Regional : Strengthening ADB's Collaboration with the International Monetary Fund for Macroeconomic Management in the Caucasus, Central Asia, and Mongolia

Finance / Central banking systems

Public sector management / Economic affairs management - Public expenditure and fiscal management

Countries in the region face significant challenges of debt management. Mongolia's external debt stock started to rise after the global financial crisis of 20082009, and reached over 200% of GDP by 2015. While the external debt to GDP ratio somewhat declined since then, it still stays above 200%. The oil price shock in 20142015 widened fiscal deficits and increased public debt and external debt in the Caucasus and Central Asia. This was particularly the case for oil exporting countries, such as Kazakhstan, but also for oil importing countries that had close link to the oil exporters as key trading partners and remittance receivers. The government gross debt for all countries in the Caucasus and Central Asia combined accounted for 17.1% of their GDP on average for 20002014, but it increased thereafter to reach 26.3% by 2019. In the same period, their gross total external debt increased from 54.3% to 68.2% of GDP. External debt has been rising in relation to the gross national income (Figure). These countries have been vulnerable to exogenous shocks, with profound implication on public finance and the economies at large, while their capacity to design and implement effective fiscal, monetary, and exchange rate policies and financial sector regulations and supervision to cope with this unique challenge is still limited.

More recently, the outbreak of coronavirus disease (COVID-19) and lower oil prices have put significant pressure on local currencies and sovereign spreads, revenues, and public expenditures in the Caucasus and Central Asia. Countries in the Caucasus, Central Asia, and Mongolia (CCAM) region face double challenges of addressing increased debt vulnerabilities on one hand and managing fiscal space for infrastructure and social expenditure on the other hand, with delicate expenditure control and enhanced domestic revenue mobilization. A related challenge is containing contingent liabilities that arise through lending by state-owned commercial banks to state-owned enterprises, pointing to the need for stronger banking supervision. Also, a number of economies in the region have undergone reform in monetary policy regime to allow for greater exchange rate flexibility, and the currency depreciation that followed increased the domestic currency value of external debt. Strengthening of relevant institutions, macro-fiscal frameworks and statistics will be critical to support better analysis, planning, and targeting of expenditures, risk identification and management, and communication of objectives and policies. Thus, there is a need to enhance the capacity of countries in the CCAM region for sound macroeconomic and debt management. Among multilateral institutions, the IMF has a specific mandate to address macroeconomic issues, and is best placed to address such capacity development needs in related areas.

Living standards improved by achieving higher and inclusive growth in a sustainable manner

Robust growth with debt sustainability restored

Core PFM functions strengthened and progressively more advanced PFM practices and systems introduced

Macroeconomic and financial statistics compilation and dissemination for decision making improved

Macroeconomic forecasting and policy analysis capacity at relevant institutions to support the economic policymaking process enhanced

Tax administration management and governance arrangements improved

Capacity of the central bank to implement monetary policy effectively in the context of the given monetary policy regime strengthened

Banking regulations and prudential norms enhanced