CIS economy grows quickly but not stably - EBRD

/REUTERS, Moscow, Maksim Filimonov, November 18, 03/ - Economic growth in CIS countries in the year 2003 is forecasted on the level of 6.2% in comparison with 4.8 in 2002, however it still depends on high prices for natural resources, and governments not hold structural reforms able to reduce this dependence not actively enough. The next report of Transition Report prepared by the European bank for reconstruction and development and dedicated to shifting of central and East European countries to market economy says about it. "Reforms in all CIS countries were prevented by institutional problems, weak possibilities for holding reforms on all levels of authority, and also often by absence of political will", - says the report. European bank, which is one of the largest investors in East European countries and CIS countries, has conditionally divided CIS countries into two groups - rich with natural resources - first of all, energy carriers - and which have no big reserves of treasurers of the soil. The first group according to the bank's information comprises Russia, Kazakhstan, Azerbaijan and Turkmenistan. EBRD has fixed the growing dependence of "oil countries" on energy carriers, despite all their efforts to diversify economy. Thus, stake of oil and gas in Russia in export rose in the year 2002 up to 52.5% from 41% in 1999, in Kazakhstan - up to 50.6% from 35.5%, in Azerbaijan - up to 88.8% from 78.1%. In Russia stake of oil and gas sector in GDP in the year 2002 rose not so much as in 1999 - to 16.3% from 16.0%, and in other "oil" countries growth of dependence is bigger. In Kazakhstan this indicator rose in the year 2002 up to 21.1% from 12.9, and in Azerbaijan - up to 33.6% from 17.5. At that, almost in all countries there is high payment balance because of high inflows from oil export. "Management of macroeconomic risks concerned with currency inflow - pressure upon inflation and real exchange rate - and also not stable position of budget's revenues, perhaps, is the main trial for these countries in the mid-term outlook ", - EBRD's report says. In the opinion of the bank's analysts, these countries have rather limited possibilities for sterilization of excessive monetary liquidity at the national markets in accordance with insufficient development of banks and small number of financial instruments. "Until the possibilities for tying excessive liquidity are limited, and there is almost no ways to sterilize money supply, clear effect from foreign currency inflow will result in growth of inflation pressure and weaken competitive ability of non-raw stuff sector, that as the result will worsen perspectives of economy diversification ", - says the report. Besides, it's necessary to struggle against temptation to increase budget's expenses in presence of high oil prices: in case they fall the reverse reduction of expenses seems to be difficult. The problem can be partially solved by stabilizing funds, which have been founded almost in all "oil countries" for accumulation of additional revenues from energy resources extraction. However, in EBRD's opinion, in order that such the funds be more effective they must be transparent and included in the general budget system. Besides, state should necessarily develop financial sector more actively for more efficient redistribution of oil inflows in the economy and stimulation of non-raw stuff sector's growth. EBRD forecasts that economic growth in Russia in the year 2003 will be 6.2% in comparison with 4.3% in 2002, in Kazakhstan - 9.0% (9.5), in Azerbaijan - 9.4% (10.6). WHO HAS NO OIL EBRD writes that economic growth rates in "non-oil" countries are preserved on high level. Thus, in Armenia and Tajikistan record is fixed for the second year one after another - 10% that is concerned with goods development of industrial sector. In Ukraine this indicator is forecasted for the year 2003 on the level of 5.5% in comparison with 4.8 in 2002, in Byelorussia - 4.0%. "Despite good indicators of growth within latest years, level of population's incomes in non-raw stuff countries is still very low. Poverty is prevalent, and countries in great degree depend on external sources of financing, often on gratuitous basis ", - says the report. EBRD called Moldavia and Georgia as the troubling examples, their cooperation with IMF was in the year 2003 interrupted because of problems with fulfillment of obligations concerned with economic reformation. It complicated the beginning of negotiations with Paris club about debt restructuring, which was extremely important for both Kishinev and Tbilisi. EBRD notes that in the mid-term outlook non-raw stuff countries should solve the problem of dependence on Russia's market and energy carriers supply. In the opinion of EBRD's experts, high oil prices, which are kept for last several years, almost was not reflected in economic growth rate sin the region. This paradox is explained by the fact that non-market mechanisms prevail in settlements for energy carriers inside CIS, and prices can not be called market ones. Besides, high dependence on Russia's market results so that after growth of prices for oil demand for import from these countries will also grow among Russian consumers. EBRD considers that as purchasing capacity will grow Russian people will re- orient on more expensive but more high-quality goods. This process may play positive role for non-raw stuff countries, which have to increase their production's quality. However bank's experts warn that the subsidized export of energy carriers from Russia and other countries rich with oil and gas will end sooner or later that may make irreparable damage for "non-raw stuff" economies. [2003-11-18]