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The Global Economic Crisis and the South Caucasus Countries:
Prospects for Recovery and Growth
Asad AlamRegional Director
March 2010
The World Bank
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CONTENT
1. The Global Economic Crisis2. Key Transmission Channels3. Recovery and Growth
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A global economic recovery process, which started with the large emerging economies, is now under-way
Jan-
06
Apr-0
6
Jul-0
6
Oct-0
6
Jan-
07
Apr-0
7
Jul-0
7
Oct-0
7
Jan-
08
Apr-0
8
Jul-0
8
Oct-0
8
Jan-
09
Apr-0
9
Jul-0
9
Oct-0
9
80859095
100105110115120125130
World Industrial ProductionIndex Jan/2006=100
Ad-vanced
Jan-
06
Apr-0
6
Jul-0
6
Oct-0
6
Jan-
07
Apr-0
7
Jul-0
7
Oct-0
7
Jan-
08
Apr-0
8
Jul-0
8
Oct-0
8
Jan-
09
Apr-0
9
Jul-0
9
Oct-0
9
120125130135140145150155160165170
World Trade VolumeSeasonalt Adjusted, Index 2000=100
Exports
Imports
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The crisis has “hit home” in South Caucasus…
Q1'
07
Q2'
07
Q3'
07
Q4'
07
Q1'
08
Q2'
08
Q3'
08
Q4'
08
Q1'
09
Q2'
09
Q3'
09
0102030405060708090 Exports, % of GDP
Armenia Azerbaijan Georgia
Q1'
07
Q2'
07
Q3'
07
Q4'
07
Q1'
08
Q2'
08
Q3'
08
Q4'
08
Q1'
09
Q2'
09
Q3'
09
0
5
10
15
20
25 Remittances, % of GDP
Armenia Azerbaijan GeorgiaQ
1'07
Q2'
07
Q3'
07
Q4'
07
Q1'
08
Q2'
08
Q3'
08
Q4'
08
Q1'
09
Q2'
09
Q3'
09
0
5
10
15
20
25
30
35FDI inflows, % of GDP
Armenia Azerbaijan Georgia 4
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0107
0307
0507
0707
0907
1107
0108
0308
0508
0708
0908
1108
0109
0309
0509
0709
0909
1109
-20
0
20
40
60
80
100
120
Growth of Credits, %
Armenia Azerbaijan Georgia
0107
0307
0507
0707
0907
1107
0108
0308
0508
0708
0908
1108
0109
0309
0509
0709
0909
1109
40
50
60
70
80Dollarization of Deposits, % of total
Armenia Azerbaijan Georgia
QT
107
QT
207
QT
307
QT
407
QT
108
QT
208
QT
308
QT
408
QT
109
QT
209
QT
309
QT
409
4
6
8
10
12
14
Interest Rate Spreads, %
Armenia (nominal) Armenia (real)Azerbaijan (nominal) Azerbaijan (real)
The crisis has “hit home” in South Caucasus…
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Growth is lower…
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…and poverty is higher
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Budgets are under stress…
2008 (act.) 2009 (prelim.) 2010 (budget)
-10
-5
0
5
10
15
20
State Budget Deficit, (% of GDP)
Armenia (Central Government) Georgia (General Government)Azerbaijan (General Government)
2008 (act.) 2009 (prelim.) 2010 (budget)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
State Budget Expenditure,(% of GDP)
Armenia (Central Government) Georgia (General Government)Azerbaijan (General Government)
2008 (act.) 2009 (prelim.) 2010 (budget)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
State Budget Revenue, (% of GDP)
Armenia (Central Government) Georgia (General Government)Azerbaijan (General Government)
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
10
20
30
40
50
60 Public External Debt, % of GDP
Armenia Azerbaijan Georgia 8
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• Labor Force – Shrinking and Aging Population
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
40
50
60
70
80Population 15-64 %
Armenia Azerbaijan Georgia
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
0
10
20
30
40population 60+ %
Armenia Azerbaijan Georgia
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-100
0
100
200
300
400
500
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
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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
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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
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THANK YOU
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