CIS Sovereigns: Budget policy matters

We initiate regular coverage of four countries of the CIS (Commonwealth of Independent States): Armenia, Azerbaijan, Kazakhstan and Uzbekistan. In this report, we take a broad look at what the recent geopolitical shift in the region as well as domestic developments mean for each country’s economic activity, fiscal and monetary policy, interest, and exchange rates. We also take a snapshot of what bank sector lending looks like.

Country views

• Armenia, the smallest of the CIS-4, is exposed to external forces, benefiting from the influx of Russian immigrants, but facing risks from incoming refugees from Nagorno-Karabakh. The dram is now reversing following more than a year of strength.

• Azerbaijan, the most financially solid of the four, is enjoying some recovery despite an otherwise lagging economic growth rate, aided by new gas contracts with the EU and upcoming state investments into reintegrated Karabakh.

• Kazakhstan, the largest among the CIS-4, is showing solid growth momentum but there are concerns on the fiscal side. The deficit is widening with higher savings in the oil fund, meaning more active borrowing and lower support to the tenge, which is pressured by growing imports and depreciation of trading partners’ currencies. However, with positive real rates, the domestic debt might be attractive to portfolio investors.

• Uzbekistan is also posting solid economic growth rates and is increasingly affected by fiscal policy, which is showing signs of easing in 2023. The key focus is on the soum, which has been the worst-performing currency in the CIS space. We do not exclude the possibility that the next couple of quarters could bring some temporary relief.