The economies of Central Asia are showing strong resilience to the geopolitical adversities caused by Russia’s war on Ukraine, says the EBRD’s latest report on Regional Economic Prospects.
The EBRD is expecting the region’s GDP to grow by 4.3% in 2022 and 4.9% in 2023, which is an upward revision of its spring forecast.
The high oil and gas revenues as a result of soaring prices and increased exports benefit Central Asian hydrocarbon producers such as Kazakhstan and Turkmenistan.
The Kyrgyz Republic, Tajikistan and Uzbekistan continue to receive substantial remittances from Russia, where the demand for migrant workers is growing dramatically. The region is also experiencing very strong growth in real wages and public revenues.
Moreover, thousands of Russian speakers (from Belarus, Russia and Ukraine) relocate their businesses to Central Asia, taking advantage of special economic zones, such as Uzbekistan’s IT Park, created to capture digital nomads and exporters of IT services.
Regional economies, such as Kazakhstan and the Kyrgyz Republic, are also benefiting from re-exports to Russia of computers, consumer electronics and home appliances, spare auto parts, and electrical and electronic components, often facilitated by small shuttle traders.
Turkmenistan’s real GDP is expected to grow by 7% in 2022 and 6% in 2023.Turkmenistan has a healthy fiscal balance, supported by elevated gas revenues and low public debt. Turkmenistan continues efforts to strengthen international trade, as reflected in a recent decision on joining the International North-South Corridor, as well as agreements to develop bilateral trade, simplify visa regimes, and improve transport connectivity. The country’s strong focus on import substitution activities (financed by windfall export revenues), geopolitical neutrality and elevated gas prices will continue to drive the economy in the foreseeable future.
Uzbekistan continues to enjoy very strong economic growth driven by a large and industrious labour force, a sizeable domestic market, diversified manufacturing capacity and progress with market-oriented reforms.
Kazakhstan’s economy grew 3.4% year-on-year in the first half of 2022. The country’s oil exports reached US$ 42.2 billion, the maximum income since 2014.
The strong Russian ruble and Russia’s high demand for imported labor resulted in remittances growth to the Kyrgyz Republic by 11% in the first half of 2022.
The re-export of Chinese goods to Russia has become a major business activity for small Kyrgyz companies and individuals. The settling the long-standing conflict over the Kumtor gold mine has contributed to recovering foreign investor confidence, and the inflow of foreign direct investment (FDI) almost doubled in January-June 2022, to US$ 628 million. The EBRD predicts further FDI growth into major hydropower and railway projects in the coming years.
Despite much reduced gold exports, Tajikistan has continued during 2022 on a path of robust post-Covid recovery, with real GDP rising by 7.4% year-on-year in the first half of the year. Domestic demand received strong support from a boost in labour remittances, which, contrary to early expectations, have increased on the Rouble’s strength and Russia’s record high demand for migrant workers. In the first seven months of 2022, Tajikistan has seen an 85% increase in imports from China. In January-May 2022, despite rising global food and commodity prices, Tajikistan was the only Central Asian country to keep inflation within the target corridor.
The most urgent challenge all Central Asian economies are facing today is inflation and, in the slightly longer term, debt service costs. CPI inflation is in the 10-16 per cent range, way above the target corridors, which jeopardises the wellbeing of many households and puts structural reforms and fiscal consolidation measures at risk. ///nCa, 28 September 2022