# **_Rebounds in transition economies_**

Nine of the 2001 LICs were, in the early 2000s, rebounding from the deep recessions into which their economies had plunged as they made the transition from centrally planned to market-based economies. By the time their economies had bottomed out in the mid- to late-1990s, their output had declined from its pre-recession levels by one-fifth in Uzbekistan, by more than a third in Kazakhstan, and by at least one-half in Armenia, Azerbaijan, Georgia, the Kyrgyz Republic, Moldova, Tajikistan, and Ukraine (Iradian 2007).<sup>3</sup> As a result, per capita incomes had fallen below the low-income threshold.

However, despite the drop in output these economies continued to have a foundation of solid human and physical capital, with near-universal literacy rates, triple the average secondary enrollment ratio of the average 2001 LIC, and power-generating capacity similar to those of advanced economies. Governments in many of these countries were implementing growthenhancing structural reforms to accelerate the transition, including privatization of state-owned assets (for example, agricultural land reform in Azerbaijan); establishment of legal systems and property rights (the Kyrgyz Republic); the design of more efficient social safety nets (Armenia); strengthening of financial systems; greater openness to international trade, including through accession to the WTO (Georgia); and the improvement of business environments through substantive regulatory simplification (Moldova). These reforms helped boost productivity growth, including by promoting investment and exports (Loukoianova and Unigovskaya 2004). Growth since 2001 was further supported by the commodity boom, as seven of these nine transition economies were also heavily reliant on commodity exports.<sup>4</sup>

# **Structural factors**

# **_Receding conflicts_**

Five of the LICs of 2001—all of which remain LICs today—emerged from severe conflicts in the 1990s and early 2000s (Burundi, the Democratic Republic of Congo, Liberia, Rwanda, and Sierra Leone). The conflict in the Democratic Republic of Congo is estimated to have cost 2.5 million lives when deaths related to conflict-induced disease and famine are included—equivalent to 3 percent of today’s population (Lacina and Gleditsch 2004; Roberts et al. 2001). Conflicts in Burundi, Liberia, Rwanda, and Sierra Leone inflicted losses of human life equivalent to between 1 and 10 percent of their populations. While most of these economies are still considered fragile, conflict-related casualties in Africa have been on a declining trend since the 1990s. This has provided a more favorable setting for a growth rebound.

# **_Debt relief_**

Thirty-five of the 2001 LICs (of which 24 remain LICs today) received debt relief during the early 2000s in the context of the Multilateral Debt Relief Initiative (MDRI) and Highly Indebted Poor Country (HIPC) Initiative. Between the year preceding debt relief and two years after it,

> 3 It is likely that the real GDP declines in these transition economies were overstated in the official data of the early 1990s, as the private sectors that were emerging at that time were typically not fully included in the statistical base during the early days of the transition (Iradian 2007).

> 4 The commodity-exporting transition-economy LICs of 2001 were Armenia, Azerbaijan, the Kyrgyz Republic, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan.

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