IMF: post-crisis recovery in Caucasus expected to continue in 2011

PanARMENIAN.Net - Strong post-crisis recovery in the Caucasus and Central Asia (CCA) region is expected to continue in 2011, although at a somewhat slower pace than in 2010, the International Monetary Fund (IMF) said in its Regional Economic Outlook for Caucasus and Central Asia released in Tbilisi.

According to the report, average growth across the region this year is expected to remain strong, at just below 6 percent, compared with 6½ percent last year. The recovery was mainly driven by higher oil and gas exports - helped by favorable prices - and by public investment and fiscal support to sectors affected by the crisis.

Looking ahead, a key issue for countries in the region will be to diversify their sources of growth beyond mining, oil, and gas.

Fiscal pressures are a growing concern in the CCA, the report notes. Governments in the region are finding it difficult to resist pressures to raise wages, pensions, and other social payments. In particular, to help limit the impact of higher food prices on the poor, governments are controlling price increases of staple goods, reducing taxes, and drawing on strategic food reserves.

At the same time, pressures for general wage increases should be resisted, if possible, as these could risk entrenching inflation at a high level and threaten debt sustainability in the region’s oil and gas importing countries (Armenia, Georgia, the Kyrgyz Republic, and Tajikistan).

Headline inflation has sharply risen in the CCA, as in other parts of the world, according to the report. With global food and fuel prices expected to rise by a further 15–18 percent in 2011, inflationary pressures are projected to continue, with headline inflation rising further in the months ahead.

Restoring banking system health remains a key priority for the region, the report says. In Armenia and Georgia, banks’ profitability is recovering, foreign funding and domestic credit have picked up, and nonperforming loans have declined.