BAKU, Azerbaijan, July 11. To bridge the income gap with emerging Europe and enhance economic resilience, the countries of the Caucasus and Central Asia (CCA) need a new growth model that promotes efficient resource allocation, Trend reports.
As a research of the International Monetary Fund (IMF) said, since gaining independence in the early 1990s, the CCA region has made progress in terms of income levels and living standards, but those economies still lag behind emerging Europe.
The CCA economies are undergoing transitions to market economies, with the state maintaining a dominant role. However, the region faces risks from global fragmentation, particularly due to Russia-Ukraine war, which could disrupt trade and financial flows.
The private sector should drive growth while the state creates a conducive business environment, provides essential public goods and services, invests in healthcare, education, and infrastructure, and safeguards the vulnerable. Structural reforms are necessary to remove barriers to growth, the IMF said.
The Fund's research indicates that implementing structural reforms can boost CCA output by 5-7 percent over the next 4 to 6 years, significantly improving people's well-being. Governance reforms, including state-owned enterprise reforms, would yield the highest output gains of nearly 6 percent. Labor market reforms, easing external finance and trade restrictions, and liberalizing product and financial markets are also crucial. Additionally, countries with better governance tend to benefit more from other reforms, highlighting the importance of comprehensive governance reforms.
Furthermore, increased and targeted social spending can reduce poverty and enhance the living standards of the poor.
For instance, Tajikistan would need to allocate an additional 3.5 percent of GDP annually to social safety nets to raise the median income of the poor to the international poverty line of $3.65 per day. Well-designed social safety nets will protect the most vulnerable during the transition to reduce the state's role in the economy and adopt a new growth model, the IMF added.