Armenian News-NEWS.am presents the article “Inflation threatens South Caucasus economic recovery”, published by Xinhua agency.

“Despite latest IMF forecasts which expect generally sound economic prospects for the South Caucasus this year, Armenia, Azerbaijan and Georgia would still have to be prepared for less rosy scenarios given ever-rising inflation figures and a policy dilemma,” the source reads.

“Tighter fiscal policies would lead to currency appreciation, which would in turn cut inflation to some extent, but at the same time would also certainly stalk foreign investment inflows and possibly cause an economic stagnation over the mid term.”

“Under such circumstances, it became evident that inflation control is the key to sustaining the region’s recovery from the latest global financial crisis, a “must-tackle” issue as the IMF described.”

“To sustain the recovery, policymakers in the Caucasus and Central Asia will need to address rising inflation, respond to social pressures arising from high food prices without threatening fiscal stability, and restore the health of banking systems,” said David Owen, the IMF’s deputy director for Middle East and Central Asia.

“Two out of the three South Caucasus countries, Georgia and Armenia, have been blaming global food and fuel price hikes for the inflation woes and social pressures confronting them,” the source says.

“Georgia’s year-end inflation hit a ten-year high of 11.2 percent in 2010 while Armenia wrapped up the same year with a 9.4-percent inflation. Backed by its oil and natural gas exports, Azerbaijan’s inflation rate was comparatively modest, standing at 5.7 percent by the end of 2010,” the agency reports.

“The situation got worse in the first quarter of 2011, during which all three countries reported even higher inflation figures.”

“Georgia and Armenia were especially fragile under inflation woes since both are both big importers of highly-priced food and fuel, which resulted in declining foreign exchange reserves and huge trade deficits,” the source informs.

“The IMF predicted a 4.6% growth for Armenia against an annual inflation of 9.3 % this year.

“The IMF has also warned the governments of Armenia, Azerbaijan and Georgia to be well aware of the social pressures linked up to soaring inflation.”

“Though there are no reliable data on the unemployment situation in the region, the generally-taken-for-granted figure has been in double digits. Coupled with high food prices, high jobless rates can spell out social pressures from increased poverty and even social uneasiness.”

“The three South Caucasus countries, however, have been tightening their belts on public spending so as to reduce the budgetary deficits while Georgia and Armenia have both increased their benchmark interest rates to 8%and 8.5% respectively. Azerbaijan has lifted its re-financing rate by two full percentage points from 3%to 5%in March this year,” the source concludes.