Topic of the week: Headwinds for external positions mount
Balance of Payment data for 1Q23, released for all of our countries except Tajikistan, suggest that headwinds for CCA external positions are gaining strength. This is generally driven by a combination of strong GDP growth spilling into imports and an emerging picture of moderating remittances from Russia. The latter were instrumental in engineering robust current account surpluses last year, with the average current account transitioning from a deficit of 3.8 percent of GDP in 2020 to a surplus of 0.6 percent of GDP in 2021 and 7.1 percent of GDP in 2022.
While all CCA economies enjoyed CA surpluses as recently as 3Q22, Armenia, Georgia and Uzbekistan saw a fast transition to CA deficits in the subsequent two quarters (4Q22 and 1Q23), while the CA surpluses in Azerbaijan and Tajikistan have moderated over the same period. The average CA thus moved from a surplus of 15.3 percent of GDP in 3Q22 to almost a flat position in 1Q23, although the result is driven by the still hefty CA surpluses in Azerbaijan and Tajikistan.
In Armenia, the combination of very strong GDP growth and fast return of net monetary inflows to pre-2022 levels argue for a swift switch back to deficit positions in the CA. Indeed, the 5.1 percent of GDP CA deficit recorded in 1Q23 will persist through the year as we forecast a full-year CA deficit of about 4 percent of GDP (versus a surplus of 0.8 percent of GDP in 2022).
In Georgia, the more moderate expansion of economic activity and the less steep decrease of remittances will be consistent with a more modest CA deficit. We forecast it at about 2.5-3.0 percent of GDP in 2023 (versus a deficit of 4.7 percent in 2022).
In Azerbaijan, the CA surplus will remain robust at a forecast 15 percent of GDP in 2023 versus the 29.8 percent of GDP surplus last year as oil/gas prices decline this year.
In Uzbekistan, the CA deficit dropped sharply, from 7 percent of GDP in 2021 to only 0.7 percent of GDP in 2022, but is set to widen again in 2023 to 4-5 percent of GDP as excess remittances from Russia return to more normal levels and economic growth remains solid.
In Tajikistan, there is significant uncertainty about how the CA position will evolve this year due to the lack of data on remittances. At the same time, there is a strong indication that very robust GDP growth has supported imports while exports have suffered lately. CA surpluses were boosted by Russia-related remittances in 2021 and 2022 to 8.4 and 14.7 percent of GDP, respectively, but such bumper performance is very unlikely this year. Data on FX reserves may be used as a sign that this is indeed the case as the central bank has lost about US$0.6bn in reserves Jan to May versus accumulating US$1.7bn during 2021/2022. If one assumes that the decline in remittances is similar in magnitude to that in Uzbekistan, then the CA may switch back to a small deficit in 2023.
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