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Ruble Crisis Slows Regional Growth
1. The ruble, crisis, and stagnation:
The region’s “new normal”?
1
? ? ?
Ben Slay
Senior advisor
UNDP Regional Bureau
for Europe and CIS
8 May 2015
2. Story line
• The region’s “new macroeconomic normal”:
Stagnation, crisis—and vulnerability
• The “ruble crisis” is:
– Not as serious as initially thought—at least, not for
Russia
• But for other CIS economies (+ Georgia), it has already caused
major difficulties
– Only a part of the problem
• Most of the rest of region has not fully recovered from global
financial crisis
• Regional economic growth drivers are very weak
• Weak medium-term growth could aggravate other
tensions/crisis points 2
3. Weak economic growth drivers
• Domestic:
– Disinterest in governance reforms needed to:
• Improve investment, business climates, and thereby
• Attract FDI, technology for diversification, competitiveness
– Reform weariness
– Conflict legacies
– Unfavourable demographic trends (in some countries)
• External:
– Low commodity prices
– Slow growth/stagnation in EU, Russia
– Weak EU anchor
– East-West tensions 3
4. Implications—During 2015-2016:
• Growth will not be lifting many boats
• Importance of poverty, inequalities, vulnerability,
crisis prevention issues will grow
• Western CIS, South Caucasus countries seem
particularly vulnerable
– Recession + competing regional integration projects
• UN programmatic response—need to:
– Focus on inequalities/disparities, not averages
– Identify, support vulnerable groups
– Include socio-economic/vulnerability monitoring in
disaster risk reduction/crisis prevention 4
5. External growth drivers for
programme countries
6.9%
-7.8%
4.5% 4.3%
3.4%
1.3%
0.6%
-3.8%
2.5%
-4.3%
2.0% 1.8%
-0.4%
1.2% 1.4% 1.8%
Annual average GDP growth rates
“New normal”?
5
IMF data, projections.
Russian Federation
European Union
“Boom”
Global
financial
crisis
Weak recovery
6. The region’s “new normal”: Between
stagnation and crisis?
• 2009: Global financial
crisis, recession
• 2010-2013:
– Recovery in CIS,
Turkey, Georgia
• Growth in Russia
• High commodity
prices
– Stagnation in most of
Western Balkans
• Weak growth in EU
• 2014-2015:
– Southeast Europe:
• Turkey: slowing growth
• Most of West Balkans:
Continued stagnation
– CIS + Georgia: Reversal
of fortunes
• IMF: Five CIS countries
in recession this year
• Poverty, vulnerability
will increase
7. Pre-2014: CIS energy exporters did well;
West Balkans, Armenia, Ukraine suffered
-6%
-1% -1%
1%
3%
7%
11%
14% 16%
18% 18% 19% 20% 21%
28%
36%
47%
66%Cumulative changes
in GDP (2008-2013)
What
recovery???
What
crisis???
IMF data, UNDP calculations. 7* As per UNSCR 1244 (1999).
8. What changed in 2014-2015?
8
• Developments in Russia + falling commodity prices
• Deeper, tectonic shifts in region’s political economy
80
90
100
2012 2013 2014 2015
Crude oil
Gas
Global price
indices (IMF data,
projections)
2012 = 100
9. Developments in Russia
• For CIS + Georgia, Russia
is a major:
– Trading partner
– Source of:
• Remittances
• Foreign investment
• ODA
• “Russian crisis”:
– For Russia: Initial
forecasts too pessimistic
– . . . But impact on other
post-Soviet economies
already severe 9
40
50
60
70
80
Daily exchange
rates (rubles/$)
“Crisis” “Recovery”
Source: OANDA.
10. Russia’s official foreign exchange
reserves: Shrinking—but still ample?
10
$0
$100
$200
$300
$400
$500
$600
$700
jan
mar
may
jul
sep
nov
jan
mar
may
jul
sep
nov
jan
mar
2013 2014 2015
National Welfare Fund
Reserve Fund
Central Bank of Russia
(In billions)
Sources: Central Bank of
Russia, Ministry of Finance
“Stabilization”? Or
temporary lull?
11. “Export shock”: Which countries
are most vulnerable?
Belarus
Kyrgyzstan
Ukraine
Moldova
Georgia
Armenia
Kazakhstan
Uzbekistan
Azerbaijan
Tajikistan
Turkmenistan
32%
14%13%12%
10%
6% 5% 4% 4%
1% 1%
FSU exports/GDP (2013)
Sources: CISSTAT, Georgian Statistical Office.
