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Foreign Inflows to the Caucasus and Central Asia · Non-oil fiscal balance for Azerbaijan,...
Transcript of Foreign Inflows to the Caucasus and Central Asia · Non-oil fiscal balance for Azerbaijan,...
Foreign Inflows to the Caucasus and Central Asia
David Owen
April 2007
Overview of Presentation
• Size and types of inflow• Policy responses:
– Intervention and the exchange rate– Monetary policy (sterilization; interest rates)– Fiscal policy
• Macroeconomic results:– Inflation– Real exchange rates– Growth and income per head
Size and Types of Inflow
Foreign inflows to the CCA have nearly doubled since 2000
(In percent of GDP)
15
20
25
30
35
2000 2001 2002 2003 2004 2005 2006
Oil exports, FDI and remittances
All countries are receiving substantial inflows
(Average of 2005 and 2006; in percent of GDP)
-10
0
10
20
30
40
50
60
70
80
Azerbaijan Kazakhstan Turkmenistan Armenia Georgia KyrgyzRepublic
Tajikistan Uzbekistan
FDI Oil exports Remittances
Policy Responses
Official reserves have risen sharply
(In billions of dollars)CCA
Oilexporters
Other0
10
20
30
40
50
60
2000 2001 2002 2003 2004 2005 2006
Reserves have risen in all countries
0
5
10
15
20
25
30
Azerbaijan KazakhstanTurkmenistan Armenia Georgia KyrgyzRepublic
Tajikistan Uzbekistan
(Change from end-2004 to end-2006; in percent of GDP)
Most countries now have adequate reserves coverage
0
2
4
6
8
10
12
14
16
18
20
Azerbaijan Kazakhstan Turkmenistan Armenia Georgia KyrgyzRepublic
Tajikistan Uzbekistan
(End-2006; in months of imports)
0
1
2
3
4
5
Armenia Georgia KyrgyzRepublic
Tajikistan Uzbekistan
(Non-oil exporters, end-2006;in billions of dollars)
Exchange rate regimes are mostly inflexible, with limited nominal appreciation
(Percentages; during 2005 and 2006)
Armenia
KyrgyzRepublic
Azerbaijan
TajikistanUzbekistan
GeorgiaTurkmenistan Kazakhstan
-20-15-10-505
1015202530
Nom
inal
app
reci
atio
n
More flexibility(Based on size of monthly changes in exchange rates)
100806040200
Broad money and credit growth have been fast in most countries
0102030405060708090
100
Azerbaijan Kazakhstan Turkmenistan Armenia Georgia KyrgyzRepublic
Tajikistan Uzbekistan
Broad money Credit to private sector
(2006; in percent)
The region has moved into fiscal surplus
(In percent of GDP)
CCA
Oilexporters
Other
-6
-4
-2
0
2
4
6
8
2000 2001 2002 2003 2004 2005 2006
Commodity exporters have sizeable surpluses, others have moderate deficits
-4
-2
0
2
4
6
8
Azerbaijan Kazakhstan Turkmenistan Armenia Georgia KyrgyzRepublic
Tajikistan Uzbekistan
(Average of 2005 and 2006; in percent of GDP)
Most countries have tightened fiscal policy in response to higher inflows
Non-oil fiscal balance for Azerbaijan, Kazakhstan, and Turkmenistan.
-6
-4
-2
0
2
4
6
Azerbaijan Kazakhstan Turkmenistan Armenia Georgia KyrgyzRepublic
Tajikistan Uzbekistan
(Change from 2004 to 2006; in percent of GDP)
Macroeconomic Results
Inflation has been rising and now averages over 10 percent
(Average; in percent)
CCA
56789
101112131415
2002 2003 2004 2005 2006
Inflation is now above the comfort zone in most countries
0
2
4
6
8
10
12
14
Azerbaijan KazakhstanTurkmenistan Armenia Georgia KyrgyzRepublic
Tajikistan Uzbekistan
(End-2006; in percent)
Policies have not prevented real appreciation
(Real effective exchange rate index, 2000=100)
CCA
Oilexporters
Other
50
60
70
80
90
100
110
2000 2001 2002 2003 2004 2005 2006
Nearly all countries have experienced real appreciation since 2004
(Real effective exchange rate index, 2004=100)
80
90
100
110
120
2004 2005 2006
Armenia
Azerbaijan
Uzbekistan
Kazakhstan
Turkmenistan
Georgia
Kyrgyz Republic
Tajikistan
But non-oil export growth has been strong
(In percent)
CCA
-505
10152025303540
2000 2001 2002 2003 2004 2005 2006
...with double digit non-oil export growth in all countries
05
1015202530354045
Azerbaijan Kazakhstan Turkmenistan Armenia Georgia KyrgyzRepublic
Tajikistan Uzbekistan
(Average for 2005 and 2006; in percent)
And GDP growth has also been strong....
(In percent)
CCA
Oilexporters
Other
02468
1012141618
2000 2001 2002 2003 2004 2005 2006
....including in countries that have had substantial real appreciation
0
5
10
15
20
25
30
Azerbaijan Kazakhstan Turkmenistan Armenia Georgia KyrgyzRepublic
Tajikistan Uzbekistan
(Average growth in 2005 and 2006; in percent)
Real appreciation and strong growth can coexist
(Percentage change; 2004 to 2006)
Azerbaijan
ArmeniaKazakhstan
GeorgiaTurkmenistan
KyrgyzRepublic
Tajikistan Uzbekistan
0
5
10
15
20
25
30
35
-10 -5 0 5 10 15 20 25
Real appreciation
Ann
ual a
vera
ge G
DP
gro
wth
And real appreciation helps to boost growth in dollar GDP per head
Azerbaijan
ArmeniaKazakhstan
GeorgiaTurkmenistan
KyrgyzRepublic
Tajikistan Uzbekistan
0
20
40
60
80
100
120
140
-10 -5 0 5 10 15 20 25
Real appreciation
GD
P p
er h
ead
grow
th
(Percentage change, 2004 to 2006)
Conclusions• Inflows pose a dilemma: nominal appreciation,
sterilized intervention, or fiscal tightening• Most countries have resisted nominal appreciation,
with largely unsterilized interventions– Reserves coverage is now generally adequate
• Fiscal policy has been moderately supportive in most cases…
• …but not sufficiently to prevent rapid monetary growth
• …which has led to rising inflation– now above comfort zone in most countries
• Policies have not prevented real appreciation, but…• …real appreciation has gone hand in hand with
strong growth and rising income per head