Information about Middle East Oriente Medio
Journal Issue
Back Matter

Back Matter

International Monetary Fund. Middle East and Central Asia Dept.
Published Date:
April 2014
    • ShareShare
    Information about Middle East Oriente Medio
    Show Summary Details

    CCA oil and gas exporters: Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan. CCA oil and gas importers: Armenia, Georgia, Kyrgyz Republic, and Tajikistan.

    The challenges and opportunities of CCA countries were discussed and debated at the high-level conference, May 2013, “The Caucasus and Central Asia: The Transition Journey and the Road Ahead,” in Bishkek, Kyrgyz Republic ( The dynamics and challenges of the CCA are also covered in “Central Asia and the Caucasus: At the Crossroads of Eurasia in the 21st Century” (Hermann and Linn, 2011).

    It must be acknowledged that reform implementation has slowed across CCA countries in the past decade due to the combination of powerful vested interests, state capture—in some instances, and narrow political space.

    The years 1992–95 are excluded due to the collapse in output and extreme volatility in the years immediately following the dissolution of the Soviet Union.

    Growth is considered inclusive if it is high and sustained; provides productive employment; is broad-based across sectors; is inclusive of a large part of a country’s labor force; is characterized by equality of opportunity in access to markets (especially labor and credit markets) and resources; protects the most vulnerable; and minimizes regional disparities in living standards (IMF, Jobs and Growth—Analytical and Operational Considerations for the Fund, pp. 24–31).

    Based on World Bank income definitions. The CCA MICs are Armenia, Azerbaijan, Georgia, Kazakhstan, Turkmenistan, and Uzbekistan. The CCA LICs are Kyrgyz Republic and Tajikistan.

    A growth accounting methodology is applied to estimate TFP and its evolution in CCA countries. It also measures the extent to which TFP contributed to economic growth in CCA countries. Given the shortage of consistent data, this methodology allows comparability of results across countries. It assumes a Cobb-Douglas production function, constant returns to scale, and perfect competition. Output in each country is written as: Yit=Ait Kit α Lit1-α, where Kit and Lit are respectively capital and labor stocks in country i at time t, α is the share of capital in total income, and Ait is interpreted as TFP in country i at time t. Real GDP is used to proxy for real output, employment for labor, and capital stock for capital, deflated using an estimated gross capital formation deflator.

    Given data limitations, starting years are different for some countries. TFP is normalized to 100 for the first year for each country.

    The growth accounting exercise for Armenia covers only the period 2003–11, meaning that a high growth period from 1998–2002 (average of 7.7 percent per annum) during which efficiency gains may have been the greatest is not captured in the case of Armenia. In addition, for the period 2003–11, Armenia’s growth depended to a larger than normal degree on the construction sector (including real estate), and this sector exhibited large swings of a boom and bust nature. Moreover, due to the global financial crisis, construction largely collapsed during 2009–11, together with its TFP, and never recovered, effectively dragging down the economy-wide TFP.

    During 1996–2011, average per capita GDP growth was 7.4 percent in CCA oil and gas exporters and 5.6 percent in CCA oil and gas importers.

    See World Bank and Eurasian Development Bank, 2013, “Diversified Development: Making the Most of Natural Resources in Eurasia.” IMF, 2014 (forthcoming), “Sustaining Long-run Growth and Macroeconomic Stability in LICs: The Role of Structural Transformation and Diversification.”

    Theory and empirical evidence show that increased international trade leads to faster growth and higher income (see Frankel and Romer, 1999 and Dollar and Kraay, 2004). Empirical analysis shows that FDI plays an important role in contributing to economic growth (see Borensztein et al., 1998 and Alfaro et al., 2004).

    See World Bank Governance Indicators available at

    Nergiz Dincer and Barry Eichengreen, Central Bank Transparency: Causes, Consequences and Updates; Theoretical Inquiries in Law, Vol. 11, Number 1, January 2010. Their assessment includes five dimensions of transparency: political, economic, procedural, policy, and operational.

    Stanley Fischer (2011), Central Bank Lessons from the Global Crisis, Dinner Lecture at the Bank of Israel Conference on “Lessons from the Global Crisis”.

    Christian Saborowski and Sebastian Weber (2013), Assessing the Determinants of Interest Rate Transmission Through Conditional Impulse Response Functions, IMFWP/13/23.

    Takeo Hoshi and Anil Kashyap (2013), Will the U.S. and Europe Avoid a Lost Decade? Lessons from Japan’s Post-crisis Experience. Paper presented at the 14th Jacques Polak Annual Research Conference.

