The Global Economic Crisis and The World Bank The Global Economic Crisis and the South Caucasus Countries: Prospects for Recovery and Growth Asad Alam Regional Director March 2010

CONTENT The Global Economic Crisis Key Transmission Channels Recovery and Growth

A global economic recovery process, which started with the large emerging economies, is now under-way

The crisis has “hit home” in South Caucasus…

The crisis has “hit home” in South Caucasus…

Growth is lower…

…and poverty is higher

Budgets are under stress…

Labor Force – Shrinking and Aging Population Factors of production are constrained Labor Force – Shrinking and Aging Population Foreign private capital - Access to be scarcer and costlier

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

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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