Ongoing structural reforms in Caucasus, Central Asia to boost medium term GDP growth - Kristalina Georgieva (Interview)

Economy Materials 12 June 2023 09:37 (UTC +04:00)
Ongoing structural reforms in Caucasus, Central Asia to boost medium term GDP growth - Kristalina Georgieva (Interview)
Asmar Bayramova
Asmar Bayramova
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BAKU, Azerbaijan, June 12. The International Monetary Fund (IMF) is encouraging countries of the Caucasus and Central Asia (CCA) region to adopt a new growth model that reduces the role of the state and empowers the private sector, Managing Director of the Fund, Kristalina Georgieva, said in an interview with Trend.

During her inaugural visit to Kazakhstan, Kristalina Georgieva attended the Astana International Forum, which took place on June 8-9.

Outcomes and expectations from the visit to Kazakhstan

"I am delighted to be making my first visit to Kazakhstan as Managing Director of the IMF. This is a chance to strengthen the IMF’s partnership with Kazakhstan as well as the broader Caucasus and Central Asia (CCA) region. Kazakhstan has made great progress in building a prosperous society since becoming an independent nation in the early 1990s. I remember how challenging the transition was in my home country, Bulgaria, so I salute the courage of your policymakers and the resilience of your people," she said.

Georgieva noted that she looked forward to meeting with the President of Kazakhstan Kassym-Jomart Tokayev, as well as policymakers, women business leaders, and students.

"I want to share the IMF’s views, but primarily, I am here to listen," she said.

According to her, there are several critical issues on the agenda: what is Kazakhstan’s growth strategy? How can the region diversify its economy away from oil, and promote inclusive growth? Kazakhstan is also heavily exposed to the costs of geoeconomic fragmentation and climate change. How can it tackle these challenges?

"Countries in the CCA region made impressive reform strides after gaining independence. However, as the pace of market-oriented reforms slowed, so did growth. Then the region was hit by the pandemic and the spillovers from the war in Ukraine. We are encouraging countries in the region to adopt a new growth model that reduces the role of the state and empowers the private sector. The goal is to create more jobs and raise standards of living across society. That is the best way for CCA countries to insulate themselves in a shock-prone world," she said.

A highlight of her visit was the formal opening of the Caucasus, Central Asia, and Mongolia Regional Capacity Development Center (CCAMTAC) in Almaty. According to her, the center is already a hub for capacity development and training in the region. The managing director also noted that she was looking forward to participating in the Astana International Forum, which is a key vehicle for engagement and reaffirmation of IMF's commitment to the region.

Global economic outlook

When it comes to the IMF's assessment of the global economic outlook now and the challenges policymakers and central bankers need to focus on for growth, she said that the Fund projects global GDP to grow 2.8 percent in 2023 and 3 percent in 2024. Inflation has proven to be sticky, and financial-sector pressures have added to the uncertainty in the global economy. High debt levels, geoeconomic fragmentation, and climate change pose significant challenges. In her opinion, this clouds everyone’s prospects—especially the most vulnerable.

Global inflation is forecast to be 7 percent in 2023, but core inflation is not expected to drop to central banks’ targets until 2025.

"With this in mind, we are urging central banks to keep monetary policy tight. Fiscal policy in many countries has room to be tightened to help ease inflation pressures, restore debt sustainability, and rebuild fiscal buffers. Any additional fiscal support should aim to help the most vulnerable," she said.

She went on to add that the economies in the CCA region performed relatively strongly in 2022, yet due to the war in Ukraine and the increased risk of fragmentation, the outlook remains highly uncertain. For Kazakhstan, the Fund projects growth to accelerate from 4.3 percent in 2023 and to 4.9 percent in 2024. This rather strong activity is encouraging because it comes mostly from the non-oil sectors of the economy.

"Despite the strong recent economic results, it will be important for countries in the region to accelerate market-oriented reforms. At the IMF, we found that structural reforms could boost CCA output by 5 to 7 percent in the medium term. On my trip, we plan to release an IMF paper that contains those findings. Reforms to reduce the role of the state, for example, could significantly boost medium-term growth—helping cushion the economy against future shock," Kristalina Georgieva said.

