IMF: “Growth in Caucasian countries remains volatile and relies mainly on energy resources”

IMF: “Growth in Caucasian countries remains volatile and relies mainly on energy resources”

“CCA countries have attained significant economic achievements over the two decades following their independence. The growth rates of these countries exceed the growth rates of many other countries. They also saw a decrease in poverty. Inflation has dramatically decreased from the high levels of 1990s, interest rates also decreased,” the WEO read. “The financial sector is developing, as evidenced by the growth in deposits and lending. Fiscal policy has generally succeeded to create buffer reserves before the global crisis, and many CCA countries rationally used these reserves to support growth and protect the population’s most vulnerable segments, when the crisis swept across the region. Alongside with this, it is still necessary to further improve economic performance and there are still great opportunities for such an improvement.”

According to the WEO’s authors, the growth in CCA countries remains volatile and relies mainly on energy resources, other stock exchange commodities and money transfers.

“Inflation also remains volatile like the economic growth, and the real interest rates, as a rule, did not decrease, creating negative stimuli to financial intermediation. The region’s central banks often lack independence, and procyclical monetary policy is being held, while the high dollarization degree reflects the weak trust in many CCA countries. The progress in restoring fiscal positions and buffer budget stocks after the crisis is irregular.

Non-oil revenues remain low in CCA countries that are rich in natural resources. Their demands for social and capital expenditures are usually significant and quasi-fiscal activities that are supported by targeted lending are widespread, the report said.

CCA countries can take advantage of the opportunity provided by high commodity prices and money transfer flows, in order to conduct large-scale reforms and in the medium term to move into the emerging market countries category.

These reforms can be directed at the basic structural barriers standing on the path of growth and on eliminating them, as well as significantly strengthening the foundations of fiscal, monetary and financial sector policies, thus creating the conditions for further growth, which would be faster, more stable and more comprehensive.

“A recent analysis showed that with the gradual transition of the CCA countries in the next decade solely to the world average of efficiency of economic policy, these countries can achieve significant increases in GDP. Moreover, the sooner these reforms are carried out, the greater the increase in revenues,” the report said.

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