-44%
-31%
-20%
-12%
-10% -9%
-7%
Change in CIS
exports (2014)
12. Export shock deepens in 2015
-61%
-55% -53%
-46%
-42% -41% -40% -39%
Sources: National Statistical Offices, January-February data. Armenian data are for exports to Russia + Georgia.
Fall in exports
to CIS countries
Fall in imports
from CIS countries
13. 3-6 percentage points sliced off most
recent IMF 2015 GDP forecasts
13
MNE
FYRoM
TUR
UZB
ALB
BiH
KOS*
SRB
TAJ
GEO
KYR
TUK
AZB
KAZ
BEL
ARM
MOL
UKR*
1.7%
0.4% 0.1%
-0.3%
-0.9%
-1.2%
-2.0%
-2.8%
-3.0%
-3.3%-3.5%
-4.0%-4.1%
-4.8%
-5.5%
-7.1%
Change in IMF 2015 GDP growth
forecasts (in percentage points),
between April 2014 and April 2015
Recession expected in 2015
UNDP calculations, based on IMF-WEO forecasts. * As per UNSCR 1244 (1999).
14. Remittances from Russia
14
98% 95% 91%
73%
64%
43%
Remittances/GDP
(2013)
Remittances from
Russia/Total
remittances
(2013)
UNDP calculations, based on IMF, World bank, CBR data.
42%
32%
25%
21%
12% 12%
15. Remittances reduce poverty
(data from Kyrgyzstan)
15
2010 2011 2012 2013
34%
37%
38%
37%
40%
43%
45%
44%
With remittances
Without remittances
61%
58%
56%
45%
38%
34%
23%
20%
47%
49%
41%
32%
Without remittances
With remittances
Source: Kyrgyzstat.
2013 data
16. “Remittances shock” hits in 2014 . . .
16
Source: Central Bank of Russia. Data are for remittances sent through money transfer operators.
Changes in remittance
outflows from Russia
Changes in remittance
inflows from Russia
2010 2011 2012 2013 2014
24%
37%
20%
14%
-12%
UKR UZB ARM GEO TAJ MOL KYR
-27%
-16%
-11%
-9%
-8%
-4%
-3%
17. . . . And continues into 2015
-50%
-40%
-30%
-20%
-10%
0%
10%
Q1 Q2 Q3 Q4 Q1*
2014 2015
RF Outflows to CIS
Tajikistan
Uzbekistan
Kyrgyzstan
Remittance flows, 2014-2015
(year-on-year changes)
* January-February data. UNDP calculations, based on CBR data.
19. Weaker currencies mean higher food
prices, inflation rates (Kyrgyzstan)
19
0%
2%
4%
6%
8%
10%
12%
14%
Jan
Feb
March
April
May
June
July
Aug
Sept
Oct
Nov
Dec
Jan
Feb
2014 2015
Consumer prices
Food prices
“Inflationary pass through”
(year-on-year changes)
UNDP calculations, based on Kyrgyzstat data.
20. Deeper dive: Labour market
exclusion (special problem in SEE)
35%
40%
45%
50%
55%
60%
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
BiH, FYRoM, MNE, SRB
Albania, Turkey
Western CIS
Caucasus
Central Asia
Share of population
aged 15 and above
that is employed
World Bank data, UNDP calculations (unweighted averages). 20
21. Probing deeper—Employment
rates by ethnicity, gender
Serbia Montenegro Moldova FYRoM
42%
39% 39% 38%
26% 27%
21%
23%
13%
8%
16%
10%
National Roma Roma women
Sources: World Bank world development indicators, UNDP/EU/WB Roma database. 2011 data. 21
22. Implications—Socio-economic
vulnerability
• Falling exports to, remittances from Russia will:
– Reduce GDP, household incomes
– Increase unemployment, poverty, vulnerability
• Weaker exchange rates will:
– Increase inflation
– Make imports less affordable
– Stress the financial system
– Reduce real household incomes
– Increase poverty, vulnerability
22
? ? ?
23. Implications—programming
• Big macro picture matters
– IMF, World Bank are monitoring the macro picture . . .
– . . . But who is tracking impact on vulnerable groups?
• Greater government, donor interest in (funding)
programmatic response?
– Which projects?
• Rapid employment?
• Social policy reform?
• Early warning systems?
• Poverty/vulnerability monitoring?
• Local/regional/area-based development?
– Which partners? 23
? ? ?
24. Programming response:
“Kyrgyzstani model”
• During discussions with UN Country Team in
Bishkek in March, four possible areas for joint
action were identified:
– Food security
– Real time monitoring of vulnerable groups
– Migration and remittances
– Social protection
• Could this model be applied in other
countries?
24