FINAL--CCA REO Presentation-ENG (with notes)

Policy Challenges for Armenia in

the context of Recent Global and

Regional Shocks

January, 2016

Teresa Daban Sanchez

IMF Resident Representative to Armenia

Outline

Global Environment

Outlook of the CCA Region and Armenia

2

Policy Priorities

3

Global Shock : Lower oil prices …

0

20

40

60

80

100

120

140

160

2014 2015 2016 2017 2018 2019

95% confidence interval 86% confidence interval

68% confidence interval Brent spot price

Brent futures

Brent Crude Oil Price 1

(U.S. dollars per barrel)

Sources: Bloomberg; and IMF staff calculations.1 As of August 20, 2015.2 Average of WTI, Brent, and the Dubai Fateh prices.

WEO Baseline Average Oil Price2

2015: $51.6

2016: $50.4

4

…and other key commodities

Global Commodity Prices

(Index Values, 2005=100)

Source: IMF Primary Commodity Prices database.

1/ Simple average of Brent, Dubai Fateh, and West Texas Intermediate prices.

50

100

150

200

250

300

Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15

Food Metals Crude oil 1/ Natural gas (Asia)

5

Regional Shock: Slowdown in Russia

Real growth in Russia

(Percent)

Source: July WEO update

-5

-4

-3

-2

-1

0

1

2

3

4

5

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Current projections

Average growth 1996-2013

6

Russian Ruble, U.S. Dollar, and Oil Prices

(Indices, Jan. 1, 2014 = 100)

Regional Shock: Exchange rate movements

Sources: National authorities; Bloomberg; and IMF staff calculations.

1/ Simple average of Brent, Dubai Fateh, and West Texas Intermediate prices.

40

60

80

100

120

Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15

Oil Price 1/

Russia, USD/NC Index

US NEER Index

7

Conditions in China are changing…

7

7.2

7.4

7.6

7.8

8

8.2

2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q11500

2000

2500

3000

3500

4000

4500

5000

5500

Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15

China: Quarterly Real GDP Growth

(Seasonally Adjusted YoY Percent Change)

Shanghai Stock Exchange Index

(Index Values)

8

…while linkages between CCA region and China are

growing

Exports to

China (Percent of

Exports)

Imports from

China (Percent of

Imports)

Net FDI stock

from China

(Percent of GDP)

FDI inflows

from China

(Percent of FDI

Inflows)

Debt from China

(Percent of PPG

Debt)

ARM 11 9 0.035055357 0 0

GEO 3 9 0.306305509 3.96307884 0

KGZ 4 55 9.35030664 23.2789137 32

TJK 7 47 6.270927192 37.09879997 42

AZE 0 5 0.23160122 0 na

KAZ 16 28 2.388730784 8.3744781 0

TKM 70 11 na na 30

UZB 26 19 0.285588707 36.41365023 0

Linkages with China

0 Between 0-0.5% 11 Between 10% and 40%

1 Between 0.5% and 5% 50 Above 40%

6 Between 5% and 10%

9

Global growth: moderate and uneven

World U.S.Euro

Area

Emerging

marketsChina Russia Armenia

2014 3.4 2.4 0.9 4.6 7.3 0.6 3.4

2015 3.1 2.6 1.5 4.0 6.8 -3.8 2.5

2016 3.6 2.8 1.6 4.5 6.3 -0.6 2.2

10

How these shocks are affecting Armenia and the

Caucasus and Central Asian Region?

Oil & gas exporters

Oil & gas importers

Amid a tough external environment, economic

growth slowed in 2015 in the CCA region

11

CCA Growth Rates

(In Percent Change)

Sources: National authorities; Bloomberg; and IMF staff estimates.

30

40

50

60

70

80

90

100

110

-6

-4

-2

0

2

4

6

8

10

2013 2014 2015 2016

Oil Importers Oil Exporters

Russia Oil Price (USD, RHS)

CCA Growth Rates by Country

(In Percent Change)

ARM

AZE

GEO

KAZKGZ

TJK

TKM

UZB

0

2

4

6

8

10

2015

Oil Importers

Oil Exporters

00-08 09-13 14-16 17-20

Oil Exporters

Gradual recovery over the medium term;

Growth prospects well below past averages

Average).

12

CCA Growth Rates

(In Percent Change)

Sources: National authorities; IMF staff estimates.

0

2

4

6

8

10

12

00-08 09-13 14-16 17-20

Non-Oil Growth

Oil Importers

Armenia

Risks tilted to the downside

Further weakening of prices for oil and other

commodities

Weaker growth in trading partners

(Russia, China, Europe)

Risks related to the normalization of U.S. monetary

policy

13

0

200

400

600

2005 2010 2015 2020

Exports have dropped across the region and

are expected to recover only gradually

CCA Oil Importers: Exports


CCA Oil Exporters: Exports


Long-Term Trend

Sources: National authorities; and IMF staff estimates.

