Regional Economic Outlook Caucasus and Central Asia. November 2, 2016

Transcription

1 Regional Economic Outlook Caucasus and Central Asia November 2, 216

2 Outline Global and Regional Environment Outlook and Policy Actions Policy Priorities 2

3 Global growth remains lackluster World U.S. Euro Area Emerging markets China Russia

4 Risks are to the downside 6 World GDP Growth (Percent change) Global Financial Stability: Conditions and Risks Emerging market risks 5 Macroeconomic risks Credit risks percent confidence interval Monetary and financial conditions Market and liquidity risks 1 7 percent confidence interval Risk appetite 9 percent confidence interval Source: World Economic Outlook. Oct 216 GFSR Apr 216 GFSR Away from center signifies higher risks, easier monetary and financial conditions, or higher risk appetite. Source: IMF GFSR report. 4

5 Commodity prices are expected to remain weak Brent Crude Oil Price (U.S. dollars per barrel) WEO Baseline Average Oil Price: 216: $43 217: $51 22: $ % confidence interval 86% confidence interval 68% confidence interval Brent Futures Commodity Prices (Index, June 211=1) 2 Copper Alumnium Gold Cotton Sources: Bloomberg; and IMF staff calculations. 5

6 Outlook for Georgia s and CCA s key export markets remains weak Real GDP Growth (Percent) average average -6 Euro area Russia China Turkey U.S. Azerbaijan Armenia 6

7 Global and Regional Environment Outlook and Policy Actions Policy Priorities 7

8 Caucasus and Central Asia Kazakhstan Georgia Armenia Azerbaijan Uzbekistan Turkmenistan Tajikistan Kyrgyz Republic Oil and gas exporters Oil and gas importers

9 Regional growth sharply weakening, with a modest recovery projected for 217 Real GDP Growth (Percent) Georgia: Real GDP Growth (Percent) CCA Oil Exporters Oil Importers

10 Exports and remittances are key channels through which external conditions affect regional growth Total Exports (Billions of USD) Remittances (Jan 211 = 1) CCA Oil Exporters CCA Oil Importers (RHS) Rubles National Currency US Dollars

11 Growth has been supported by fiscal policy Oil Exporters: Government Expenditure (Percent of Non-oil GDP) Oil Importers: Government Expenditure (Percent of GDP) AZE KAZ TKM -45 ARM GEO KGZ TJK -1 11

12 External shocks have led to significant exchange rate movements within the CCA Oil Exporters (U.S. dollars per national currency, January 21 = 1) AZE KAZ TKM UZB Oil Importers (U.S. dollars per national currency, January 21 = 1) ARM GEO KGZ TJK 12

13 Post-shock Depreciation real depreciation Inflation in 216 Currency adjustment has helped unwind previous real appreciations, but temporarily increased inflation Real Effective Exchange Rates (Percent Change, Trough to Peak or vice versa) ARM GEO KGZ TJK Pre-shock Appreciation TKM AZE KAZ UZB real appreciation 45 degree line ARM Nominal Effective Exchange Rates and Inflation (Percent) TKM UZB GEO KGZ TJK KAZ AZE Nominal effective exchange depreciation (Percent change) 13

14 Fiscal and external vulnerabilities have increased Public Debt (Percent of GDP) External Debt (Percent of GDP) Change Change ARM GEO KGZ TJK AZE KAZ TKM UZB ARM GEO KGZ TJK AZE KAZ TKM UZB 14

15 Financial vulnerabilities have also risen Non-performing Loans (Percent of Total Loans) Private Credit and Deposits (Percent Change) Latest Credit Deposits Note: NPLs in Azerbaijan include only the overdue portion of the loans. In Kazakhstan, the reduction reflects the de-licensing of a bank with significant NPLs and legislation changes allowing banks to move NPLs to a Special Purpose Vehicle. Turkmenistan's data are not available Note: Adjusted for exchange rate effects. Data not available for Turkmenistan and Uzbekistan. 15

16 NBG responded well to the external shocks Lari per USD Policy rate and inflation Inflation Policy Rate Jan-214 Aug-214 Mar-215 Oct-215 May M1 214M8 215M3 215M1 216M5. 16

17 For Georgia, large individual exchange rate variations masks limited effective exchange rate movements Exchange Rates (July 214=1, decrease=lari depreciation) NEER and REER (July 214=1) Dollar per Lari Euro per Lari 12 Ruble per Lari REER NEER 6 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 6 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 17

18 Lari depreciation against USD has supported exports and remittances (in Lari) Exports and Remittances in USD (212Q1 = 1) 18 Exports and Remittances in GEL, and Tourist Arrivals Exports SA Remittances SA 8 6 Exports Remittances Tourist Arrivals 4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q

19 Despite dollarization, banking system remains healthy after the depreciation against USD Credit and Deposit Dollarization (Percent) Credit Dollarization Deposit Dollarization 15 1 Non-Performing and Watch Loans (Percent of Total Loans) NPLs (NBG Definition) NPLs (Standard 9 day overdue definition) Watch Loans Jan-13 Jan-14 Jan-15 Jan-16 Jan-13 Jan-14 Jan-15 Jan-16 19

20 GEO ALB KGZ TKM KOS TJK BIH SRB TUR BLR ARM KAZ LTU MKD LVA ROM AZE UKR POL UZB BGR HUN HRV AZE UZB TKM ALB TJK TUR ROM BIH MKD POL BLR LTU BGR ARM GEO SRB KGZ KAZ HRV HUN UKR LVA Georgia s external position remains relatively weak Current Account Balance (Percent of GDP) External Debt (Percent of GDP) Regional Average Regional Average

21 Risks to the outlook are tilted to the downside Weaker growth in trading partners (Russia, China, Europe) Further weakening of prices for oil and other commodities Increase in global risk aversion and financing costs Increase in global protectionism and/or Slower domestic reforms 21

22 Global and Regional Environment Outlook and Policy Actions Policy Priorities 22

23 Macroeconomic and Financial Policy Priorities Fiscal Continue to support growth in the near term if budget space and buffers allow Develop credible medium-term consolidation plans to ensure sustainability Monetary Focus on inflationary pressures taking into account growth and financial stability Strengthen monetary and exchange rate frameworks Financial Sector Improve supervision, macro-prudential policies, and crisis management frameworks 23

24 Accelerating structural reforms remains key to unlocking growth potential Structural Reform Indicators (In Global Percent Rank) 1% 8% Emerging Market Averages 6% 4% 2% % Education Quality Financial Services Control of Corruption Export Diversity Export Integration Doing Business Sources: Education Quality: Global Competitiveness Report; Financial Services: Global Competitiveness Report and Doing Business; Control of Corruption: Worldwide Governance Indicators; Export Diversity: IMF/DFID Export Diversity Index; Export Integration: World Economic Outlook; and Doing Business: Doing Business Report. 24

25 Key Takeaways Commodity prices and growth in key trading partners are set to remain low in the coming years. A weak and fragile recovery is projected, amid subdued external environment, rising vulnerabilities, and lower policy space. Countries with buffers can support growth in the short run, but multi-year fiscal consolidation plans are needed to ensure debt sustainability. Stronger monetary policy frameworks and improved financial supervision can support more flexible exchange rates and reduce risks to inflation and financial sector stability. Structural reforms are needed to boost medium-term growth prospects, improve living standards, and create jobs. 25

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