Edb Economies: In Search Of New Growth Drivers

The extent of global protectionism risks became obvious in the first half of 2018. The US’s escalating trade dispute with the EU and China creates considerable risks to global economic growth, which brings additional risks of an energy price correction for the EDB countries. Apart from external economic risks, weakening existing growth drivers and the need for new sources to boost economic development become new and growing challenges facing the EDB countries. One of the possible steps under the present conditions can be some softening in fiscal policy. Prospects of a fiscal stimulus emerged this year with the Russian President’s executive orders issued in May to provide additional financing to high-priority sectors. Additional expenditures can amount to up to RUB 8 trillion by 2020. Amid growing energy prices, there was an increase in spending in Kazakhstan in 1Q 2018, by 13.5% YoY, compared to almost zero growth in the same period of the previous year. At the same time, social expenditures (+20% YoY), particularly on healthcare (+23.6% YoY), outpace overall expenditure growth. However, using the budget mechanism to stimulate economic activity has some limitations, including budget rules established in oil exporting countries, such as the RF. On the other hand, some countries, like Belarus and Armenia, need to reduce government debt. An increase in spending amid a rise in commodity prices may also increase EDB countries’ dependence on global economic conditions. Thus, in order to find additional growth drivers, the EDB countries have to take measures to increase efficiency and labor productivity in their economies and to improve the investment climate. Diminishing the share of the shadow economy can be a potential economic growth driver for the EDB countries. According to the IMF, the shadow economy in the EDB countries constitutes 32.8% of Kazakhstan’s GDP, 30.1% of Kyrgyzstan’s GDP, 32.4% of Belarus’s GDP, 37.8% of Tajikistan’s GDP, 36% of Armenia’s GDP, and 33.7% of Russia’s GDP. These estimates do not correspond to the countries’ official data due to differences in assessment methods applied. According to the Kazakhstan Statistics Committee, the shadow economy amounted to 25.8% of Kazakhstan’s GDP in 2016 and 23.8% of Kyrgyzstan’s GDP. However, all conditions currently exist to decrease it. By decreasing the shadow economy, it will be possible to increase budget revenues, distribute revenues more equally, and improve the business climate and economy in general.