IMF forecasts a sharp decline in economic growth rates in oil-importing countries of the Caucasus and Central Asia

ArmInfo. Strong public investment in Azerbaijan and higher oil production in Kazakhstan, coupled with a significant increase in oil prices in the latter half of 2017, led to better-than-expected growth. This helped drive growth for CCA's oil exporters up to almost 4 percent.

Growth in oil importers exceeded expectations at 5.9 percent. All countries benefitted from rising remittances, while strong external demand provided an additional boost to countries such as Georgia and Tajikistan. A reduction in interest rates and a strong rebound in the agricultural sector also helped GDP growth reach 7.5 percent in Armenia.

Overall, regional growth is expected to be 3.7 percent in 2018 and 3.9 percent in 2019, assuming current policies, indicating a slowdown in the current growth momentum.

According to the Fund's analysts, in a number of CCA countries a high level of dollarization will continue to hinder monetary policy, and among the factors limiting the medium-term growth prospects include the continuing vulnerability of financial sectors in some countries, delays in implementing structural reforms that could stimulate activity private sector and job creation, limited budget space and, in the case of oil exporters, lower oil prices than in 2010-2014.

Based on the assumption of unchanged policies, GDP growth is projected at 3.9 percent in 2019 and, on average, 4.1 percent in 2020-2023. This level of medium-term growth, which is less than half of the average growth rate in the region recorded in the first decade of this century, is likely to be too slow to significantly reduce unemployment, especially in countries that may face return of migrant workers. It is also lower than in most other emerging markets, and lags behind the pace necessary for a significant increase in per capita GDP, especially in oil-importing countries, progress in implementing reforms to improve the quality of institutions, reduce bureaucracy and diversify products and trade .

The existing growth model, which is mainly based on oil and gas, mining, remittances, construction and public spending, appears to be unable to achieve high, sustained and comprehensive growth in the medium term. In order to avoid sluggish economic growth and take advantage of favorable current conditions, CCA countries need to intensify efforts to move to a new growth model with the leading role of the private sector by promoting structural reforms. The environment that fosters the development of a vibrant private sector that contributes more to growth and job creation will better match the full use of global and regional trade integration and ongoing technological progress. More specifically, this strategy should include, first, the completion of the purification of the banking system in some countries while maintaining significant progress achieved by others in restoring the stability of banks; and secondly, steady progress in the implementation of reforms to improve the quality of institutions, reduce bureaucracy and expand product diversification and trade.

The decline in commodity prices, the slowdown in growth and the use of expansionary fiscal policy to neutralize the effects of previous external shocks have contributed to the increase in public debt in CCA countries over the past seven years. In oil-exporting countries, the debt increased almost threefold, albeit from very low levels. In the oil-importing countries, the debt has reached higher levels, albeit at a lower rate.