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  • IMF | Middle East and Central Asia Department 1

    Promoting Inclusive

    Growth in the Caucasus and Central Asia

    JUNE 2019

  • IMF | Middle East and Central Asia Department 2

    Inclusive Growth

    Broad sharing of the

    benefits of, and the

    opportunities for,…

    Robust and broad-based

    across sectors

    Productive employment across the

    labor

    Protecting the

    vulnerable

    Equal opportunities in access to

    markets access

    Concerted

    efforts

    Shared

    responsibility

  • IMF | Middle East and Central Asia Department 3

    Progress on Promoting Inclusive

    Growth in the CCA

  • IMF | Middle East and Central Asia Department 4

    Some progress with inclusive growth….

    Some income convergence

    Sources: World Economic Outlook, Regional Economic Outlook, and IMF staff calculations.

    Note: EM = Emerging Markets (excluding Emerging Europe), EMDE = Emerging and Developing Europe.

    Reduced poverty …and decreased inequality.

    0

    5,000

    10,000

    15,000

    20,000

    25,000

    30,000

    1 9 9 2

    1 9 9 4

    1 9 9 6

    1 9 9 8

    2 0 0 0

    2 0 0 2

    2 0 0 5

    2 0 0 7

    2 0 0 9

    2 0 1 1

    2 0 1 3

    2 0 1 5

    2 0 1 7

    GDP per capita (PPP, in constant 2011 international dollars)

    CCA OE CCA OI EM EMDE

    0

    10

    20

    30

    40

    50

    60

    70

    80

    EMDA TJK KGZ GEO ARM EMDE KAZ

    Headcount Poverty Rate (Consumption below US$ 3.2 a day, percent of population)

    2001 2008 2016

    20

    25

    30

    35

    40

    45

    GEO TJK EMDA ARM EMDE KAZ KGZ

    GINI Coefficient (Gini coefficient of zero expresses perfect equality)

    2001 2008

  • IMF | Middle East and Central Asia Department 5

    With high labor market participation…

    Labor participation is already elevated… …and there is a persistent gender gap

    Sources: International Labor Organization, and IMF staff calculations.

    Note: EMDE = Emerging and Developing Europe, EMDA = Emerging and Developing Asia.

    0

    10

    20

    30

    40

    50

    60

    70

    80

    2 0 0 0

    0 8

    1 7

    2 0 0 0

    0 8

    1 7

    2 0 0 0

    0 8

    1 7

    2 0 0 0

    0 8

    1 7

    2 0 0 0

    0 8

    1 7

    2 0 0 0

    0 8

    1 7

    2 0 0 0

    0 8

    1 7

    2 0 0 0

    0 8

    1 7

    2 0 0 0

    0 8

    1 7

    ARM AZE GEO KAZ KGZ TJK TKM UZB EMDE

    Labor Force Participation Rate (Percent)

    Total Female Youth

    0

    10

    20

    30

    40

    50

    60

    70

    80

    90

    CCA CCA OI CCA OE EMDE EMDA

    Labor Force Participation, 2018 (Percent, ILO modeled estimates)

    Female labor force participation

    Ratio of female to male labor force participation rate

  • IMF | Middle East and Central Asia Department 6

    ..but challenges ahead.

    Slower growth

    Sources: World Economic Outlook, Regional Economic Outlook, and IMF staff calculations.

    Note: EM = Emerging Markets (excluding Emerging Europe), EMDE = Emerging and Developing Europe.

    Low productivity growth High economic concentration

    0

    10

    20

    30

    40

    50

    60

    70

    AZE TJK UZB KGZ KAZ ARM GEO

    Share of Top 3 Industries in Value Added (Percent of total)

    2010 2017

    -2

    0

    2

    4

    6

    8

    10

    12

    2001-08 2009-17 2001-08 2009-17

    CCA OI CCA OE

    Growth Decomposition (Average percent)

    Capital Labor TFP 0

    2

    4

    6

    8

    10

    12

    14

    16

    2000 2003 2006 2009 2012 2015 2018 2021 2024

    CCA Real GDP Growth 1/

    (Percent Change)

    2000-08

    Average 10.1%

    2009-14

    Average 5.7%

    2015-24

    Average 4.1%

    Projection

  • IMF | Middle East and Central Asia Department 7

    Growth has not been job rich, nor provided equal opportunity.

    0

    5

    10

    15

    20

    25

    30

    2000 05 10 16 2000 05 10 16

    CCA OE CCA OI

    Unemployment Rate (Percent of Labor Force)

    Total Female Youth

    Sources: International Labor Organization, and IMF staff calculations.

    Note: CCA OE = CCA Oil Exporter, CCA OI = CCA Oil Importer .

