Global, regional developments and their impact on Armenia

Caucasus and Central Asia
Regional Economic Outlook Spring 2011
Oil & Gas
Oil & Gas
Exporters
Kazakhstan
Oil & Gas
Importers

Georgia
Uzbekistan Kyrgyz Republic

Armenia Turkmenistan
Tajikistan
Azerbaijan

Overview

World Economic Outlook

Caucasus and Central Asia (CCA) Developments and Outlook

Caucasus and Central Asia Кавказ и Центральная Азия
Regional Economic Outlook Spring 2011 Перспективы развития региональной экономики Весна 20 года
2011

Global growth: A double‐speed world
g p
WEO Real GDP Growth Projections
(2005 12, percent change from a year earlier)
(2005‐12, percent change from a year earlier)
10
World
Advanced Economies
8 Emerging and developing economies

6

4

2

0

‐2

‐4
2005 2006 2007 2008 2009 2010 2011 2012

Source: IMF, World Economic Outlook.

2011 3

Multiple‐speed Recovery: Marked Differences in
Growth Rates
Growth Rates
Average Projected Real GDP Growth during 2011‐2012
(percent)

less than 0
0 to 3
3 to 6
more than 6

Sources: IMF, World Economic Outlook; and IMF staff calculations.
Sources: IMF World Economic Outlook; and IMF staff calculations

2011 4

Armenia s region not in the fast lane
Armenia’s region not in the fast lane
1

Real GDP in 2010 in percent of 1997–2006 trend
p 120

115

110

105

100

95

90

85

80
World AE EM Asia LATAM SSA MENA Russia CEE CIS

Source: IMF staff calculations.
1 Pre‐crisis trend obtained by extrapolating 1996–2006 real GDP growth. AE: Advanced economies, EM: Emerging economies, CEE: Central and eastern
Europe, CIS: Commonwealth of Independent States, Asia: Developing Asia, LATAM: Latin America and the Caribbean, MENA: Middle East and North
Africa, SSA: Sub‐Saharan Africa.

2011 5

Downside risks, while diminished, dominate
Prospects for World GDP Growth
(percent change)

Upside risks: 8
90% Confidence interval • Buoyant EM activity
• Strong corporate balance sheets
Strong corporate balance sheets
50% Confidence interval 6
Baseline forecast. Dotted lines show width of fan
chart in April 2010
4

2
Downside risks:
• Sovereign/financial risks
• Oil supply concerns 0

‐2
2008 09 10 11 12

2011 6

Commodity prices
yp

150
Soybean
Price indices, July 2010=100
Wheat
140 Rice
Food Index
130

120

110

100

90

80
Jul‐10 Aug‐10 Sep‐10 Oct‐10 Nov‐10 Dec‐10 Jan‐11 Feb‐11 Mar‐11 Apr‐11 May‐11

2011

Commodity prices have been boosted by
structural, cyclical, and special factors.
structural cyclical and special factors
Real Commodity Prices Contribution to Global Annual Growth
(index; 1995=100) of Oil Demand
500 260 (percent)
U.S. 8
Other Industrial Countries
China
400 Oil prices (left scale)1
p ( ) 220 Emerging and Developing Economies
Emerging and Developing Economies 6
World GDP

4
300 180

2

200 140
0

100 100
‐2

Food Total
(right scale) demand
‐4
0 60
2008Q4 09Q2 09Q4 10Q2 10Q4
1980 90 2000 10 16
1Simple average of spot prices of U.K. Brent, Dubai Fateh, and West Texas Intermediate crude oil.

2011

From Fuel/Food to Core: Evidence from the Last Spike
Advanced Economies Emerging Economies
6
on,

35
el price inflatio

y = ‐0.1674x + 3.5896

rice inflation,
08 average

R² = 0.1579 y = 0.4241x + 7.4695
25
4

average
R² = 0.2053
15
200

2008 a
Non‐fue

Non‐fuel pr
2
5

0 ‐5
‐2 0 2 4 6 8 ‐5 0 5 10 15
Fuel price inflation, 2007 average
Fuel price inflation, 2007 average
8 35

on,
y 0 1767x + 2 6701
y = 0.1767x + 2.6701 y = 0.6204x + 4.9881
y = 0 6204x + 4 9881
,

d price inflatio
price inflation,

6 25
R² = 0.0312 R² = 0.3596

08 average
2008 average

4 15

2

Non‐food
5

200
Non‐food p

0 ‐5
0 2 4 6 ‐20 ‐10 0 10 20 30
Food price inflation, 2007 average Food price inflation, 2007 average
Sources: IMF, World Economic Outlook; and IMF staff estimates.

