1. 1 The impact of the global crisis on the SPECA countries José Palacín Economic Cooperation and Integration Division UNECE

2. 2 Structure presentation The crisis: channels of transmission and domestic vulnerabilities Implications for SPECA countries What sort of recovery? Lessons from the crisis

3. 3 Economic crisis. Part 1 The worldwide economic crisis started as a a financial crisis in late 2007. Countries and companies that had to raise external finance were exposed. Among SPECA countries, only Kazakhstan was initially affected by disruptions in international capital markets. Kazakhstan’s banking system had grown rapidly, funded by foreign borrowing. That rapid expansion came to an abrupt halt, together with the real estate boom fuelled by growing credit. Cross-border links: Kazakh banks own around one third of Kyrgystan banking assets.

4. 4 Economic crisis. Part 2 In late 2008, financial turbulences intensified and prompted robust policy intervention to avoid systemic breakdown. But the crisis had evolved. The real sector was being affected by financial problems and lack of confidence. A synchronised worldwide slump in output was taking place. Emerging markets were the only relatively bright spot in this darkened landscape But not in the CIS. Russia, the largest economy, was shrinking fast.

5. 5 Implications for SPECA countries Worldwide output contraction led to falling commodity prices- not only oil. The rapid contraction of the Russian economy reduced the demand for foreign goods and labour. Financial troubles affected countries differently – but all of them have been exposed to disruptions in the international financial system, lower capital flows and increased risk aversion.

6. 6 Differences in economic performance Widespread economic slowdown but with important differences, reflecting exposure to the different channels for the transmission of the crisis Differences in the ability to implement offseting policies. In non-energy exporting countries, IMF programmes are in place. Unlike other transition economies in the region, all SPECA countries have continued to grow in 2009 – with the exception of Kazakhstan where the financial shock was more important.

7. 7 Net fuel exporters (GDP growth, percentages) Source: UNECE

8. 8 Net fuel importers (GDP growth, percentages) Source: UNECE

9. 9 Implications for SPECA countries SUMMARY SHRINKING DEMAND IN KEY MARKETS LOWER COMMODITY PRICES LOWER REMITTANCES LOWER FOREIGN INFLOWS AND TRADE FINANCE DIFFICULTIES DECLINE IN TRADE VOLUME AND VALUES

10. 10 A DRASTIC CHANGE: THE END OF RUSSIAN EXPANSION (GDP quarterly growth, year-on-year, percentage)) Source: Statistical Service of the Russian Federation

11. 11 CIS -Terms of trade (Annual growth, percentages) Source: IMF

12. 12 Commodities dynamics (Index numbers. January 2007=100) Source: World Bank, own calculations

13. 13 Remittances have been large (Inflows as percentage of GDP) Source: IMF

14. 14 Remittances: sharp change of trend Source: IMF, Central Bank of Russia

15. 15 Anti-crisis response Energy-exporting countries have implemented strong policy responses to the crisis, using the savings accumulated during the boom years. In energy-importing countries, who have suffered the most from labour market linkages with the large economies in the region, official financing has provided some fiscal space to offset the negative impact of the crisis.

16. 16 International support (percent of GDP) Source: IMF

17. 17 Open economies (Exports and imports as percentage GDP, 2008, BOP basis) Source: ADB.2007 for Turkmenistan.

18. 18 Sharp falls in trade (3-months, rolling window, $ miilion) Source: IMF, own calculations AZERBAIJAN KAZAKHSTAN

19. 19 Sharp falls in trade (3-months, rolling window, $ miilion) Source: IMF, own calculations KYRGYZSTAN TAJIKISTAN

20. 20 Sharp falls in trade (3-months, rolling window, $ miilion) Source: IMF, own calculations TURKMENISTAN UZBEKISTAN

21. 21 Trade Finance WTO EXPERT GROUP MEETING ON TRADE FINANCE – 15 SEPTEMBER 2009: Liquidity has improved for the larger banks on tenures of up to one year, albeit selectively across regions and categories of banks. Capital requirements for short-term trade related lending under Basel II are a constraint. Liquidity has not returned in some regions and countries, including low income countries in Central Asia. “Participants expressed concern regarding the situation in Kazakhstan and Ukraine, where perceived risk was very high and bank default could have systemic repercussions in trade finance”

22. 22 Exchange rate volatility Source: CIS Stat, own calculations National currency per Russian rouble (January 2008=100)

23. 23 Exchange rate regimes Source: CIS Stat, own calculations National currency per USD dollar (January 2008=100)

24. 24 External positions Exchange rate pegs and incomplete adjustments: competitiveness losses for some countries Non-energy exporting countries have large current account deficits. Official financing has become more important to close the gap. Exchange rate tensions have implications for dollarized financial systems.

25. 25 Improved (but uncertain) global outlook Economic and financial indicators suggest an improved outlook for the global economy. With some exceptions, most economies are expected to grow in 2009 But there is yet a great deal of uncertainty

26. 26 Improving global prospects GDP growth, percentages Source: IMF

27. 27 Improving global prospects Emerging markets net private capital inflows Source: Institute for International Finance

28. 28 What sort of recovery? Commodity prices will increase but improvement in terms of trade will benefit energy exporters the most. The speed of the upturn in Russia will influence economic prospects in energy- importing countries – but remittances are not returning to previous levels. The banking sector remains fragile

29. 29 The crisis: a reminder The origin of the crisis was external It has shown: – the risks of excessive economic concentration – the importance of prudent management of resources in energy-rich countries.

30. 30 What role for regional cooperation? A way to increase economic resilience through: Trade facilitation Infrastructure development that promotes: Economic diversification Employment opportunities in new sectors