    20

    30

    40

    50

    60

    70

    2000 05 10 16 2000 05 10 16

    CCA OE CCA OI

    Labor Force Participation (Percent of Population Age 15+)

    Total Female Youth

  • IMF | Middle East and Central Asia Department 8

    Policies to Promote Inclusive

    Growth in the CCA

  • IMF | Middle East and Central Asia Department 9

    Multifaceted Approach

    Reorienting fiscal policy

    Improving governance

    and business environment

    Supporting financial inclusion

  • IMF | Middle East and Central Asia Department 10

    I. Reorienting Fiscal Policy: Mobilizing Revenues

    0

    5

    10

    15

    20

    25

    30

    G E

    O

    K G

    Z

    A R

    M

    T J K

    U Z

    B

    A Z

    E

    K A

    Z

    T K

    M

    E M

    E u

    ro p

    e

    L o w

    e r

    m id

    d le

    i n

    c o m

    e

    U p

    p e r

    m id

    d le

    i n

    c o m

    e

    General Government Revenues (Percent of GDP)

    Other income

    Unclassified Taxes

    International Trade

    General Goods and Services

    Corporate Income

    Personal Income 0 10 20 30 40 50 60

    EMDE

    KGZ

    KAZ

    ARM

    TJK

    AZE

    GEO

    Size of the Shadow Economy, 2015 1/

    (Percent of GDP)

    Sources: IMF FAD Revenue Analysis Tool, IMF FADTP Rates Database, IMF 2018f WP/18/17, and IMF staff calculations.

    Note: EMDE = Emerging and Developing Europe.

    1/ Size of the economy estimated using the MIMIC approach, for more information on the methodology please see IMF 2018f WP/18/17.

    CIT and VAT Rates, Productivity, Efficiency and

    Thresholds

    CIT Productivity VAT C-

    Efficiency

    VAT

    Productivity

    Latest Available

    (Scale of 0-1, where 1 is best)

    ARM 0.13 0.47 0.38

    AZE 0.20 0.58 0.36

    GEO 0.21 0.73 0.54

    KAZ 0.21 0.42 0.27

    KGZ 0.20 0.74 0.71

    TJK 0.10 - -

    TKM - - -

    UZB 0.73 0.72 0.30

    EMDE 0.15 0.61 0.44

    Improving tax efficiencyIncreasing revenues Broadening tax base

  • IMF | Middle East and Central Asia Department 11

    I. Reorienting Fiscal Policy: Prioritizing Spending

    6

    8

    10

    12

    14

    CCA EMDE EMDA

    Expected and Learning-Adjusted Years of Schooling, 2018 1/

    Expected: total Expected: male

    Expected: female Adjusted

    Sources: World Bank Human Capital Index, IMF FAD EAT Database, EBRD and IMF staff calculations.

    Note: EMDE = Emerging and Developing Europe, EMDA = Emerging and Developing Asia.

    1/ The learning-adjusted years of schooling attempts to capture quality of education, reflecting that childen in some countries learn less than others, despite being in school for the same time. It multiplies

    estimated years of schooling by the ratio of most recent harmonized test scores on the TIMSS. TKM and UZB not included in CCA averages due to data availability. AZE not included in CCA average breakdown

    by gender.

    ARM

    AZE GEO

    KAZ

    KGZ

    TJK

    TKM

    UZB

    Emerging Markets

    OECD

    40

    45

    50

    55

    60

    65

    70

    75

    80

    0 1000 2000 3000 4000

    H e

    a lt h

    -A d

    ju s te

    d L

    if e

    E x p

    e c ta

    n c y , 2

    0 1

    5

    Total health expenditure per capita, PPP$

    Health Efficiency Frontier (Latest Value Available)

    0

    5

    10

    15

    20

    25

    CCA OI CCA OE EM Europe

    Total Investment Needs, 2018-22 (Percent of GDP per year)

    Education Health Investment needs

  • IMF | Middle East and Central Asia Department 12

    II. Supporting Financial Inclusion: Households

    • Only 45 percent of adults in CCA have access to finance.

    • 3% in mobile accounts despite elevated mobile phone ownership (71-92% range).

    • The gender gap (1/2 EMs) has doubled since 2014.

    • 1/3 among poor have an account; about ½ in the richest 60 percent households.

    • Vague credit history, large interest rate spreads, high collateral requirements

    Source: Global Findex Database 2017, and IMF staff calculations.

    Note: EMs = Emerging Markets excluding Emerging Europe. EMDE = Emerging and Developing Europe. CCA OE = CCA Oil Exporter. CCA OI = CCA Oil Importer.

    0

    10

    20

    30

    40

    50