2011 9

Conclusions

• Heal fiscal and financial
Heal fiscal and financial
Advanced
Ad d • Increase growth above potential
economies • Increase potential growth

Emerging and
g g • Watch for overheating g
developing • Tighten monetary policy
economies • Be aware of capital inflows

g
• Needed to increase growth in advanced
Rebalancing still
Rebalancing still economies, especially U.S.
essential • And allow for fiscal consolidation in AEs

2011 1

Caucasus and Central Asia—Outline

CCA developments and outlook
CCA developments and outlook

Immediate challenges:
• Inflationary pressures
• Fiscal pressures
Fiscal press res
• Impaired banking sectors

Medium‐term challenge: sustaining strong, inclusive, and
diversified growth
diversified growth

2011

Strong recovery underway
g y y
Real GDP Growth (annual percentage growth)

15.0
Post‐crisis recovery took hold in 2010
10.0 China

5.0 CCA oil and
Led by strength of natural resource
Led by strength of natural resource g
gas exporters
p
sectors in oil and gas exporters world
0.0

CCA oil and
‐5.0
50 gas importers
i t
Recovery set to broaden to all CCA
countries in 2011 Russia
‐10.0

Armenia
‐15.0
2000‐08 2009 2010 2011

Sources: National authorities; IMF staff calculations.

2011

Inflation has surged: Risks of becoming entrenched?
Consumer Price Index and non food inflation
25 (End‐of‐period; annual percentage change)

CCA
Headline inflation has picked up headline¹
20

15 Armenia
CCA Armenia
nonfood nonfood
Food and fuel are the driving factors headline
10

5
But demand pressures also play a role
But demand pressures also play a role
0

‐5
Jan‐07 Jan‐08 Jan‐09 Jan‐10 Jan‐11

Sources: IMF, World Economic Outlook; and national
authorities.
¹ Jan and Feb 2011 CCA headline CPI does not include TKM.

2011

In Armenia, private sector demand supported by
external inflows
external inflows
USD mln, 12 m
1600 cumulatve 500
Remittances (lhs)
1400 400

1200 300

1000 200
Bank flows (rhs)
800 100

600 0

400 ‐100

200 ‐200
200

0 ‐300
Dec‐07 Jun‐08 Dec‐08 Jun‐09 Dec‐09 Jun‐10 Dec‐10

2011

As shown by good performance of specific sectors
Activity 25
g
growth , 20
2010 15
10
5
0

on
Educatio
‐5

communication
Mining

nd restaurants
Manufacturing

Health
‐10 Retail trade

munal
rvices

Comm
15
‐15
Hotels an

Transport and c

Household ser

Agriculture
‐20
Column1

“External” Demand Bad weather
was driven factor on “Domestic private” “Government” conditions and
mining and demand was driving demand was structural
manufacturing
f i factor modest problems in
growths the sector
2011

Policy response: Central banks are tightening
y p g g
Adjustment in Policy Rates, 2010‐11
(Policy rate; percent)
(P li t t)
CCA central banks have raised 16 Apr‐10
interest rates
14 Mar‐11

12
Some countries have used
reserves requirements or other 10
sterilization measures
sterilization measures
8
6
CCA governments have taken
administrative actions to limit price
administrative actions to limit price 4
increases or cut taxes
2
0
AZE KAZ TKM UZB ARM GEO KGZ TJK
Sources: National authorities.

2011

Spending pressures threatening fiscal consolidation plans
Fiscal Deficits in Oil and Gas Importers
(Fiscal balance; percent of GDP)
Higher prices leading to increased 3 2007 2008 2009 2010 2011
pressures for higher wages, 0
pensions, and subsidies ‐3
‐6
‐9
Oil importers, with limited fiscal ‐12
space, need to reduce deficits ARM GEO KGZ TJK

Non‐oil‐gas Fiscal Deficits in Oil and Gas Exporters
(Non‐oil‐gas fiscal balance; percent of non‐oil‐gas GDP)
Oil and gas exporters, with
2007 2008 2009 2010 2011
ample fiscal space, plan more 10
gradual consolidation… ‐10

‐30
…and non‐oil deficits remain far ‐50
above pre‐crisis levels AZE KAZ TKM UZB¹

Sources: National Authorities; and IMF staff calculations.
;
¹ Fiscal balance over GDP is used.

