BAKU, Azerbaijan, July 11. The Caucasus and Central Asia (CCA) economies lack diversification and heavily depend on oil and mining exports as well as remittances from migrant workers, Trend reports via IMF’s report.
As a result, they are vulnerable to large external shocks to commodity prices and trading partners and greater financial development is meant to cushion external shocks, contributing to sustained economic expansion.
The evolution of the overall financial development index (FD) in the CCA countries from 1993-2019 shows an improvement in most countries. The improvement was particularly pronounced in Armenia and Georgia, where the FD has more than doubled from around 0.1 in 2000 to around 0.2-0.25 in 2019.
Notably, Kazakhstan has seen a rapid improvement of the FD from 0.15 in 2000 to 0.4 in 2008, which coincided with the rapid expansion of the stock market, followed by a reduction in the aftermath of the global financial crisis and convergence to the 0.3 level in 2019.
In general, financial development in the CCA was characterized by periods of swings in financial and credit cycles, which fed back to the real economy through macro-financial linkages.
There is a wide variation of FD across CCA countries. It is notable that in the early 2000s, the FD varied in a narrow range of 0.08-0.15 across CCA countries, while in 2019 the dispersion in FD has increased, ranging from 0.1 (Kyrgyz Republic and Tajikistan) to 0.3 (Georgia and Kazakhstan).
Moreover, in the early 2000s the level of FD in five CCA countries was below that of an average LIC, while in 2019 the level of FD exceeded that of an average LIC in five CCA countries and two CCA countries converged to an average EM. This implies that some countries have achieved faster improvements in FD compared to others over the last two decades. As expected, some CCA LICs (the Kyrgyz Republic and Tajikistan), tend to have lower FD compared to CCA EMs (Armenia, Azerbaijan, Georgia, and Kazakhstan).