Baku, Azerbaijan, Oct.23
By Anvar Mammadov - Trend:
A sharper-than-expected slowdown in China could weaken demand for exports from Caucasus and Central Asian countries (CCA) and reduce foreign direct investment, said a report issued by the International Monetary Fund (IMF).
"In addition, China's slowdown could put further downward pressure on global commodity prices (especially oil and metals), given its large share of global commodity consumption," said the report. "This would hurt exporters of these commodities, including in the CCA region."
Commodity importers will also be affected through their linkages with Russia and CCA commodity exporters, according to IMF.
The IMF experts believe that the rising role of China in the CCA region provides an opportunity for enhancing growth, employment, and diversification.
It also poses policy challenges, namely rapidly rising external debt obligations to China, which need supportive policies to ensure the region's debt remains sustainable, according to IMF.
"To maximize the growth and employment effects of Chinese investment and trade, and to ensure external debt sustainability, supportive policies need to be put in place," said the report.
"Implementing a prudent debt management strategy and subjecting investment projects to rigorous appraisal would strengthen the capacity to manage the rapidly growing external debt," said IMF.
Streamlining tax incentives and strengthening the business climate would also help level the playing field for domestic and foreign investors, the report said.
Trade and financial links between China and the CCA region have strengthened over the past decade and are expected to continue to expand in the coming years, according to the report.
"Trade between China and the CCA region grew almost tenfold in the past decade, to $48 billion at end-2014 from only $5 billion in 2005," said IMF. "Chinese official lending to the CCA region also soared, from $262 million in 2007 to $4,435 million in 2014."
The report said that Chinese foreign direct investment has also increased rapidly in recent years, reaching $5,555 million in 2012.
"Over the next three to five years, China is expected to invest an additional $30-$35 billion in the CCA, mainly in infrastructure and mining," said the IMF report.
Edited by SI
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