A report by the Asian Development Bank (ADB) says the economic consequences of the September 11 terrorist attack will be felt mostly over the near- and medium-term. The ADB's long-term forecast for the region, especially for Kazakhstan, remains upbeat.

The ADB report, published November 9, specifically examines the economic effects of the terrorist attacks on developing countries in the Asia-Pacific region. According to the document, the economies of the Central Asian Republics and Azerbaijan, examined together as one subregional unit, will register a stronger than expected performance this year, but will probably slow down in 2002.

"The 11 September attacks are likely to adversely impact fourth quarter economic performance in the subregion; their effects are likely to be more pronounced in the short to medium term,'' the ADB said in the report, titled the Asian Development Outlook 2001 "This is on account of a probable slowdown in export earnings as oil, cotton, and other commodity prices remain depressed as a consequence of slower global economic activity."

The economies of the Central Asian Republics and Azerbaijan are expected to grow by 7.7 percent in 2001, slightly below last year's average growth rate of 7.8 percent. However, the current forecast for 2001 is significantly higher than the ADB's previous estimate of 3.3 percent, made in April.

The greater than expected subregional growth in 2001 has been supported by the strong performances of Kazakhstan and Turkmenistan, and partially offset by a weaker performance in Uzbekistan, which has been adversely affected by a two years of drought, the report says.

Kazakhstan's economy was helped by the buoyant oil and gas sector that has benefited from new pipeline capacity. Turkmenistan is also expecting larger exports of gas with more pipeline capacity being made available by the Russian Federation. The report also cited an increase of aluminum production as playing an important role in stimulating economic growth in Tajikistan.

The Asian Development Bank highlighted areas for economic improvement. It said causes for concern in the subregion included the lack of private sector development in Azerbaijan and Kazakhstan outside of the oil and gas sector, and the existence of multiple exchange rates in Turkmenistan and Uzbekistan. The report also called for greater subregional cooperation. "Progress remains limited in developing a more integrated market," the report said. "In fact, barriers to flows of trade and services within the subregion appear to have increased."

The immediate impact of the September 11 attacks has not been dramatic, the report suggests, although there has been some additional public spending on domestic and border security. In addition, there has been pressure on export earnings due to a softening of commodity and hydrocarbon prices.

In the fourth quarter of 2001, the ADB expects export earnings to remain under pressure as oil, cotton and other commodity prices are regarded to be steadily depressed due to a further slowdown in global economic activity. Consequently, the ADB now sees a 2002 GDP growth marginally slower than this year, "in view of the international prices for oil and gas remaining depressed until the global economic recovery takes hold in the latter half of 2002." The ADB expects a GDP growth of 5.5 percent in the Central Asian republics and Azerbaijan, up from 4.8 percent forecast in April.

Inflation is not expected to pose a big problem for the subregion, "although higher inflationary pressures may emerge in Uzbekistan due to a possible currency devaluation and rising food prices," according to the ADB report. The ADB expects the average inflation rate in 2001 to be 9.5 percent compared to 26.6 percent in 2000 and 10.6 percent forecast in April.

In 2002, inflation is expected to remain in the 10-percent range "as a result of reduced revenues and the greater need for public spending on securing borders, maintaining security and meeting refugee costs," the ADB suggested.

Concerning the subregion's exports and imports, they will remain highly dependent on global demand and international prices for its major exports of primary commodities and energy products. With limited improvement in the trade and current account positions expected in 2001 and 2002, "debt servicing is likely to become more difficult in highly indebted countries," in particular Kyrgyzstan and Tajikistan, concludes the ADB.