Box 3.1
ECA’s growth prospects—green shoots? Maybe. High growth rates? Unlikely How can one assess the region’s growth prospects? Quantifying potential growth is always difficult, more so in a region where the role of unusually high external financing in growth is not well understood. Moreover, the full impact of this crisis on GDP in 2009 and 2010 is still playing out. Notwithstanding the caveats, a crude estimate of potential growth can be derived by using filtered series, such as Hodrick-Prescott techniques. This is far from a theory of growth, but it highlights the unusual features of growth in the region over the past five years. Specifically, the box figure presents two estimates in addition to the actual GDP growth rate for 2008.1 The first estimate is based on growth rates interpolated from country-specific data for 1995–2007. The second estimate is based on growth rates interpolated from 1995–2002. Among the CEESEE group, there is a 3 percentage point difference between the interpolated growth rate derived using HP filtered series based on different sample periods. Among the CIS, this difference is even higher—slightly more than 4 percentage points. Clearly, the concern that growth rates might not rapidly return to past levels is valid. The potential effects on fiscal sustainability remains to be seen, but they could obviously be important as the revenue performance of recent years benefited from the unexpectedly high growth rates in real GDP. Box figure 1
Potential growth (in percent) Percent Azerbaijan
15 10 5 0 –5 Actual
HP HP 1995–2007 1995–2002 CEE–SEE
Actual
HP HP 1995–2007 1995–2002 CIS
Note 1. The full distribution for CEE and SEE countries (including Turkey) and CIS countries is represented through the use of box-and-whiskers charts. The whiskers represent minimum and maximum values. The boxes represent the 25th and 75th percentile. The line in the box is the median for the group. An observation beyond the whisker occurs when there are outliers in the data (more than 1.5 times the interquartile range away from the neighboring observation). Source: World Bank World Development Indicators and authors’ calculations.
Restructuring bank, corporate, and household debt
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