2nd CAREC Capital Markets Regulators Forum (CMRF):

Balance of Payments, Public Finance and Public Debt About half the CAREC countries registered balance of payments (BOP) deficits during 2019–2022
BOP situation roughly coincides with the country groups for their inability to access concessional loans in the World Bank and ADB
All countries had to pursue countercyclical and proactive fiscal policies during the pandemic, resulting higher fiscal deficit and public debts
G20 Debt Service Suspension Initiative (DSSI) helped free up some fiscal space from the suspension of debt repayments, including those to PRC<br>

Financial Sector Development Domination by banks and underdeveloped nonbanking sectors—capital markets are common
Mismatches in terms of maturity, interest rates, and currency, resulting in boom-bust cycles
Even in countries with adequate market infrastructure, capital markets are not active
Weak institutional capacity in some CAREC countries generally leads to an overemphasis on stability at the expense of development and innovation<br>

Capital Markets CAREC countries’ stock exchanges vary greatly in size and functions. One common feature is that equity markets are the least active, as compared to Gov’t and Corp bonds and foreign exchanges operations
Government bonds are by far the biggest segment of capital markets in CAREC countries and interbank markets also play a bigger role
Most CAREC countries are just beginning to develop green and climate change bond markets
Money markets are inactive in many CAREC country due to lack of well-developed bond markets, the poor liquidity management in banks, inadequate monetary policy transmission mechanisms, and dominance of direct monetary controls
Some countries have commodity exchanges for spot trades and have plans to upgrade those to offer futures and options contracts help hedge against price volatility and avoid boom-bust cycles<br>

Players, Infrastructure and Laws Institutional investors segment is undeveloped in most CAREC countries except in the PRC and Pakistan
CAREC countries also have gaps in areas of broker-dealers
Many are in the process of modernizing their capital market infrastructure, Central depositories are well established although in some countries, depositories are not well consolidated. The central counterparty is still relatively new, and some countries are trying to establish links with Euroclear etc.
Legal frameworks are continuously evolving in CAREC countries and laws on banking, NBFIs, deposit insurance, companies, partnerships, foreign investments, securities, trusts, asset-backed securities, central depository, and investment funds are mostly in place. Some are consolidating all into a single capital markets law<br>

Supervisory Framework and Corporate Governance Two countries have a consolidated supervisory framework where central bank oversee capital markets
Four are supervised directly or by a special agency under the Ministry of Finance (and Economy) and the rest have independent regulators
All stock and other exchanges in CAREC countries are considered as self-regulatory organizations (SROs), but their capabilities are limited
All stock exchanges have announced adoption of Code on Corporate Governance and application of International Financial Reporting Standards (IFRS) for public interest entities, although challenges remain<br>

Openness and Regional Cooperation Most CAREC countries, except Azerbaijan, Turkmenistan, and Uzbekistan are WTO members but their commitments under GATS vary significantly, most countries are not as open as other WTO members
Some have special reciprocal bilateral arrangements for financial services through FTAs
Some made specific operational arrangement with foreign investors
Some also participate in multilateral regional cooperation initiatives, mostly outside of CAREC
Most have no restrictions on current account convertibility and foreign portfolio investors can transfer funds in and out of the CAREC countries, Although operationally, there are occasional difficulties
Countries also set up sovereign wealth funds, although some have conflicting objectives and may be subject to frequent government interventions
Many countries also have experiences of issuing global bonds, although except for Kazakhstan and PRC, none has investment grade rating so far<br>

SWOT Analysis—CAREC Capital Markets Cooperation A SWOT analysis helps countries make the most of their strengths, address critical weaknesses, take advantage of opportunities now and in the immediate future, and mitigate identified threats<br>

Green and Sustainable Recovery Green, resilient, and inclusive post-pandemic recovery present great opportunities for CAREC countries
CAREC region’s capital markets can contribute to the green and sustainable recovery through utilization of green and climate finance instruments
From the demand side, the externalities and public goods associated, which involve two or three CAREC members, requires cooperation in regional capital market initiatives for funding
There are supply side synergies among domestic, regional and global capital markets to attract global and regional green capital as well as technical assistance
“debt for nature and debt for climate swaps” initiatives for debt-distressed countries might simultaneously address debt, climate, and biodiversity concerns<br>

Conclusion Larger and more economically advanced economies generally have more mature and vibrant capital markets
striking similarities are banking dominance, inadequate legal and regulatory frameworks and practices, and weak institutional capacities
The path to collective CAREC capital market development will be neither short nor smooth.
Green and sustainable finance offers a unique opportunity for CAREC countries to work together and create a win-win-win situation
The benefit for effective CAREC capital markets cooperation is for all to access to a much larger regional market, a deeper pool of funds, and a higher quality of financial services<br>

Thank You

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Questions?<br>