The ruble, crisis and stagnation: The region's "new normal"?
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Transcript of The ruble, crisis and stagnation: The region's "new normal"?
The ruble, crisis, and stagnation: The region’s “new normal”?
1
? ? ?Ben Slay
Senior advisorUNDP Regional Bureau
for Europe and CIS
8 May 2015
Story line
• The region’s “new macroeconomic normal”: Stagnation, crisis—and vulnerability
• The “ruble crisis” is:– Not as serious as initially thought—at least, not for
Russia• But for other CIS economies (+ Georgia), it has already caused
major difficulties
– Only a part of the problem• Most of the rest of region has not fully recovered from global
financial crisis
• Regional economic growth drivers are very weak
• Weak medium-term growth could aggravate other tensions/crisis points
2
Weak economic growth drivers
• Domestic:
– Disinterest in governance reforms needed to:
• Improve investment, business climates, and thereby
• Attract FDI, technology for diversification, competitiveness
– Reform weariness
– Conflict legacies
– Unfavourable demographic trends (in some countries)
• External:
– Low commodity prices
– Slow growth/stagnation in EU, Russia
– Weak EU anchor
– East-West tensions 3
Implications—During 2015-2016:
• Growth will not be lifting many boats
• Importance of poverty, inequalities, vulnerability, crisis prevention issues will grow
• Western CIS, South Caucasus countries seem particularly vulnerable
– Recession + competing regional integration projects
• UN programmatic response—need to:
– Focus on inequalities/disparities, not averages
– Identify, support vulnerable groups
– Include socio-economic/vulnerability monitoring in disaster risk reduction/crisis prevention 4
External growth drivers for programme countries
6.9%
-7.8%
4.5% 4.3%3.4%
1.3%0.6%
-3.8%
2.5%
-4.3%
2.0% 1.8%
-0.4%
1.2% 1.4% 1.8%
Annual average GDP growth rates“New normal”?
5IMF data, projections.
Russian Federation
European Union
“Boom”
Global financial
crisis
Weak recovery
The region’s “new normal”: Between stagnation and crisis?
• 2009: Global financial crisis, recession
• 2010-2013:
– Recovery in CIS, Turkey, Georgia
• Growth in Russia
• High commodity prices
– Stagnation in most of Western Balkans
• Weak growth in EU
• 2014-2015:
– Southeast Europe:
• Turkey: slowing growth
• Most of West Balkans: Continued stagnation
– CIS + Georgia: Reversal of fortunes
• IMF: Five CIS countries in recession this year
• Poverty, vulnerability will increase
Pre-2014: CIS energy exporters did well; West Balkans, Armenia, Ukraine suffered
-6%
-1% -1%
1%3%
7%11%
14% 16%18% 18% 19% 20% 21%
28%
36%
47%
66%Cumulative changes in GDP (2008-2013)
What recovery???
What crisis???
IMF data, UNDP calculations. 7* As per UNSCR 1244 (1999).
What changed in 2014-2015?
8
• Developments in Russia + falling commodity prices
• Deeper, tectonic shifts in region’s political economy
80
90
100
2012 2013 2014 2015
Crude oil
Gas
Global price indices (IMF data,
projections)2012 = 100
Developments in Russia
• For CIS + Georgia, Russia is a major:– Trading partner
– Source of:• Remittances
• Foreign investment
• ODA
• “Russian crisis”:– For Russia: Initial
forecasts too pessimistic
– . . . But impact on other post-Soviet economies already severe
9
40
50
60
70
80
Daily exchange rates (rubles/$)
“Crisis” “Recovery”
Source: OANDA.
Russia’s official foreign exchange reserves: Shrinking—but still ample?
10
$0
$100
$200
$300
$400
$500
$600
$700
jan
mar
may ju
l
sep
no
v
jan
mar
may ju
l
sep
no
v
jan
mar
2013 2014 2015
National Welfare Fund
Reserve Fund
Central Bank of Russia
(In billions)
Sources: Central Bank of Russia, Ministry of Finance
“Stabilization”? Or temporary lull?
“Export shock”: Which countries are most vulnerable?
Bel
aru
s
Kyr
gyzs
tan
Ukr
ain
e
Mo
ldo
va
Geo
rgia
Arm
enia
Kaz
akh
stan
Uzb
ekis
tan
Aze
rbai
jan
Tajik
ista
n
Turk
men
ista
n
32%
14%13%12%10%
6% 5% 4% 4%1% 1%
FSU exports/GDP (2013)
Sources: CISSTAT, Georgian Statistical Office.-44%
-31%
-20%
-12%-10% -9%
-7%
Change in CIS exports (2014)
Export shock deepens in 2015
-61%
-55% -53%
-46%-42% -41% -40% -39%
Sources: National Statistical Offices, January-February data. Armenian data are for exports to Russia + Georgia.
