On November 1, CAREC Institute Chief Economist Dr. Hans Holzhacker participated as a panelist in the webinar “Building Resilience and Fostering Sustainable Growth in the Caucasus and Central Asia” organized by International Monetary Fund. During the webinar, a distinguished panel of speakers spoke about pivotal issues for the development of Central Asia and the Caucasus as reflected in the IMF’s October 2023 Regional Economic Outlook for the Middle East and Central Asia. The discussion was moderated by Joumanna Bercetche, CNBC.
Dr. Hans Holzhacker contributed to the discussion by highlighting that the transmission mechanisms of monetary and money markets are not yet sufficiently developed in the region, hence exchange rates are – as also noted in the IMF’s report – the most important channel for influencing inflation. To make monetary policy transmission channels more effective, to mobilize domestic capital and limit external debt Caucasus and Central Asia countries should further develop local currency money markets and capital markets. Dr. Hans Holzhacker also recommends that CAREC central banks should have flexible exchange rates to avoid undue real effective appreciation or foreign exchange reserve rationing, but with some management to avoid spikes leading to self-fulfilling expectations of sharp depreciation.
To respond to rapid technological change, the climate crisis, decarbonization, and potential geo-economic fragmentation, and to catch up with developed economies in terms of GDP per capita, CAREC countries need a new productivity push and some changes in economic growth models to cope with the new realities.
Furthermore, regional trade and cooperation on projects of common interest such as transport corridors, broadband communication cables, electricity grids and energy trade and the like can contribute to achieving the much-needed productivity growth, better integrating businesses into global value chains, and increase the CAREC region’s weight in the global economy.