22.04.2020 (Caucasian Journal) The economies of South Caucasian countries will be severely hit in long time perspective due to global pandemic – from tourism decline and (in case of Azerbaijan) from oil price drop. As World Bank is known for economic forecasting, Caucasian Journal asked for professional comment from Sebastian MOLINEUS - WB Regional Director for the South Caucasus.Caucasian Journal: How does World Bank assess the economic consequences of pandemic in the countries of South Caucasus?
Sebastian MOLINEUS: The COVID-19 pandemic is presenting an unprecedented economic challenge for the world and is certainly having an impact on the economies of all three countries in the South Caucasus Region.
Indeed, the pandemic is occurring at an already fragile time for the Europe and Central Asian region, including the South Caucasus. Growth in Europe and Central Asia had already decelerated to 2.2 percent in 2019. And since February 2020, the region has faced an increasingly uphill battle to cope with the pandemic as it interrupts daily activity, puts further downward pressure on commodity prices, disrupts tightly linked global and regional supply chains, reduces travel and tourist arrivals, and decreases demand for exports from and within the economies in the region. As a consequence, most forecasts, including the WB’s Europe and Central Asia Economic (spring) Update, project a contraction in global and regional GDP in 2020.
By how much? The projections this time around are subject to significant uncertainty. How long the recession will last, and its severity will depend on the duration of the pandemic. The scenarios in the ECA Economic Update suggest regional GDP could contract by 2.8 percent in case the outbreak is largely contained by the second half of the year and measures to stop the spread of the virus are lifted, but the contraction could reach as much as 4.4 percent in case efforts to contain the outbreak spill into the third quarter of 2020.
In particular, we expect that Georgia’s GDP will contract somewhere between -0.2 percent and 2 percent in 2020, before seeing an economic rebound in 2021. The Georgian economy will be severely impacted, as transport restrictions impact the travel and tourism sectors, while containment measures dampen domestic demand.
Regarding Azerbaijan, GDP is expected to contract by 0.2% in 2020 but should rebound by 2.2% next year. Along with the COVID-19, the collapse of oil prices has been a challenge for the economy of Azerbaijan, which will be affected by reduced oil export revenues, decreased trade and financial flows, and a cut in revenues from the tourism sector.
As for Armenia, finally, under the report’s baseline scenario we envisage the start of a gradual recovery in mid-summer of 2020, yet the real GDP growth rate in 2020 is expected to moderate to 1.7 percent, one-quarter of the average growth rate recorded over the past three years, as exports and domestic demand are affected.
Caucasian Journal: Shall we expect considerable assistance form World Bank to South Caucasian region?
Sebastian MOLINEUS: As our readers will know, the World Bank is taking broad, fast action to help countries strengthen their pandemic response and we are deploying up to $14 billion in emergency response financing under our Global Fast Track COVID-19 Response Facility, which focuses on phase 1 interventions in support of the health response, followed by $160 billion in financial support over the next 15 months to help countries during their phase 2 response in protecting the poor and vulnerable, supporting businesses, and bolstering economic recovery.
We've been working with the Governments of Armenia, Azerbaijan and Georgia since day 1 of this crisis, and I am particularly pleased to note that many strong policies have been implemented by all three governments to mitigate the impact of COVID-19, in particular those related to social distancing and thus flattening the pandemic curve. This allows all governments to invest in their public health systems and will mean more beds, more ventilators, more personal protective equipment, more tests, and, most importantly, this will mean saving lives. This has, correctly, been the first priority. Second, policy makers are now adopting measures to minimize the social impact by strengthening the safety net for the most vulnerable and those who have lost their work, to cushion private consumption and increase access to public services. Third and finally, supporting economic recovery once the containment measures have been lifted will be key. This will require a focus on the private sector to protect jobs, for example, through temporary business credits, tax cuts, tax payment deferrals, or subsidies to help sustain activity. And on the financial sector side, ensuring liquidity could help banks provide relief to sound borrowers.
In conclusion, I would like to underline that the World Bank is a strong and trusted partner for the South Caucasus countries, and we stand by the governments, and most importantly the peoples of Armenia, Azerbaijan and Georgia.
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