2011

Policies to reduce inflation

Watch closely for signs of second‐round effects: core inflation,
wages, and credit growth

Continue to respond proactively to higher headline inflation;
further tightening likely to be needed
further tightening likely to be needed

Ensure that supporting policies in place, including to
Ensure that supporting policies in place, including to
protect the poor

2011

Fiscal policy recommendations

Target spending measures to alleviate inflation effects on the poor

Avoid across‐the‐board spending pressures that feed into inflation

For CCA oil & gas importers: limited fiscal space calls for prioritizing of spending
For the exporters: ensure efficient spending of windfalls, strengthen non‐oil revenues

2011

Impaired banking sectors in some countries
High, and Mostly Rising Levels of Nonperforming Loans
(Nonperforming loans on 90‐day basis; percent of total loans)

28 2008
High and rising NPLs in some countries 2009
continue to impair balance sheets 2010
24
2011 (latest)
2011 (latest)

Resolution strategies need to 20

proceed more forcefully in these
16
countries
12
Policy challenges:
•Increasing competition
•Increasing competition 8
•Strengthening risk management
•Better supervision. 4

0
AZE KAZ TKM UZB ARM GEO KGZ TJK¹
Source: National authorities.
¹30‐day basis.

2011

Medium‐term challenge:
Sustaining strong, inclusive, diversified growth
Sustaining strong inclusive diversified growth

Recovery led by commodities and public spending

Pre‐crisis growth drivers yet to recover:
• Remittances
• Other foreign exchange inflows

…And some proved unreliable
And some proved unreliable

CCA economies remain undiversified

2011

Caucasus and Central Asia
excessive role of the state
but still hard to do business

Countries have made progress…

Key challenges: lack of competition and
Key challenges: lack of competition and

Intra‐regional links costly, underdeveloped
0
120
160
200

40
80

0
2000
4000
6000
8000
10000

Hong Kong SAR, …
Singapore Singapore
China Estonia
Vietnam Kazakhstan
Hong Kong SAR, … Croatia
Pakistan Lithuania
Latvia
Reduce the cost of doing business

Afghanistan
Albania Latvia
Estonia
Georgia
Slovenia
Mongolia
Poland
Turkey
Lithuania
Slovenia
Turkey
Bulgaria
Czech Rep.
Croatia Azerbaijan
Hungary Russian Federation
R
Bosnia Moldova
Romania Hungary
Georgia China
Serbia Poland
Slovak Republic
Sources: Ease of Doing Business 2011.

Slovak Rep.
Ukraine Vietnam
Bulgaria Bosnia and …
Belarus Czech Republic
Russia Serbia
Armenia Pakistan
Moldova Albania
2011

Mongolia Kyrgyz Republic
Paying taxes, Ease of Doing Business

Kazakhstan Romania
Кавказ и Центральная Азия
Перспективы развития региональной экономики Весна 20 года

Kyrgyz Rep. Uzbekistan
Azerbaijan Armenia
Afghanistan Tajikistan
Uzbekistan Ukraine
Tajikistan Belarus
Cost of Export and Import (US$ per container)

Strengthen the quality of institutions and increase
transparency
Governance Indicators 1/
/
(percentile rank 0‐100) CCA Highest
CCA Lowest
CCAavg
80
EM
70 Armenia

rnance
60

CCA institutional quality 50

etter Gover
lags other regions
l h 40

30
Be
20

10

0
Voice and
Voice and Political
Political Government Regulatory
Government Regulatory Rule of Law
Rule of Law Control of
Control of
Accountability Stability No Effectiveness Quality Corruption
Violance

Sources: The 2009 Worldwide Governance Indicators; and IMF staff calculations.
1/ EM is the average rank over 19 emerging markets.

2011

Invest in human development and protect the poor
Human Development and Corruption
80

Poverty and inequality are 70
CEE average
high in some CCA countries
g

an Development
60 AZE KAZ
ARM GEO
50 TKM
Unemployment and
Unemployment and

Higher level of Huma
40 UZB
underemployment are concerns KGZ
TJK
30

20
LIC Average
Investment in human
10
development is key
0
0 20 40
Less Corruption 60 80

Sources: 2010 UN Human Development Indicator and TI
Corruption Perception.
C ti P ti

2011

Please visit the IMF’s websites

IMF Office Yerevan:
www.imf.org/yerevan

Full report:
http://www.imf.org/external/pubind.htm

What do you think?
Make your point on the related blogs:
http://blog‐imfdirect.imf.org

2011

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