Eurasia’s Next Frontier IMF, Finance & Development, September 2013, Vol. 50, No. 3 Mark Horton and Jonathan Dunn, URL: imf.org/external/pubs/ft/fandd/2013/09/Horton.htm "...With the development of the hydrocarbon sector, dependence on oil and gas exports has grown over the past decade. Hydrocarbons now account for 45 percent of Azerbaijan’s GDP and more than 90 percent of its total exports, up from 60 percent 15 years ago. Oil and gas exports also constitute more than 90 percent of Turkmenistan’s exports. Kazakhstan is more diversified, with oil and gas amounting to 10 percent of GDP and 60 percent of exports. This dependence has increased vulnerability to swings in global oil prices, such that the region’s growth and inflation rates have been among the most volatile in the world. Savings funds have helped moderate this volatility, but not fully. Rapid growth over the past 15 years has also helped raise overall incomes, but it has not generated significant increases in employment or reduced inequality. This phenomenon reflects the fact that the oil and gas sectors—the main drivers of high growth—are highly capital intensive and do not require much labor. Generally difficult business climates have also constrained non-oil investment and job creation. Moreover, high oil revenues have not translated into improved indicators for health and education, as public spending in these areas remains relatively low, and outcomes lag other countries with similar per capita income levels. In addition, significant infrastructure gaps (for example, roads, water, and communications) have not been fully addressed. ...The non-oil fiscal deficit, which excludes hydrocarbon-related revenues, is quite large in Azerbaijan, at more than 40 percent of non-oil GDP. This is a source of concern, given the country’s relatively short expected duration of large-scale oil and gas production before output begins to decline. This means that Azerbaijan will need to find sources of revenue that are not linked to oil and gas or reduce spending—or both. The non-oil fiscal deficit is also large in Turkmenistan, but the country’s reserves are significantly larger than those of Azerbaijan, giving it more of a cushion. Moreover, while Azerbaijan and Turkmenistan have not significantly strengthened social indicators or resolved infrastructure gaps, domestic spending levels have contributed to stronger real exchange rates, putting pressure on other exporting sectors. And wages have increased faster than productivity. Recent IMF consultations with Azerbaijan and Turkmenistan have raised concerns about high levels of investment spending and the need to improve the planning, evaluation, and efficiency of these outlays."
Posted on: Thu, 12 Sep 2013 19:55:38 +0000
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