The International Monetary Fund (IMF) has called on countries in the Caucasus and Central Asia to bolster their fiscal policies to improve economic resilience and support sustainable long-term growth.
According to the recently published IMF report Rethinking Fiscal Policy and Fiscal Frameworks in the Caucasus and Central Asia, state budgets and fiscal strategies have played a pivotal role in the economic transformation of the region since the collapse of the Soviet Union.
State dominance and economic vulnerability
Despite a history of regional reforms, analysts note that the public sector and state-owned enterprises continue to dominate the economies of several nations. Consequently, the role of private businesses in domestic job creation remains heavily restricted.
Experts highlighted that the Caucasus and Central Asia are still highly susceptible to external economic shocks and fluctuating budget revenues. Furthermore, automatic economic support mechanisms lack efficiency. This fundamental weakness forces regional governments to frequently rely on manual interventions to stabilise their economies during periods of crisis.
The study points to an ongoing need for increased investment in vital public sectors. Governments are currently facing sustained pressure to finance social protection, healthcare, education and infrastructure. At the same time, researchers observed notable inconsistencies across the region regarding the overall quality of public financial management and budgetary reporting.
A call for comprehensive reform
To significantly boost the effectiveness of fiscal policy, IMF experts have outlined several key recommendations for regional authorities:
- Overhaul existing tax and social welfare systems
- Refine fiscal rules and broader budgetary guidelines
- Implement high-quality medium-term expenditure planning
Managing future risks
The comprehensive report also advises governments to strengthen their oversight of specific fiscal risks. The IMF suggests that authorities need to enforce closer monitoring of state-owned enterprises, public-private partnerships and the escalating financial impacts of climate change.
The authors conclude that successfully implementing these sweeping reforms will require unwavering political support, the continuous development of institutional capacity and close collaboration with international partners.
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