World Bank releases grim economic projections for Central Asia and the Caucasus
These early projections are still open to downward revisions.
It’s too early to say how the novel coronavirus pandemic will hurt the economies of Central Asia and the Caucasus. But hurt them it will. A new World Bank report draws some of the broad contours of the downturn.
After a lackluster 2019 in Eurasia’s energy producers, in 2020 COVID-19 will derail economic stability across the region by “interrupting daily activity, putting further downward pressure on commodity prices, disrupting tightly linked global and regional supply chains, reducing travel and tourist arrivals, and decreasing demand for exports,” says the report, Fighting COVID-19, released on April 8.
While stay-at-home orders and the shuttering of non-essential business will sharply reduce economic growth the world over, it is the weakening of the Russian economy (the report expects GDP to contract by 1 percent) and the depreciation of the ruble – due both to the pandemic’s effect on business generally as well as the collapse in the price of Russia’s chief export, oil – that present the biggest threat to remittance-dependent economies from Armenia to Tajikistan.
In Kazakhstan, the World Bank expects growth, which clocked in at 4.5 percent in 2019, to fall to -0.8 percent this year. The attenuation of Kazakhstan’s economy will also reduce remittances to neighboring Kyrgyzstan and Uzbekistan.
Migrant remittances are critical to hundreds of thousands of Central Asia’s poorest households. The fall in these transfers to Kyrgyzstan and Tajikistan may nullify national poverty-reduction efforts, while putting downward pressure on their currencies. In 2018, migrant remittances totaled the equivalent of 33.2 percent of GDP in Kyrgyzstan and 29 percent in Tajikistan; already in 2019 these flows into Kyrgyzstan fell by 13.6 percent after Russia introduced limits on money transfers. The report expects remittances to Uzbekistan to contract by 50 percent. It does not provide data on Turkmenistan, where any serious analyst ignores the government’s fantastical statistics.
The situation will be similar in the South Caucasus. Following a solid rise of 7.6 percent in 2019, Armenia’s GDP growth will shrink to 1.7 percent in 2020. Remittance inflows, which were the equivalent of 12 percent of GDP in 2018, will drop. Next door, although relatively less dependent on remittances, many Azerbaijani households will be adversely affected by the reduction of migrant incomes in Russia. The pandemic and low oil prices will push Azerbaijan’s GDP growth to -0.2 percent this year. Georgia’s GDP growth is projected to fall close to zero as the economy reels from the sudden collapse of tourist receipts.
Of course, “the impact of the coronavirus pandemic will depend on how the outbreak evolves.” Much will also depend on the price of oil. A warning in the report’s Azerbaijan section may apply to the whole region, both to producers and remittance-dependent countries: If oil prices decline further “and the COVID-19 situation persists, this could result in a more severe economic contraction in 2020 and a slower recovery.”
Sherzod Eraliev is a postdoctoral researcher at the University of Helsinki’s Aleksanteri Institute. He is a member of the Kone Foundation-funded research project “Migration, Shadow Economy and Parallel Legal Orders in Russia".
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