in at 3.4% this year. Three nations, Georgia, Kyrgyzstan, and Turkmenistan, are on track to post a double-digit current account deficit in 2017. “Countries,” said Azour, “need to widen their tax nets, improve their social safety nets, strengthen monetary regimes, and channel revenues” into the hands of those that need it most.”

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