Due to exposure to the Russia-Ukraine war, Fitch Ratings has revised down its GDP growth expectations for the CIS+ area for 2022, although the impact on sovereign balance sheets differs, since oil and gas producers would gain from higher export prices.

In its latest Sovereign Data Comparator, issued on March 31, Fitch lowered its GDP growth predictions for all CIS+ nations it ratings. According to Fitch, Ukraine's GDP will drop by 35% this year due to war damage, while Belarus's economy will decrease by 10% due to substantial trade ties with Russia, sanctions, and increasingly difficult financial conditions.

For the other Fitch-rated CIS+ sovereigns, direct commercial linkages, together with tourist and remittance flows from Russia, are an important transmission channel (Armenia, Azerbaijan, Georgia, Kazakhstan, Turkmenistan, and Uzbekistan).

"We still anticipate all of these economies to expand in 2022," Fitch stated in a study, "but we've trimmed our predictions by 0.2-4 percentage points, with commodity importers seeing the biggest reduction."

Confidence impacts will weigh on investment and consumer spending with the effect on the latter accentuated by further rises in inflation. Fitch has revised up inflation forecasts for all CIS+ countries, with all now expected to average more than 8.5% in 2022, owing to a combination of higher food and energy prices, and exchange-rate depreciation. Price controls on key products have been introduced or extended in several places, which will have a fiscal cost, although this will be minor relative to growth and commodity price effects. And the monetary policy will continue to be tightened, further slowing growth.

The effects of weaker growth and higher inflation are balanced against a likely large increase in hydrocarbon exports receipts in the region’s main exporters. This is most apparent in Azerbaijan, which exports gas to Europe and will benefit from strong demand and higher prices. Fitch forecasts a 2022 general government budget surplus of close to 10 % of GDP. Kazakhstan’s exports are mainly oil, and largely transit via pipeline through Russia and have been disrupted due to pipeline damage reportedly caused by weather. Pressing social considerations after unrest in Kazakhstan earlier in the year means Fitch expects additional revenues are likely to be passed into higher spending, the agency said.

Growth effects will be the conflict’s main transmission channel to the public finances for Armenia and Georgia. In both cases, fiscal deficits will remain over 5 % of GDP this year and planned consolidation is likely to be deferred. Both sovereigns have a high component of foreign-currency debt in total government debt, but exchange rates have so far weathered the shock well, recovering early losses.

Fitch said that this probably reflected market expectations of continued official sector support. Georgia signed a new Stand-By Arrangement (SBA) with the IMF and Armenia reached a staff-level agreement with the IMF on the latest review of its SBA in March. Still-high nominal GDP growth and our exchange-rate forecasts mean that they expect government debt/GDP to decline in both these sovereigns in 2022.