IMF ready to support Central Asia in mitigating effects from sanctions against Russia

International Monetary Fund stands ready to support Central Asian countries in mitigating possible economic effects from anti-Russia sanctions, Jihad Azour, Director of the International Monetary Fund’s (IMF) Middle East and Central Asia Department, told Trend.

Azour noted that Central Asian countries are likely to feel longer-term impact from increased uncertainty and geopolitical factors in the face of anti-Russia sanctions.

He said countries that export commodities such as oil, gas, and metals including gold, will benefit from higher prices for those exports, which should strengthen their external and fiscal positions.

"However, all countries are expected to feel the impact from economic contraction in Russia and sanctions, whether through weaker demand for their exports of goods or services such as tourism (up to 27 percent of CCA exports go to Russia), lower remittances that reduce income especially for vulnerable populations (the Kyrgyz Republic and Tajikistan receive more than 20 percent of GDP in remittances from Russia), scaled-back investment especially in the energy and mining sectors, or higher inflation in particular food and energy prices, which would increase burdens on low-income consumers," he said.

Longer-term impacts are also expected from increased uncertainty and geopolitical factors such as international investors considering the region as less reliable and more risky, reducing foreign direct investment and hampering economic diversification and growth prospects, he said.

Azour noted that Central Asian countries have historically had close economic and financial ties with Russia.

"This includes through trade; migration and remittance flows; investment, especially in the energy and mining sectors; and financial sector linkages, including correspondent banking relationships and payments systems. The impact of the sanctions against Russia and Russia’s economic slowdown are likely to be transmitted to Central Asia through most if not all of these channels," he noted.

Azour emphasized that while substantial uncertainty remains, activity in all Central Asian economies should be affected.

"Yet individual countries’ situations will vary substantially," he said.

Commenting on how do Central Asian countries mitigate these affects, Azour said that there is no one-size-fits-all policy prescription in this situation since the nature and magnitude of the adverse effects will be different depending on country circumstances.

First, he noted, existing fiscal policy space should be used to support the most vulnerable, while preserving long-term debt sustainability.

"More broadly, policy responses will need to take into account available policy buffers, which vary greatly from country to country, and in many cases have been eroded during the COVID-19 pandemic. To counter inflation pressures, some countries have already tightened monetary policy and more could be needed, including as global commodity prices rise and financial conditions tighten. Where possible, exchange rate adjustments should also help absorb at least part of the external shocks. Macro-prudential policies should help mitigate the risks to financial sectors," he added.

Azour noted these macro-financial policy measures would need to be supported by continued reforms to encourage private sector development and investment, as these will be critical to safeguard future growth and job creation.

"The Fund is closely monitoring developments and assessing the implications for CCA countries. The Fund stands ready to help each of them with policy advice and financial assistance as appropriate," he said.