This paper presents stylized facts on financial development in the CCA countries relative to their EM and LIC peers and assesses how financial development can boost growth in the CCA. Drawing on IMF’s multidimensional index of financial development, we find that CCA countries have made progress following the independence in early 1990s. However, the progress was uneven across the CCA, resulting in a divergence of financial development over time and mixed performance relative to EM and LIC peers. Financial institutions have progressed the most, while financial markets remain underdevelped in most CCA countries except Kazakhstan. In terms of sub-indicators of financial development, financial access has expanded markedly, while the depth of financial intermediation has remained largely shallow and efficiency of financial intermediation has fluctuated over time. Standard growth regressions suggest that CCA countries with relatively lower level of financial development have scope to boost annual growth rates between 0.5-2.5 percent by reaching the level of financial development of frontier CCA countries.

The countries in the Caucasus and Central Asia (CCA) have recorded significant macroeconomic achievements since independence. These countries have grown more rapidly-—on average by 7 percent over 1996–2011—-than those in many other regions of the world and poverty has declined. Inflation has come down sharply from high rates in the 1990s and interest rates have fallen. Financial sectors have deepened somewhat, as evidenced by higher deposits and lending. Fiscal policies were broadly successful in building buffers prior to the global crisis and those buffers were used effectively by many CCA countries to support growth and protect the most vulnerable as the crisis washed across the region. CCA oil and gas exporters have achieved significant improvements in living standards with the use of their energy wealth.

Drawing upon recent progress in development economics and political science, the book provides fresh analysis of the Caucasus and Central Asia (CCA) countries transition to a market economy by tracing the impact of natural resource endowment. The book examines the synergies between energy-rich and energy-poor states and highlights the practical consequences of both well-managed and poorly-managed deployment of energy. Featuring contributions from prominent specialists on resource-driven economies, the book argues that unless CCA elites change the way in which they deploy natural resource, revenues regional development will fall short of its potential with possible disastrous consequences. The contributors apply the experience of the developing market economies to demonstrate that the region still holds considerable potential to become an important, stable supplier of raw materials and a source of industrial demand to the global economy. However, the CCA is equally likely to become a threat to the global economy as a consequence of the misuse of energy revenues to promote the interests of predatory political elites.

CCA countries achieved gains in inclusiveness over the past 20 years as incomes increased and poverty, inequality, and unemployment declined. Most of the progress occurred before the 2008–09 global financial crisis. Since then, poverty rates have barely moved and, for oil importers, remain elevated.

Financial inclusion and financial education are becoming increasingly recognized as key requirements for sustainable and inclusive growth, and have been recognized as such by international fora such the Group of Twenty (G20) and the OECD. However, countries in Central Asia and the South Caucasus region have generally lagged in this area. Aside from Kazakhstan, the levels of financial inclusion are substantially below the average level of developing economies. Moreover, there has been little study of the determinants of and barriers to the development of financial inclusion and financial literacy in this region. In this study, prominent scholars in each country examine recent trends in financial inclusion in seven countries--Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Tajikistan and Uzbekistan--for both individuals and small and medium-sized firms (SMEs); institutional and regulatory barriers to the expansion of financial inclusion; and policy options to support greater financial inclusion while maintaining financial stability. The book also examines issues related to the assessment of financial literacy and promotion of financial education to support greater financial inclusion in the region. One prominent feature of the region is the relatively slow uptake of innovative financial technologies that could promote financial inclusion such as mobile phone banking, crowd funding and peer-to-peer (P2P) lending platforms. This book examines the barriers to such development, as recommends policies to facilitate the introduction of such technologies.

