IMF names risks of war in Ukraine for Caucasus, revises its economic growth forecasts

The adverse impact of the war in Ukraine on the Caucasus and Central Asia economies has been milder so far, said Jihad Azour, director of Middle East and Central Asia Department of the IMF at a press briefing, Report informs.

“Relative to the latest forecast in April, the CCA growth for 2022 has been revised up by 1.2 percentage points to 3.8 percent this year. Robust growth in the first half reflects a smaller than expected contraction in Russia, robust foreign exchange inflows, as well as resilient trade.

Still, uncertainty remains very high. CCA countries are exposed to spillover from the war through trade, tourism, remittances, and financial channels, with economic activity likely to be increasingly affected as sanctions remain in place for an extended period. The full growth is projected to slow to 3.5 percent over the medium term, which is significantly below the region’s historical average of almost 7 percent,” he said.

Headline inflation, which has accelerated despite recent monetary policy tightening, is projected to remain in double digits at 12.9 percent this year, and 10.5 percent in 2023, he noted.

“I would like to say a few words about the risks to our outlook, and there are many. As I have mentioned, and as you will hear throughout the Annual Meetings, global growth has slowed, and risks are extraordinarily high. Let me highlight some of the key risks that are relevant to the outlook of the region. One, persistently high commodity prices and pervasive food shortages remain a top concern. Amid low strategic food reserves, rising fertilizer costs could present risks to 2023 agricultural harvest, reducing food security and potentially raising social tensions.

Another concern is the potential for tighter than expected financial conditions that could tip the balance toward financial instability and debt distress in certain cases.

Three, broadening inflation is also a concern, as it may require deeper disinflationary policies, which have the potential to be more costly than expected. And the question now is what countries across both MENA and CCA need to prioritize,” he added.

First, countries should seek to restore price stability while, at the same time, protecting vulnerables, preserving fiscal sustainability while maintaining social stability, and also ensure food and energy security, and manage lingering pandemic-related risks.

Two, the worsening of global environment, as well as also the tightening of macroeconomic policies, and the limited policy space in several countries raise the urgency of pressing ahead with structural reforms to bolster economic growth while transforming economies to become more resilient, sustainable, and diversified, as well as also becoming more inclusive.

“I would like to underscore the IMF continued commitment to supporting countries throughout the region, and this through policy advice, technical assistance, where we are scaling up our support both for MENA and CCA with a new center in Kazakhstan, and in many cases, financial support. Since the outbreak of the COVID crisis, the IMF has supported both MENA and CCA, plus Afghanistan and Pakistan with $21.3 billion in financing. And, in addition, in 2021, we provided, through the SDR allocation, additional boost to reserves by $49 billion,” he said.