Countries in the Caucasus and Central Asia region that import, rather than export, oil were hit hard by the Great Recession of 2008/09. The good news is that, today, the outlook for those countries is broadly positive. But, as often seems to be the case in today’s world, this good news is tempered with a word of caution. According to our latest Regional Economic Outlook: Middle East and Central Asia, there are a number of downside risks. And the key challenge for these four countries—Armenia, Georgia, Kyrgyz Republic and Tajikistan—will be to take actions now to address these risks.
The varied experience of emerging market economies during the global financial crisis underscores an important lesson: good policies beget good outcomes. Investing during good times to develop a sound policy framework that delivers stronger fundamentals and lower vulnerabilities yields large dividends during crises. In the current crisis, low-vulnerability countries had lower output declines, more space to undertake countercyclical policies, and quicker recoveries.
After averting a second Great Depression, what should policy makers do to foster recovery?
Economic policymakers are rarely popular. Central bank governors are notorious for removing the punch bowl at the party. Ministers of finance are traditionally the ones who say no to their colleagues’ pet spending projects.
In the upside-down world of recent months, finance ministers and central bank governors around the world seemed to have switched sides. They became cheerleaders for expansionary policies. The IMF has argued strongly for this, as long as countries had room to take on more debt. Despite some hiccups, it seems clearer with every economic release that the extraordinary actions governments have taken have paid off, at least in halting the slide. Economic prospects may not be quite as bright as recent market moves would suggest. But the risk of spreading financial collapse has lessened markedly.