Central Asia-Caucuses’ Seared Stargazing
The World Bank’s Central Asia/Caucasus review depicted “dark skies” for the region with a recession worse than the global financial and subsequent 2015 currency crises. Output will contract almost 2% in contrast with the original 4% pre-virus forecast, with oil and gas exporters Azerbaijan, Kazakhstan and Turkmenistan suffering from the price crash in the commodity accounting for one-third of GDP. Importers in turn like the Kyrgyz Republic, Tajikistan and Uzbekistan face reduced Russia remittances and supply chain disruptions in Asia and Europe. Armenia and Georgia will absorb tourism blows, and exchange rate impact ranges from the flexible Kazakh tenge hitting new lows to the more stable managed Kyrgyz and Tajik units. In 2019 growth was “resilient” at near 5% in 2019, on wider current account deficits reflecting both import and export squeezes. Fiscal balances will also deteriorate on health and social outlays, and increased retail and mortgage credit has combined with slacker standards under subsidized programs in Azerbaijan and Kazakhstan. Bad loans and liquidity pressures will accumulate as forbearance and central bank support are planned for households and small business. Most countries in the area have banned travel and imposed lockdowns, and Kazakhstan’s central bank hiked rates almost 300 basis points. It rolled out the biggest stimulus at 9% of GDP, and Armenia’s was one-third that size, and the bank urges steps to facilitate medical supplies and treatment. Fiscal space is limited, and deficit widening should be temporary, while monetary tightening may be needed to defend currencies and capital inflows. Outright controls should be a last resort, and macro-prudential policies the immediate resort if outflow tension persists. The region is in line for IMF Rapid facility access to reinforce these approaches, with the Kyrgyz Republic the first recipient of a $120 million line.
The publication also covered the MENA group with “drastic economic decline” in store with the Gulf GDP tumbling 3%., and Algeria, Iran and Iraq are off even further at 5%. Libya’s civil war will produce another 50% plunge, while Yemen’s contraction could tail off at 3% amid cease-fire rumors. Saudi Arabia, where reserves shrank the most to date in March, still has ample fiscal buffers, but Bahrain and Oman are hard-pressed. Regional current account balances will hit a 6% deficit, double the previous surplus. Public wage bills and pensions remain too high Iraq and Kuwait, and tourism declines will exacerbate strains in the UAE and elsewhere. Supply and demand and remittance shocks will batter Egypt, Jordan, Morocco, Pakistan and Tunisia, on steeper budget and trade deficits. Tax relief and subsidies, and rate cuts and direct credit help will drive virus response, but countries already with mixed records under IMF arrangements will struggle to maintain sound macro and structural performance. In Jordan and Lebanon the Syrian refugee crisis compounding their predicament is now a decade old with no end in sight and almost two million in camps and informal jobs between them. The pandemic brings “another vulnerability layer” but ultimately these communities should be integrated into mainstream livelihoods and medical care as emergency phases pass, the document directs.