IMF's key objectives and priorities in supporting economic stability and growth

"On the bright side, most major economies have avoided slipping into recession, despite higher inflation and rising interest rates. However, we can’t afford to be complacent. Global growth remains weak by historical standards—both in the near and medium term. To brighten the growth outlook, we need to fight inflation and protect financial stability, while investing in human capital and the green transition, boosting international cooperation and trade, and supporting vulnerable countries," she said.

In her opinion, Kazakhstan’s recent strong growth helped the country to raise living standards and reduce poverty. However, the uncertain global environment calls for well-coordinated macroeconomic policies. Monetary policy should ensure that inflation is firmly on a downward path and that inflation expectations are anchored. Fiscal policy should aim for gradual consolidation to preserve buffers and support disinflation.

"Efforts to strengthen the bank supervision and resolution frameworks will benefit from recommendations from our Financial Sector Assessment Program, a comprehensive diagnostic of the financial sector currently underway," she added.

Finally, increasing the level, resilience, and sustainability of economic growth requires economic diversification with less reliance on the oil sector. To achieve this, the private sector will need to play a central role, which calls for a transformation of the public sector and a reduction of its footprint in the economy.

"The IMF is doing everything we can to help the region--just as we did during the early years following independence, and later during the global financial crisis and the pandemic. Our response to the COVID shock was swift and sweeping. Overall, we provided $800 million in emergency financing to low-income countries in the region. We stand ready to help as you continue on your journey to achieve robust, sustainable, inclusive growth," she said.

IMF's assistance to Kazakhstan in building resilience and managing macroeconomic vulnerabilities

"We have strengthened our partnership with Kazakhstan in recent years, helping the authorities manage the impact of multiple shocks and build economic resilience. Our regular dialogue is structured around Article IV consultation missions and staff visits to Kazakhstan, and increasingly, through virtual exchanges. Our policy advice is aimed at preserving economic stability and highlighting the necessary reforms to improve the resilience of Kazakhstan’s economy and promote sustainable, inclusive growth," the managing director said.

Furthermore, she added that in 2021, the IMF supported Kazakhstan through a Special Drawing Rights allocation of about $1.6 billion. The allocation was used to boost reserves and support Kazakhstan’s already large external buffers. Capacity development and training is another pillar of IMF's support to Kazakhstan, which has also intensified recently, thanks to the CCAMTAC.

"We have supported your efforts to modernize your institutions and strengthen monetary policy, financial supervision, public financial management, and statistical frameworks. For example, we have provided extensive input into the first Fiscal Risk Statement published last year with the 2023 budget, as well as advice to strengthen the recently established Agency for Regulation and Development of the Financial Market," Kristalina Georgieva said.

IMF's role in supporting Kazakhstan's goal to achieve carbon neutrality

"Climate change is a grave threat to macroeconomic and financial stability. For a country so heavily reliant on fossil fuels, we see Kazakhstan’s climate-related commitments as commendable. Like many other countries, Kazakhstan will need a comprehensive set of reforms to adapt to the impact of climate change, mitigate carbon emissions, and prepare for an economic transition away from its dependence on fossil fuels, given global decarbonization. These transformations toward a greener, more diversified economy will require a combination of higher fossil fuel prices, and increased public and private investment," she said.

The IMF can support Kazakhstan’s efforts in this area along several dimensions.

"On the fiscal front, our analytical tools provide comprehensive assessments of various policy options, and our experts provide advice to improve the quality of public investment, including building low-carbon and climate-resilient infrastructure. IMF technical assistance can help strengthen Kazakhstan’s social safety net and alleviate the impact of the transition on the most vulnerable. Finally, on the financial sector front, we can help Kazakhstan to develop a climate risk assessment framework, as is the case as part of the current Financial Sector Assessment Program. We are more than happy to work with the government on all of these issues," she concluded.