0

200

400

600

2005 2010 2015 2020

…in Armenia too, with an interesting change

in composition…

0

200

400

600

2005 2010 2015 2020

Armenia : Exports


Long-Term Trend

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Other

Middle East*

China

Russia

EU

*-Includes Iran, Iraq and UAE

Armenia : Export of goods by destination

The shocks have also had a negative impact

on remittancesCCA: Total Remittances

(Seasonally Adjusted Levels, Jan 2010 = 100)

0

50

100

150

200

250

300

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Rubles

National Currency

US Dollars0

50

100

150

200

250

300


Rubles

National Currency

US Dollars

Armenia: Remittances from Russia

(Seasonally Adjusted Levels, Jan 2010 = 100)

…as a result external positions are weakening

Sources: National authorities; and IMF staff estimates.

1/ Excludes employee compensation.

CCA: Current Account Decomposition(Percent of GDP)

-30

-20

-10

0

10

20

2013 2014 2015 2016 2013 2014 2015 2016

Oil importers Oil exporters

Trade balance Net remittances 1/

Other Current account

-30

-20

-10

0

10

20

2013 2014 2015 2016

Oil Importers

Trade Balance Net Remittances 1/

Other Current Account

Armenia: Current Account Decomposition(Percent of GDP)

18

Currencies are adjusting to new realities…

Sources: National authorities; and IMF staff calculations.

50

60

70

80

90

100

110


ARM

GEO

KGZ

TJK

50

60

70

80

90

100

110


AZE

KAZ

TKM

UZB

Oil Exporters

(U.S. dollars per National Currency, Jan. 1,

2010=100)

Oil Importers

(U.S. dollars per National Currency, Jan. 1,

2010=100)

0

2

4

6

8

10

12

ARM GEO KGZ TJK

2014 Inflation Forecast 2015 Inflation Forecast 2016 Inflation Forecast

19

Inflation

(In Percent Change)


…and inflation is edging up, except in

Armenia

0

2

4

6

8

10

12

AZE KAZ UZB TKM

Oil Importers Oil Exporters

Fiscal positions have weakened: lower revenues

and countercyclical measures

20


Selected Fiscal Indicators

(In Percent of GDP)

-4

-3

-2

-1

0

1

2

3

4

-20

-15

-10

-5

0

5

10

15

20

2014 2015 2016 2017 2018

Public Debt Fiscal Balance (RHS)

Oil Exporters

-4-3-2-1012345

-40

-30

-20

-10

0

10

20

30

40

50

2014 2015 2016 2017 2018

Oil Importers

In Armenia, slower growth is reducing tax

collections, and pushing up the public deficit

and public.

21

-8.0

-6.0

-4.0

-2.0

0.0

2.0

Armenia: Budget Deficit (In percent of GDP)

0

10

20

30

40

50

60

70

2008 2010 2012 2014 2016proj.

2018proj.

2020proj.

Armenia: Debt Dynamic (In percent of GDP)

Public External Debt Public debt

Policy priority 1: Fiscal policy needs to ensure

medium-term sustainability

22

Near-term

GrowthDebt Sustainability,

Saving for the Future

• Where conditions allow, temporary fiscal easing over the near term will provide

support to growth.

• As cyclical conditions improve, countries need to tighten their fiscal stance to

ensure medium-term fiscal sustainability.

• Improving the quality of public expenditure, and preserving capital and social

expenditure, will help to safeguard growth and make it more inclusive.

Fiscal Policy

23

InflationFinancial Intermediation

and Near-term Growth

Policy priority 2: Monetary prudence and

greater exchange rate flexibility

• Monetary policy should be

primarily calibrated to

inflationary pressures, with due

consideration to its impact on

financial intermediation and

output.

• Greater exchange rate flexibility

will help absorb shocks, maintain

competitiveness and prevent a

rundown of external buffers.

• Stronger macro-prudential

regulations, supervision and crisis

management framework

necessary to ensure financial

sector remains healthy.

Competitiveness, External

Buffers and Balance

Monetary Policy

Exchange Rate Policy

Financial Stability

24

Policy priority 3: Structural reforms to boost

long-term growth

0%

20%

40%

60%

80%

100%

EducationQuality

FinancialServices

Control ofCorruption

ExportDiversity

ExportIntegration

DoingBusiness

Emerging Market Averages

Structural Reform Indicators

(In Global Percent Rank)

Sources: Education Quality: Global Competitiveness Report; Financial Services: Global Competitiveness Report and Doing Business;

Control of Corruption: Worldwide Governance Indicators; Export Diversity: IMF/DFID Export Diversity Index; Export Integration:

World Economic Outlook; and Doing Business: Doing Business Report.

Key takeaways

• A foray of external shocks is weighing on growth, budgets and

currencies.

• These shocks are likely to be long lasting, requiring policy

adjustment.

• While temporary fiscal easing can support growth, fiscal

consolidation will be needed over the medium term to rebuild

buffers and ensure debt sustainability.

• Exchange rate flexibility will preserve external buffers, but it

needs to be accompanied by strengthened financial supervision

to safeguard financial stability.

• Structural reforms are needed to boost weakening medium-term

growth prospects.

25

http://www.imf.org/external/pubs/ft/reo/2015/mcd/eng/mreo1014.htm

http://www.imf.org/external/pubs/ft/reo/2015/mcd/eng/mreo1014.htm

FINAL--CCA REO Presentation-ENG (with notes)

Documents

Transcript of FINAL--CCA REO Presentation-ENG (with notes)