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. Last Updated: 07/27/2016

IMF Predicts Long Road to CIS Recovery

MOSCOW — The economies of the former Soviet republics will contract more sharply than previously expected this year, but a tentative recovery in Russia and rising commodity prices should pave the way for tentative growth in 2010, the IMF said on Thursday.

"The economic fallout of the global crisis on the CIS has been intense," the International Monetary Fund said in its latest World Economic Outlook. "The path towards recovery will be difficult for most."

The Commonwealth of Independent States' (CIS) economies will shrink 6.7 percent in 2009, more than reversing last year's 5.5 percent expansion and worse than the 5.0 percent fall that was expected in July, the IMF forecasts.

Russia, by far the biggest economy in the bloc, will contract 7.5 percent this year, leading to a sharp fall in remittances to neighboring countries.

The sharpest decline in the region is forecast in Armenia, with a 15.6 percent GDP slump, followed by Ukraine with a 14.0 percent contraction. 
The best performers will be Azerbaijan and Uzbekistan, each with growth of 7.5 percent this year.

"Most of the energy-exporting countries are weathering the financial turmoil and the drop in energy prices comparatively well, because they could draw on large policy buffers and are less dependent on developments in Russia," the IMF said.

In 2010, the region will return to growth, of 2.1 percent, although "risks are tilted to the downside," the IMF said, highlighting the possibility for a deeper downturn globally and in Russia as well as a potential fresh retreat in energy prices.

The fund, which has helped several CIS countries financially during the crisis, said more donor support may be needed and called on lower income economies to maintain exchange rate flexibility to protect the competitiveness of exports.

"The overarching challenge for financial sector policies is to lay the foundation for a resumption of credit growth on a much sounder basis than in the recent past," the IMF said. 
"Policy makers should also be prepared to act quickly if strains in the financial sector re-emerge by supplying liquidity, providing capital to ailing but sound financial institutions and facilitating restructuring in the financial sector or elsewhere in the economy."