Fall in exports to CIS countries
Fall in imports from CIS countries
3-6 percentage points sliced off most recent IMF 2015 GDP forecasts
13
MN
E
FYR
oM
TUR
UZB
ALB BiH
KO
S*
SRB
TAJ
GEO KYR
TUK
AZB
KA
Z
BEL
AR
M
MO
L
UK
R*
1.7%
0.4% 0.1%-0.3%
-0.9%-1.2%
-2.0%
-2.8%-3.0%
-3.3%-3.5%-4.0%-4.1%
-4.8%
-5.5%
-7.1%
Change in IMF 2015 GDP growth forecasts (in percentage points),
between April 2014 and April 2015
Recession expected in 2015
UNDP calculations, based on IMF-WEO forecasts. * As per UNSCR 1244 (1999).
Remittances from Russia
14
98% 95% 91%
73%64%
43%
Remittances/GDP (2013)
Remittances from Russia/Total remittances
(2013)
UNDP calculations, based on IMF, World bank, CBR data.
42%
32%
25%
21%
12% 12%
Remittances reduce poverty (data from Kyrgyzstan)
15
2010 2011 2012 2013
34%
37%38%
37%
40%
43%
45%44%
With remittances
Without remittances61%
58%56%
45%
38%
34%
23%20%
47%49%
41%
32%
Without remittances
With remittances
Source: Kyrgyzstat.
2013 data
“Remittances shock” hits in 2014 . . .
16Source: Central Bank of Russia. Data are for remittances sent through money transfer operators.
Changes in remittance outflows from Russia
Changes in remittance inflows from Russia
2010 2011 2012 2013 2014
24%
37%
20%
14%
-12%
UKR UZB ARM GEO TAJ MOL KYR
-27%
-16%
-11%
-9%-8%
-4%-3%
. . . And continues into 2015
-50%
-40%
-30%
-20%
-10%
0%
10%
Q1 Q2 Q3 Q4 Q1*
2014 2015
RF Outflows to CIS
Tajikistan
Uzbekistan
Kyrgyzstan
Remittance flows, 2014-2015 (year-on-year changes)
* January-February data. UNDP calculations, based on CBR data.
Additional hit: Exchange rates
18
50
55
60
65
Daily exchange rates (som/$)
Source: OANDA
Kyrgyzstan
Weaker currencies mean higher food prices, inflation rates (Kyrgyzstan)
19
0%
2%
4%
6%
8%
10%
12%
14%
Jan
Feb
Mar
ch
Ap
ril
May
Jun
e
July
Au
g
Sep
t
Oct
No
v
Dec Jan
Feb
2014 2015
Consumer prices
Food prices
“Inflationary pass through”
(year-on-year changes)
UNDP calculations, based on Kyrgyzstat data.
Deeper dive: Labour market exclusion (special problem in SEE)
35%
40%
45%
50%
55%
60%
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
BiH, FYRoM, MNE, SRB
Albania, Turkey
Western CIS
Caucasus
Central Asia
Share of population aged 15 and above
that is employed
World Bank data, UNDP calculations (unweighted averages). 20
Probing deeper—Employment rates by ethnicity, gender
Serbia Montenegro Moldova FYRoM
42%39% 39% 38%
26% 27%
21%23%
13%
8%
16%
10%
National Roma Roma women
Sources: World Bank world development indicators, UNDP/EU/WB Roma database. 2011 data. 21
Implications—Socio-economic vulnerability
• Falling exports to, remittances from Russia will:
– Reduce GDP, household incomes
– Increase unemployment, poverty, vulnerability
• Weaker exchange rates will:
– Increase inflation
– Make imports less affordable
– Stress the financial system
– Reduce real household incomes
– Increase poverty, vulnerability22
? ? ?
Implications—programming
• Big macro picture matters– IMF, World Bank are monitoring the macro picture . . .
– . . . But who is tracking impact on vulnerable groups?
• Greater government, donor interest in (funding) programmatic response?– Which projects?
• Rapid employment?
• Social policy reform?
• Early warning systems?
• Poverty/vulnerability monitoring?
• Local/regional/area-based development?
– Which partners?23
? ? ?
Programming response: “Kyrgyzstani model”
• During discussions with UN Country Team in Bishkek in March, four possible areas for joint action were identified:
– Food security
– Real time monitoring of vulnerable groups
– Migration and remittances
– Social protection
• Could this model be applied in other countries?
24