By Margarita Antidze
TBILISI (Reuters) - Economies in the Caucasus and Central Asia (CCA) will expand by an overall 4.5% in both 2019 and 2020 despite global trade tensions and slowing growth in key trading partners, the International Monetary Fund said on Friday.
The IMF called on the former Soviet republics to improve competitiveness, use their natural advantages more effectively and diversify their economies to reap the gains from trade and integration into global value chains.
The Fund's report covers the Caucasus nations of Armenia, Azerbaijan and Georgia, and the Central Asian states of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan.
"Despite weaker trade, overall growth for the CCA region is expected to remain about 4.5% in 2019–20, largely owing to a looser fiscal stance and private sector credit growth," it said.
Juha Kahkonen, deputy director of the IMF's Middle East and Central Asia Department, told Reuters the big challenge for CCA states was to create jobs and adopt reforms to spur activity.
"Current growth rates are not bad from a global prospective, but countries should not be satisfied with this," he said.
External risks include trade tensions, a global slowdown, lower commodity prices and rising geopolitical risks, the Fund said, while domestic risks include slowing reform momentum.
Azerbaijan, Kazakhstan and Turkmenistan are energy exporters while Armenia, Georgia, Kyrgyzstan, Tajikistan and Uzbekistan import all or most of their oil and gas.
COMMON AND DIFFERENT CHALLENGES
"There is a need to diversify, make the economy more reliant on private sector activity and also the banking sector has not been reformed," Kahkonen said of Azerbaijan.
He said private sector credit had stabilized after years of decline, but that "banks are not really in good shape to support private sector activity".
In Kazakhstan, too, there "needs to be a supply of bankable projects, the government needs to have policies to diversify the economy and make sure that the private sector is an engine of growth," Kahkonen added.
Kazakh banks meanwhile "need to have a new business model".
The IMF official praised reforms in Armenia, which has the fastest growth in the region, and Georgia's favorable business climate.
He said the Fund's program in Tajikistan, the poorest CCA country, was on hold as the government was not ready to commit to policies needed support it, including banking sector reform, moving to a flexible exchange rate and fiscal prudence.
Recent Uzbek economic reforms were a positive development, Kahkonen said, adding: "Once it's clear that the reforms are cemented and are there to stay, there would be a tremendous interest ... but there is a long way to go."
(Writing by Margarita Antidze; editing by Gareth Jones and Catherine Evans)