Transcript Financial Institutions 2003

Economic Developments and Reform
in the Eastern Europe and Caucasus
(EEC) Countries
Christopher Falco
EBRD, Senior Banker
Baku, 27 May 2010
ABA/EBF Conference
The EEC region is in crisis but shows
some signs of recovery

The region was not affected uniformly by the
crisis. The crisis emphasised once more the
importance of economic diversification for longterm sustainability

Low financial integration implied low impact on
banking sectors due to closure of international
financial markets (except Georgia, and to a less
extent Azerbaijan)
The EEC region is in crisis but shows
some signs of recovery
•
Double-digit declines (Ukraine, Armenia)
•
Average output declined 9% in 2009
•
Crisis is not over: rising non-performing loans
continuing low availability of credit

GDP growth slowed-down across the region
mainly due to lower external demand, lower
commodity and oil prices, lower export demand,
and lower remittances
Factors leading to the crisis

Accumulated macro-economic imbalances

Weak institutional environments

Crisis management frameworks

Dependence on few commodity based exports

Dollarisation of corporate and household
liabilities

Sudden currency collapses
Help in Mitigating the Crisis

New EU member states could mitigate the impact of the
crisis

Trade and financial integration to the EU led to growth in
EEC

Improve domestic and international policy frameworks to
better manage future economic booms

Building institutions and improving how the state interacts
with the private sector

The Eastern partnership framework can strengthen their
institutions and reduce their future economic volatility

Without EU partnership EEC countries may suffer a
permanent reassessment of investors’ sentiment
Real GDP growth has slowed down
2008
2009
2010 forecast
2011 forecast
15
11
10
10
10
9
7
6
5
7
5
4 4
3
2
4
5
6
4 4
4 5
4 4
2
0
%
0
-5
Armenia
-20
Sources: EBRD
Belarus
Georgia
-4
Moldova
Ukraine
-7
-10
-15
Azerbaijan
-14
Russia
-8
-15
Remittances decrease sharply in 2009:
2010 outlook is promising
3000.0
2500.0
USD m
2000.0
2008
2009
1500.0
2010 forecast
1000.0
500.0
BA
IJ
A
N
K
G
Y
EO
R
RG
G
Y
IA
Z
RE
PU
BL
M
IC
O
LD
O
V
M
A
O
N
G
O
LI
TA
A
JI
K
IS
TA
U
ZB
N
EK
IS
TA
N
A
ZE
R
A
RM
EN
IA
0.0
Source: EBRD and IMF IFS database
Note: Quarterly data are seasonally adjusted
Non-performing loans of banks have
increased significantly
20
18
16
Azerbaijan
Armenia
Mongolia
Moldova
Tajikistan
Kyrgyz Republic
Georgia
14
%
12
10
8
6
4
2
0
2005
Sources: National Banks
2006
2007
2008
2009 Q1
2009 Q2
Average Inflation
2007
2008
2009
2010 forecast
30
25
25
21
20
%
17
16
15
5
11
9 10
9
10
5
3
12
10
9
8
7
4
14
13
12 13
3
7
5
4 4
2
0
0
0
Armenia
Azerbaijan
Source: EBRD and IMF IFS database
Note: Quarterly data are seasonally adjusted
Georgia
Moldova
Ukraine
Belarus
Russia
Transition Factors
1. Population
2. Private Sector Share
3. Enterprise:
•
•
Large& Small-scale privatisation
Governance and Enterprise restructuring
4. Markets and Trade:
•
•
Price liberalisation & Competition Policy
Trade and Foreign exchange system
5. Financial Institutions:
•
•
Banking reform and interest liberalisation
Securities markets and non-bank financial institutions
6. Infrastructure Reform:
•
•
•
•
Electric Power
Railways & Railroads
Telecommunications
Water and Wastewater
Reform momentum in the region slowed in
2009, with only a few transition reversals…
Transition Scores, Ugrades, and Downgrades, 2009
Upgrades
Average transition score
CEB
Upgrades
Source: EBRD
SEE
Downgrades
Russia
Turkey
EEC
CA
Average transition score (right axis)
Uzbekistan
Turkmenistan
Tajikistan
Mongolia
Kyrgyz Rep.
Kazakhstan
Ukraine
Moldova
Georgia
Belarus
Azerbaijan
Armenia
Turkey
Russia
Serbia
Romania
-2
Montenegro
-2
FYR Macedonia
-1
Bulgaria
-1
Bosnia and Herz.
0
Albania
0
Slovenia
1
Slovak Rep.
1
Poland
2
Lithuania
2
Latvia
3
Hungary
3
Estonia
4
Croatia
4
Some progress with reforms but a lot
remains to be done
•
•
•
I-phase, “market enabling” reforms of market liberalisation and small-scale privatisation largely completed.
II- phase “Market deepening” reforms of large-scale privatisation and financial sector reform slow progress
III-phase, “market sustaining” reforms – governance and enterprise restructuring, competition policy and
infrastructure – remain at early stage.
3.7
3.4
3.1
2.8
2.5
2.2
First-phase reforms
Second-phase reforms
Azerbaijan
Georgia
Armenia
CIS and
Mongolia (not
Caucasus)]
1.3
1.0
SEE
1.9
1.6
CEB
Transition score
4.3
4.0
Third-phase reforms
BEEPS: Main obstacles across the region are
taxes, finance, education and political instability
Most serious obstacle
Percent
Education of workforce
40
30
Pol. instability
Informal sector
competition
Tax rates
Access to finance
20
Corruption
10
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
1 access to finance 2 access to land 3 business licensing and permits 4 corruption 5 courts 6 crime, theft and disorder
7 customs and trade regulations 8 electricity 9 inadequately educated workforce 10 labor regulations 11 political instability
12 practices of competitors in the informal sector 13 tax administration 14 tax rates 15 transport
15
BEEPS: Most serious obstacles to business by
country and firm size: Armenia
Armenia - Most serious obstacle
Percent - by firm size
30
•Access to finance,
competition and tax
rates similar
•Azerbaijan: corruption
20
•Armenia: customs and
political instability
0
10
•Georgia: political
instability and crime
1
2
3
4
5
6
7
Small firms
8
9
10
11
12
Medium firms
Large firms
1 access to finance 2 access to land 3 business licensing and permits 4 corruption 5 courts 6 crime, theft and disorder
7 customs and trade regulations 8 electricity 9 inadequately educated workforce 10 labor regulations 11 political instability
12 practices of competitors in the informal sector 13 tax administration 14 tax rates 15 transport
13
14
15
BEEPS: Most serious obstacles to business by
country and firm size: Azerbaijan
Azerbaijan - Most serious obstacle
•Georgia: political
instability and crime
25
20
15
10
•Azerbaijan: corruption
5
•Armenia: customs and
political instability
Percent - by firm size
0
•Access to finance,
competition and tax
rates similar
1
2
3
4
5
6
7
Small firms
Large firms
8
9
10
11
12
13
14
Medium firms
1 access to finance 2 access to land 3 business licensing and permits 4 corruption 5 courts 6 crime, theft and disorder
7 customs and trade regulations 8 electricity 9 inadequately educated workforce 10 labor regulations 11 political instability
12 practices of competitors in the informal sector 13 tax administration 14 tax rates 15 transport
15
BEEPS: Most serious obstacles to business by
country and firm size: Georgia
Georgia - Most serious obstacle
•Georgia: political
instability and crime
25
20
15
10
•Azerbaijan: corruption
5
•Armenia: customs and
political instability
Percent - by firm size
0
•Access to finance,
competition and tax
rates similar
1
2
3
4
5
6
7
Small firms
Large firms
8
9
10
11
12
13
14
Medium firms
1 access to finance 2 access to land 3 business licensing and permits 4 corruption 5 courts 6 crime, theft and disorder
7 customs and trade regulations 8 electricity 9 inadequately educated workforce 10 labor regulations 11 political instability
12 practices of competitors in the informal sector 13 tax administration 14 tax rates 15 transport
15
Some business obstacles are still different
in the transition region

