It’s not just Russia: Currency crisis in the Commonwealth of independent states
Highlights • The currency crisis that started in Russia and Ukraine during 2014 has spread to neighbouring countries in the Commonwealth of Independent States (CIS). The collapse of the Russian ruble, expected recession in Russia, the stronger US dollar and lower commodity prices have negatively affected the entire region, with the consequence that the European Union's entire eastern neighbourhood faces serious economic, social and political challenges because of weaker currencies, higher inflation, decreasing export revenues and labour remittances, net capital outflows and stagnating or declining GDP. • The crisis requires a proper policy response from CIS governments, the International Monetary Fund and the EU. The Russian-Ukrainian conflict in Donbass requires rapid resolution, as the first step to return Russia to the mainstream of global economic and political cooperation. Beyond that, both Russia and Ukraine need deep structural and institutional reforms. The EU should deepen economic ties with those CIS countries that are interested in a closer relationship with Europe. The IMF should provide additional assistance to those CIS countries that have become victims of a new regional contagion, while preparing for the possibility of more emerging-market crises arising from slower growth, the stronger dollar and lower commodity prices.
Economic consequences of the Ukraine conflict
Summary The Ukraine conflict is having serious consequences not only for Russia and Ukraine, but it also potentially threatens to damage the still frail economic recovery in Europe. In Ukraine, which is the main victim of the conflict, the economy may decline by up to 8% this year. In Russia, the costs of the conflict are estimated to be in the tune of 1% of GDP in 2014-2016, primarily on account of increased investment risks. The effects on the individual EU countries differ depending on their exposure to the Russian market the Baltic States, Finland and several other new EU Member States are generally most affected. The impact on Austria is expected to be relatively modest. Austria is not overly exposed to the Russian market. For the EU as a whole, there are five industries where the share of Russia in total exports exceeds 3% textiles, pharmaceuticals, electrical equipment, machinery and transport equipment. On the assumption of a 10% loss in exports of goods and services to Russia, the estimated GDP loss would be about 0.4% for Lithuania and Estonia, and less than 0.1% for Austria. In absolute figures, Germany might lose around EUR 3 billion, followed by Italy (EUR 1.4 billion), France, Great Britain and Poland (EUR 0.8 billion each). Austria could lose close to EUR 300 million in this scenario. The estimated impact of Russia’s ban on agro-food imports from the EU imposed in August 2014 is expected to be the highest in the Baltics. These losses are undoubtedly painful, yet manageable (a trade decline bigger than 10% would obviously lead to greater losses). The question is whether these losses are justifiable and will achieve the desired effects – to change Russia’s behaviour in Ukraine and beyond.
Will IMF Intervention Help Belarus Solve Its Old Problems
"Last month the Government and National Bank of Belarus (NBB) announced that they would ask for a new stand-by loan from the IMF. The requests for external assistance followed several unsuccessful government attempts to overcome the serious macroeconomic crisis that has been developing in the country since the beginning of 2010. A key question arises, can external loans help Belarus to overcome its current crisis?