Heavily reliant on commodity exports, remittances and tourism, the economies of the Caucasus and Central Asia and their financial systems are vulnerable to volatile external shocks.
The Chart of the Week shows how exposed countries in the region are to such disruptions, which in the past have caused economic downturns and financial distress. Although the situation remains uncertain, the ongoing pandemic and the conflict in Ukraine could also have a substantial impact.
The CCA region’s financial systems are particularly vulnerable to the impact of external shocks on economic activity. At times, favorable external conditions have spurred large credit expansions and raised systemic risks. These booms have sometimes been followed by busts. Indeed, adverse external shocks, such as the global financial crisis and the 2014-15 oil price shock, led to sharp contractions in credit and asset prices, which created a legacy of problem loans and resulted in costly public interventions to bail out banks.
By Rayah Al-Farah, Klakow Akepanidtaworn and Sanan Mirzayev
Link: Financial Systems of Caucasus, Central Asia Are Particularly Vulnerable to Shocks