TOPIC OF THE WEEK: Current account positions decay in CCA in 2024; deterioration to continue in 2025
The 4Q24 data for our CCA economies, which was published over the last week or so, shows that the regional current account (CA) position deteriorated in the last quarter of the year. In particular, the CA deficit ex-Azerbaijan deteriorated from 0.8 percent of GDP in 3Q24 to 1.8 percent of GDP in 4Q24 (4-q ma basis). Including the only energy exporter in our sample, Azerbaijan, yields a similar picture, with the CA position transitioning from a surplus of 0.9 percent of GDP to a small deficit of 0.1 percent of GDP.
The annual data generates similar results. The one-off sizable improvement of CA positions in 2022 on the back of excess monetary inflows (remittances) from Russia came to an end in 2023 as CCA current accounts ex-Azerbaijan posted a deficit of 2.3 percent of GDP vs a surplus of 2.1 percent of GDP in 2022. More importantly, the 2023 CA positions returned to what I have dubbed "normal deficit states", with the magnitude of the 2023 CA deficit coming closer to the 3.9-percent-of-GDP level that held during the previous five years, from 2017 to 2021. This "normalization" continued in 2024, with the regional CA deficit ex-Azerbaijan posting another deficit of 2.3% of GDP. However, the CA position, including Azerbaijan, posted its first deficit since 2020, yielding a gap of 0.5 percent of GDP vs the three consecutive years of CA surpluses over 2020-2023.
Armenia and Georgia saw the largest widening of their CA deficits in 2024, chiefly on the back of larger trade gaps, although Georgia has fared somewhat better due to the record-high revenues generated by the tourist sector (despite the fraught political background). Uzbekistan posted a smaller CA deficit on account of improving trade deficit and robust net inflows of remittances. Tajikistan enjoyed its fifth consecutive CA surplus, also as a result of strong monetary inflows from Tajiks working abroad. Azerbaijan has continued to register CA surpluses, driven exclusively by copious trade surpluses, although their magnitudes have started to moderate on lower energy prices.
The broader worsening of external positions, in 4Q24 and 2024 as a whole, has not detracted from reserve accumulation, with the notable exception of Georgia. Despite the modestly deteriorating CA positions, FX reserves have generally been built up, with Uzbekistan leading the pack, chiefly because of rising gold prices. Tajikistan has also seen an impressive boost of its FX buffers due to the CA surplus it ran last year. Even Armenia was able to eke out a modest increase in FX reserves in 2024 despite its wide CA deficit as fresh foreign loans more than offset the gap. Georgia has lost FX reserves on a net basis, including because of heavy intervention the NBG had to conduct around the time of the Oct Parliamentary elections.
I anticipate the CAs will continue to worsen in 2025 due to the less favorable external backdrop. The uniform 10 percent import tariffs imposed by the US on all five CCA economies will have a negligible effect as the US is not an important export destination, although the indirect effects of a more challenged global economic outlook may be more significant. The lower expected GDP growth rates will cushion the impact, but I forecast the the CA deficit ex-Azerbaijan to worsen further, to 3.1 percent of GDP (2.3 percent of GDP in 2024). The overall CA deficit including Azerbaijan is forecast at 1.6 percent of GDP (0.5 percent of GDP in 2024).
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