TOPIC OF THE WEEK: Current account positions improve marginally in CCA in 1Q25

CAUCASUS / CENTRAL ASIA - Report 11 Jul 2025 by Ivan Tchakarov

The 1Q25 data for the CCA economies, which was published over the last week or so, shows that the regional current account (CA) position improved marginally in the first quarter of the year, but remained in deficit. In particular, the CA deficit ex-Azerbaijan narrowed from 2.1 percent of GDP in 4Q24 to 0.9 percent of GDP in 1Q25 (4-q ma basis). Including the only energy exporter in our sample, Azerbaijan, yields a similar picture, with the CA position transitioning from a deficit of of 0.4 percent of GDP to a small surplus of 0.3 percent of GDP.

There was, however, significant divergence in individual country performance in the quarter. The usual suspects, Armenia and Georgia, saw large CA deficits driven by ample trade gaps and, in the case of Armenia, declining tourist revenues. Uzbekistan and Tajikistan, on the other hand, recorded sizable improvements facilitated by robust remittances and, in the case of Uzbekistan, an improving trade position, in turn driven by rising gold exports. Azerbaijan continues to enjoy CA surpluses exclusively supported by strong trade positions.

Most countries have pressed on with reserves accumulation, 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 surpluses it has been running over the last number of years (and 1Q25). Even Armenia was able to eke out a modest increase in FX reserves in 1Q25 despite its wide CA deficit due to successfully issuing an Eurobond in the quarter. Finally, Georgia has also started adding to reserves after last year's pause as the domestic political backdrop has normalized. In all cases, the strengthening of domestic currencies vis-a-vis the US$ has provided an additional stimulus to accumulate FX reserves.

This has also manifested itself in increased FX reserve import coverage for the region as a whole, although it has been primarily driven by a large improvement in Uzbekistan and the traditionally large FX buffer in Azerbaijan. Armenia and Georgia continue to exhibit low reserves cover, which constitutes a key external risk for these two economies.

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