This book analyzes the Central Asian economies of Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan, from their buffeting by the commodity boom of the early 2000s to its collapse in 2014. Richard Pomfret examines the countries’ relations with external powers and the possibilities for development offered by infrastructure projects as well as rail links between China and Europe. The transition of these nations from centrally planned to market-based economic systems was essentially complete by the early 2000s, when the region experienced a massive increase in world prices for energy and mineral exports. This raised incomes in the main oil and gas exporters, Kazakhstan and Turkmenistan; brought more benefits to the most populous country, Uzbekistan; and left the poorest countries, the Kyrgyz Republic and Tajikistan, dependent on remittances from migrant workers in oil-rich Russia and Kazakhstan. Pomfret considers the enhanced role of the Central Asian nations in the global economy and their varied ties to China, the European Union, Russia, and the United States. With improved infrastructure and connectivity between China and Europe (reflected in regular rail freight services since 2011 and China’s announcement of its Belt and Road Initiative in 2013), relaxation of United Nations sanctions against Iran in 2016, and the change in Uzbekistan’s presidency in late 2016, a window of opportunity appears to have opened for Central Asian countries to achieve more sustainable economic futures.

The Caucasus and Central Asia (CCA) countries are at an important juncture in their economic transition. Following significant economic progress during the 2000s, recent external shocks have revealed the underlying vulnerabilities of the current growth model. Lower commodity prices, weaker remittances, and slower growth in key trading partners reduced CCA growth, weakened external and fiscal balances, and raised public debt. the financial sector was also hit hard by large foreign exchange losses. while commodity prices have recovered somewhat since late 2014, to boost its economic potential, the region needs to find new growth drivers, diversify away from natural resources, remittances, and public spending, and generate much stronger private sector-led activity.

During the 1990s, Emerging Europe and Central Asia (ECA) opted for a model of rapid financial development focused on bank credit expansion often funded by foreign capital. This model helped boost the financial inclusion of firms and households, but was also accompanied by lower financial efficiency and increased vulnerability to banking crises. The need for financial sector reforms has become more urgent as stagnating income growth, particularly of middle- to lower-income earners, is leading to increased dissatisfaction with the status quo of low productivity growth and limited access to opportunities. This demand for change can be the impetus for rebalancing financial policies to support higher and more inclusive growth. A healthy and balanced financial sector is needed to support structural adjustment in the oil dependent economies of the eastern side ECA and greater innovation in the countries of the western part of ECA. This report argues that financial development must reach beyond increasing access to credit. ECA countries should strive to build balanced financial systems integrating both bank and non-bank markets, enabling prudent financial inclusion. Most importantly, ECA falls significantly behind other world regions in the use of saving products. Striking the right balance across all dimensions of financial development (stability, efficiency, inclusion, and overall depth) is crucial for achieving and sustaining inclusive growth.

After the final collapse of the Soviet Union, the so-called 'last empire', in 1991, the countries of Central Asia - Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, Turkmenistan - and of the Caucasus - Armenia, Azerbaijan, Georgia - became independent nations. These countries, previously production centres under the socialist planning system of the Soviet Union, have made enormous economic adjustments in order to develop - or attempt to develop - along capitalist lines. As this study will show, however, inequality in Central Asia and the Caucasus is widening, as the Soviet systems of healthcare and state provisions disappear. Rejecting the Cold War-era East/West paradigm often used to analyse the development of these nations, this study analyses development along the North-South lines which characterise the migration patterns and poverty levels of much of the rest of the developed world. This opens up new avenues of research, and helps us understand why it is, for instance, that this region is better characterised as a 'new South' - as skilled workers flood out of the territories and into Russia and Western Europe. Development in Central Asia and the Caucasus draws together detailed analyses of the development of migration economics as the region's oil wealth further enhances its strategic and economic importance to Russia, the US, the Middle East and to the EU.

Using data from the World Economic Forum’s Global Competitiveness Report as an example, this paper compares structural indicators for 25 countries in Emerging Europe, the Caucasus, and Central Asia with a generic country with similar charactersitics that is 40 percent richer as well as a country with the average EU income. This comparison suggests that improvements will be particularly crucial in the areas of institutions, financial market development, infrastructure, goods and labor market efficiency and areas related to innovation. For the generally more ambitious goal of reaching average EU income, the reform needs are correspondingly larger. The methodology focuses on (approximate) comparisons between countries and does not try to establish the link between structural reforms and growth. While we test for changes in empirical specifications, caveats relate to the quality of structural indicators, possible non-linearities, and reform complementarities. The approach can be applied to other indicators and at a more granular level.