1. 1 Global Financial Crisis and Central Asia Ana Lucía Coronel IMF Mission Chief for Kazakhstan Middle East and Central Asia Department International Monetary Fund July 2009

2. INTERNATIONAL MONETARY FUND July 2009 2 Outline  Recent developments and the global outlook  Transmission of the global crisis to Central Asia  Impact on the region and near-term outlook  Policies  Challenges ahead

3. INTERNATIONAL MONETARY FUND July 2009 3 Unemployment Rate 1/ (In percent) Global recession is not over – largest contraction since WWII 1/ Aggregated using total labor force as weights. 2/ Excludes China, India, Indonesia, Hungary, and Pakistan. Global GDP Growth (Percent, quarter-over-quarter, annualized)

4. INTERNATIONAL MONETARY FUND July 2009 4 Commodity prices have dropped but are stabilizing.

5. INTERNATIONAL MONETARY FUND July 2009 5 Financial conditions have improved more than expected, owing mainly to public intervention. Financial Stress Indices in Advanced and Emerging Economies 1/ (Purchasing power parity weighted average; stress index deviation from average) 1/ Index is a weighted average of banking, securities, and foreign exchange markets indicators.

6. INTERNATIONAL MONETARY FUND July 2009 6 Global greenshoots? Industrial Production (Annualized percent change of 3-month M.A.) Merchandise Exports (Annualized percent change of 3-month M.A.)

7. INTERNATIONAL MONETARY FUND July 2009 7 Stabilization is uneven and recovery expected to be sluggish Real GDP Growth (In percent) 20092010 World-1.42.5 Advanced Economies-3.80.6 United States-2.60.8 Euro Area-4.8-0.3 Japan-6.01.7 Emerging and Developing Economies1.54.7 China7.58.5 India5.46.5 Russia-6.51.5

8. INTERNATIONAL MONETARY FUND July 2009 8 Transmission of the global crisis to Central Asia

9. INTERNATIONAL MONETARY FUND July 2009 9 Transmission channels  Capital inflows are drying up, putting pressure on credit, growth, and the external accounts.  Several commodity exporters in the region are being hit hard by declining demand and prices.  The contraction in Russia is negatively affecting the region largely through financial and remittance channels.

10. INTERNATIONAL MONETARY FUND July 2009 10 Capital inflows dried up, not expected to recover this year. Private Capital Flows, Net (In percent of GDP) FDI, Net (In percent of GDP)

11. INTERNATIONAL MONETARY FUND July 2009 11 The slowdown in the region reduced trade. Total trade volumes (annual percent change)

12. INTERNATIONAL MONETARY FUND July 2009 12 Remittances from Russia are falling. Remittances Outflow from Russia (12-month percent change) Remittances Inflow (In percent of GDP)

13. INTERNATIONAL MONETARY FUND July 2009 13 Growth in the region is slowing sharply but will gradually recover in 2010. Real GDP Growth (In percent)

14. INTERNATIONAL MONETARY FUND July 2009 14 Inflationary pressures are subsiding, but food prices remain high. Average Inflation, GDP Weighted (Annual percentage change)

15. INTERNATIONAL MONETARY FUND July 2009 15 Policy measures taken so far

16. INTERNATIONAL MONETARY FUND July 2009 16 Central banks are providing extensive liquidity support Policy Rates (In percent)

17. INTERNATIONAL MONETARY FUND July 2009 17 Currencies have come under pressure from the depreciating Ruble. Local currency per USD (100 = June 2008)

18. INTERNATIONAL MONETARY FUND July 2009 18 Fiscal support, including social spending, is timely. Fiscal Balance (In percent of GDP) Government Debt (In percent of GDP)

19. INTERNATIONAL MONETARY FUND July 2009 19 Policy Challenges: Facing uncertainty about recovery Outlook for the global economy and the region is uncertain:  Prolonged global recession and stress in global financial markets  Rising external and public sector debt and rollover risks  Further exchange rate pressures  Credit constraints and rising nonperforming loans  Macroeconomic policies need to stay supportive, while preparing the ground for an orderly unwinding of extraordinary levels of public intervention

20. INTERNATIONAL MONETARY FUND July 2009 20 Policy response to crisis  Monetary policy should remain supportive until growth resumes.  Fiscal policy should remain supportive in 2010 and plans made for ensuring medium-term sustainability.  Policies on the financial sector: –Continue efforts to fully address impaired assets on banks’ balance sheets. –Recapitalize viable, but undercapitalized, banks. –Conduct credible stress tests.  Too early to implement exit policies but not too early to design them so as to be ready to use them when the time comes. Price stability, a sound financial system and fiscal sustainability should be the foundation of these strategies.

21. INTERNATIONAL MONETARY FUND July 2009 21 Policy challenges for low-income countries  A third wave of the global financial crisis is hitting the world’s poorest and most vulnerable countries – drop in aid.  More than twenty developing countries that face the most acute financing constraints need at least $25 billion in additional concessional financing in 2009.  All donors need to fulfill their aid commitments even amid the crisis. The Fund is working to double its own concessional resources to assist low-income countries.

22. INTERNATIONAL MONETARY FUND July 2009 22 Lessons from the Crisis:  Ensure external stability.  Identify and deal with financial sector risks early on.  Exploit opportunities for fiscal stimulus.  Prepare contingency plans to deal with potential crisis.

23. INTERNATIONAL MONETARY FUND July 2009 23 THANK YOU