Azerbaijan, Baku, Oct. 25 /Trend A.Akhundov/
The International Monetary Fund (IMF) has recommended Caucasus and Central Asia (CCA) countries should carry out reforms meant to help them realise the concept of an emerging market with higher, stable and less volatile growth rates covering larger layers of the population, IMF's Regional Economic Outlook said.
In particular, the IMF recommends CCA countries to enhance structural reforms and regional cooperation.
"Many CCA countries are lagging in reforms that would deepen and sustain competitive markets and greater regional cooperation could help drive and diversify growth. Governance and business climates can be strengthened to lever FDI (foreign direct investments) and domestic investment into non resource sectors in a number of ways.
This could include regulatory streamlining, better bankruptcy and collateral frameworks, improved domestic competition environments and enhanced financial reporting and management structures, the report said.
Performance and prospects may also be enhanced through education reforms to reduce skill mismatches and by stronger healthcare systems.
"Intraregional trade has actually declined significantly as a share of total trade, in most CCA countries during the past decade. Improved regional cooperation could increase the quality and spread of a growth and trade facilitating infrastructure and transit facilities and address concerns about energy and water security," the report said.
IMF recommendations also touched upon strengthening fiscal frameworks.
"Improved fiscal frameworks can support fiscal sustainability and help rebuild the buffers needed to manage shocks and volatility of growth. For all CCA countries, fiscal frameworks could be extended to cover the medium term and to anchor policy through clear paths for key fiscal indicators. For CCA oil importers, this could be the debt stabilising deficit level and for CCA oil exporters, it could involve price and savings based fiscal rules. Energy exporters could strengthen their framework further by ensuring that spending from resource savings goes through the budget rather than through
extra budgetary or quasi-fi scale channels. All CCA countries could enhance transparency and accountability by broadening the definition of the public sector to include operations of state enterprises, reporting quasi-fiscal activities in budget documents, strengthening public sector statistics and establishing one-stop and e-government services, the report read.
The IMF also recommends CCA countries improve the effectiveness of monetary policy.
"Stronger monetary frameworks would allow CCA countries to consolidate gains from price stability, increase the resilience of their economies to external and domestic shocks and support growth.
Although some countries have made progress in implementing inflation targeting in recent years (Armenia, Georgia), all eight CCA countries should further improve the quality and timeliness of data, central bank communications strategies and inflation forecasting.
Central banks in the region should progressively shift from policy based on monetary aggregates to open-market operations that rely on liquidity forecasting to strengthen these frameworks. Moving toward exchange rate flexibility in the medium term would also be important for de-dollarization and greater effectiveness of monetary policy, along with development of deeper securities markets to support open-market operations, IMF's report said.
The IMF recommends CCA countries to foster financial sector development.
"Underdeveloped and often weakly regulated financial systems in CCA countries limit the effectiveness of monetary policy and hamper productive private investment and job-creating growth.
The CCA financial sectors can be strengthened in a number of ways. Constraining or eliminating directed lending and subsidised lending rates to state-owned enterprises will protect the health of the banks and create more competition in the banking sector. Applying prudential and regulatory norms evenly and fully across all financial institutions, easing entry requirements for new banks, and fostering the consolidation or privatisation of state-owned banks would also help, the report said.
According to the report's authors, the access to finance for small and medium-sized enterprises and other small borrowers could be supported through the creation of private credit bureaus and stronger microfinance institutions.
CCA countries should take measures to move beyond the status quo in which several CCA countries face gradually weakening growth prospects and continuing vulnerability to shocks.
"Resolute actions to pursue structural reforms, enhance business environments and regional cooperation and strengthen policy frameworks are likely to lead to greater investment and higher, more inclusive growth moving these countries toward emerging market status," IMF's report said.