The Global Economic Crisis and the South Caucasus Countries: Prospects for Recovery and Growth

transcript

The Global Economic Crisis and the South Caucasus Countries:

Prospects for Recovery and Growth

Asad AlamRegional Director

March 2010

The World Bank

CONTENT

1. The Global Economic Crisis2. Key Transmission Channels3. Recovery and Growth

A global economic recovery process, which started with the large emerging economies, is now under-way

80859095

100105110115120125130

World Industrial ProductionIndex Jan/2006=100

Ad-vanced

120125130135140145150155160165170

World Trade VolumeSeasonalt Adjusted, Index 2000=100

Exports

Imports

The crisis has “hit home” in South Caucasus…

0102030405060708090 Exports, % of GDP

Armenia Azerbaijan Georgia

25 Remittances, % of GDP

Armenia Azerbaijan GeorgiaQ

35FDI inflows, % of GDP

Armenia Azerbaijan Georgia 4

Growth of Credits, %

80Dollarization of Deposits, % of total

Interest Rate Spreads, %

Armenia (nominal) Armenia (real)Azerbaijan (nominal) Azerbaijan (real)

The crisis has “hit home” in South Caucasus…

Growth is lower…

…and poverty is higher

Budgets are under stress…

2008 (act.) 2009 (prelim.) 2010 (budget)

State Budget Deficit, (% of GDP)

Armenia (Central Government) Georgia (General Government)Azerbaijan (General Government)

State Budget Expenditure,(% of GDP)

State Budget Revenue, (% of GDP)

60 Public External Debt, % of GDP

Armenia Azerbaijan Georgia 8

• Labor Force – Shrinking and Aging Population

80Population 15-64 %

40population 60+ %

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-100

600 Emerging and Developing non-oil expoting coun-tries: Private Capital Net Flows, Billion of USD

Factors of production are constrained

• Foreign private capital - Access to be scarcer and costlier

The crisis has changed the world

– Poverty and inequality have risen, eroding past gains– Access to foreign private capital will likely be scarcer and costlier;

suggests productivity enhancements will be more important– Sectoral growth drivers need to be rebalanced; less reliance on

construction and financial services– Policy/institutional frameworks to attract scarce FDI carry a

higher premium– Risk management and mitigation is a must—e.g. through

strengthening social safety nets, and diversifying trade

Productivity is key to growth prospects

Emphasis on Business Environment and Technology

– Openness/Export orientation

– Labor skills

– Infrastructure

– Tax policy

– Trade facilitation

– Low cost of business transaction

– Macro stability

THANK YOU

The Global Economic Crisis and the South Caucasus Countries: Prospects for Recovery and Growth

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