Obstacle categories in which transition region
underperforms (driven by EEC+R+CA including ETC
countries):
– business licenses and permits
– functioning of the judiciary
– Crime

Obstacles that play about the same role on average in
transition and non-transition countries:
–
–
–
–
access to finance
political instability
tax rates
competitors in the informal sector
Large challenges remain almost everywhere
in the EEC/ETC countries
Corporate
Agribusiness
General
industry
Energy and infrastructure
Property Telecom Municipal Natural
and
municatio
and
resources
tourism
ns
environmental
infrastruct
ure
Power
Financial institutions
Sustainab Transport
le energy
Banking
Non-bank
financial
institutions
MSMEs
Private
equity and
capital
markets
CEB countries
SEE countries
Turkey
Russia
Bel,Ukr,Kaz,Trk
ETC/EEC
2.00
3.00
3
3
3.5
3.30
1.63
3.00
3
3
3.80
3.80
2.13
3.29
2
3
3.50
3.4
2.00
2.71
3
3
3.8
3.80
2.13
3.00
3
3
4.00
3.50
2.13
2.71
3
4
3.80
3.6
2.13
3.14
3
3
4.00
3.9
2.50
3.14
3
4
4.00
3.80
2.63
3.14
3
3
3.80
3.6
2.13
2.86
3
3
3.50
3.8
2.13
3.00
3
3
4.00
3.6
2.88
3.00
3
4
3.50
4.00
2.75
3.57
2
3
3.80
4.00
EBRD region
2.96
3.04
3.21
2.93
3.25
3.11
3.18
3.39
3.32
3.11
3.21
3.43
3.54
Legend:



1 = negligible challenge
2= small challenge
3 = medium challenge
4 = large challenge
ETC mostly large challenges (as other CIS countries)
CEB: relatively small gaps, but important areas with medium gaps
(sustainable energy, transport, financial institutions)
SEE in between