    In the banking area, the EBRD transition indicators indicate that most CCA countries have made little progress beyond basic two-tier banking systems, have not sufficiently liberalized interest rates or credit allocation systems, rely too much on directed credit and interest rate ceilings, and do not have frameworks for prudential supervision and regulation that are aligned with BIS standards (EBRD, Transition Report 2013, p. 109).

    The latest FSAP and FSAP updates took place in Armenia in 2012, in Azerbaijan in 2004, in Georgia in 2007, in Kazakhstan in 2004, in the Kyrgyz Republic in 2013, and in Tajikistan in 2008. No FSAPs have been conducted to date for Turkmenistan and Uzbekistan.

    This section focuses on Azerbaijan, Kazakhstan, and Turkmenistan and does not include Uzbekistan as energy resources play a considerably smaller role in Uzbekistan than in the other three energy rich countries of the CCA region.

    Turkmenistan’s real effective exchange rate has been broadly stable following the exchange rate reunification in 2008 and the subsequent redenomination of the manat. No sectoral breakdown of FDI is available.

    World Bank and Eurasian Development Bank, 2013, “Diversified Development: Making the Most of Natural Resources in Eurasia”.

    IMF, 2012, “Macroeconomic Policy Frameworks for Resource-Rich Developing Countries”, (Washington: International Monetary Fund).

    Azerbaijan—2013 Article IV Staff Report and Selected Issues. The permanent income hypothesis (PIH) rule is based on the net present value of resource wealth. The optimal spending annuity benchmark can then be compared to baseline projections of non-oil primary balances to determine long-term fiscal sustainability.

    Kazakhstan—2013 Article IV Staff Report and Selected Issues. Applying a structural-balance rule entails (i) estimating structural oil revenues using long-term resource prices and (ii) targeting a specific non-oil primary balance using the structural revenue projections. The NOPB target can then be calibrated to be consistent with accumulation of fiscal buffers over the medium term.

    See 2011 Azerbaijan Article IV Staff Report and Selected Issues.

    Trade openness is defined as the ratio of trade (exports plus imports) to GDP. Within the CCA, openness and growth are biased by energy exporters, with three of the four most open and highest growth economies being large hydrocarbon exporters.

    Botswana, Brazil, China, Hong Kong, Indonesia, Korea, Malaysia, Malta, Oman, Singapore, Taiwan, and Thailand have grown at above 7 percent for a period of more than 20 years within the past four decades.

    Armenia issued a $700 million Eurobond in September 2013.

    This section draws on the inputs of EBRD and World Bank staff presentations at the May 2013 Bishkek conference on “The Caucasus and Central Asia: The Transition Journey and the Road Ahead”. These include Erik Berglof and Alex Plekhanov (EBRD) “Private sector growth in transition” and Ahmed Eiweda and Evgenij Najdov (World Bank) “Growth and sectoral reforms”.

    These classifications are derived from subcomponents of the transition indicators used in the EBRD’s annual Transition Report.

    This message is reinforced by the 2013 World Bank-Eurasian Development Bank report, “Diversified Development: Making the Most of Natural Resources in Eurasia”, which notes that to grow countries must develop strong asset pools of economic institutions (firms and regulators), capital stocks, and natural resources.

    From 1999–2009 the EBRD and the World Bank jointly conducted four times the Business Environment and Enterprise Performance (BEEPs) survey in 30 transition countries in emerging Europe and Central Asia. The firms sampled varied in size and included both domestic and foreign-owned firms.

    The performance of the region is broadly consistent across quantitative indicators of corruption. For example, on Transparency International’s latest Corruption Perceptions Index, no CCA country ranks higher than 100 out of a sample of 174 countries except for Georgia and six of the eight CCA countries rank lower than 130. See Transparency International (2012) Corruptions Perceptions Index 2012

    Each of the authoritarian governments is led either by the rulers who came to power during the dissolution of the Soviet Union (Kazakhstan, Tajikistan, and Uzbekistan) or by a relative (Azerbaijan) or protégé (Turkmenistan) of those rulers.

    The 2012 EIU Democracy Index ranks Turkmenistan and Uzbekistan as tied at 161 out of a total sample of 167 countries, making them among the most authoritarian countries in the world.

    In contrast, Freedom House rates Mongolia as “free”, showing that democratization is possible in a resource-rich country with a transition starting point similar to that of many of the CCA countries.

      You are not logged in and do not have access to this content. Please login or, to subscribe to IMF eLibrary, please click here

      Other Resources Citing This Publication