On November 20, 2012, Azim Sadikov, a Senior Economist from the IMF’s Resident Representative Office in Georgia, delivered a presentation of the IMF’s annual report on the “Caucasus and Central Asia [CCA] Regional Economic Outlook” to ISETers. The presentation covered an analysis of current and projected macroeconomic trends on both the global and CCA regional scale.
Mr. Sadikov started the talk by introducing a current evaluation of global economic performance and provided a brief summary of specific risks and uncertainties endangering the steady growth of the global economy. According to the report, the main challenges of 2011 and at the start of 2012 were the slowdown in global manufacturing and merchandise exports, the outflow of capital from European periphery countries, high government bond spreads, country default risks, and increasing global uncertainty.
In addition, real growth rates and real credit growth rates have been declining in Turkey, Brazil, India, and China. Commodity prices have gone up, but this was mainly because the price of oil had been increasing and, according to the report’s projections, this trend is not likely to be maintained. In Europe, periphery countries have been contracting while core countries have been increasing with low positive rates, which is the trend likely to be maintained over the short-term future.
In the background of this pessimistic global outlook, recent developments in CCA countries have been promising. In general, the report’s outlook is positive for the CCA region. Remittances and commodity prices have benefited CCA oil importer countries. Inflation has also maintained low levels; however, it has been sensitive to global food prices because volatility in food prices is out of the control of macroeconomic policy. On the other hand, there are fiscal consolidation and current account(CA) deficit problems in the region that need to be addressed in order to keep risk and uncertainty low.
Mr. Sadikov closed his presentation by providing an overview of existing problems, mainly in the Georgian fiscal sector, which are obstacles to competitiveness, and provided further policy recommendations. Georgia needs to maintain a low fiscal deficit and a low level of debt so that, in the event of a global slowdown, the country has the flexibility to loosen its fiscal policy and to provide stimulus to the economy. Georgia also has one of the highest CA deficits in the region and in order to finance this deficit, Georgia borrows from abroad, increasing the net foreign liabilities (NFL) of the country. The good news, however, is that this NFL is made up of FDI, which is considered to be a very stable source of funding. Despite this, other types of liabilities, which are mainly forms of short-term speculative money flow, have recently been substituting FDI flows thereby increasing the risk for the country. Based on these points, the report provides the following recommendations for Georgia: to lower the CA deficit, to continue fiscal consolidation, to improve the business environment, and reduce skill mismatches through training.
The school would like to thank Mr. Azim Sadikov for providing an interesting and comprehensive presentation to the ISET community.