Economic Resilience in Central Asia Amid Russian War in Ukraine

According to the European Bank for Reconstruction and Development (EBRD) September regional economic outlook, Central Asia is proving more resilient than initially expected to geopolitical shocks in 2022.

The EBRD revised estimates upward from its May forecasts, and the Central Asia region is now expected to grow by 4.3% in 2022 and 4.8% in 2023. This is better than the total area covered by the EBRD, where growth of around 2.3% is expected. percent in 2022 and 3 percent in 2023.

According to the EBRD, the upward revisions for Central Asia “reflect a boost to consumption driven by public sector wage increases, high remittance flows and a sharp rise in parallel trade with Russia, as well as gains in commodity exporters.” cousins”.

It seems that Russia’s losses in 2022 have been Central Asia’s gains, to some extent. The Russian economy, by comparison, is expected to contract 5 percent in 2022 and 3 percent in 2023.

Kazakhstan and Turkmenistan, notes the EBRD, “are enjoying windfall oil and gas revenues as a result of high prices and increased export volumes.” In Kazakhstan, the economy is now expected to grow by 3.0% in 2022 and 3.5% in 2023. Oil exports in the first half of 2022 increased by 85% year-on-year from 2021, reaching $24.8 billion despite several disruptions to the operation of the Caspian Pipeline Consortium (CPC) in Novorossiysk, Russia.

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Meanwhile, Kyrgyzstan, Uzbekistan and Tajikistan “continue to receive substantial remittances from Russia and show no signs of abating…” The EBRD noted record levels of migrant workers in Russia, with remittances soaring: remittances to Kyrgyzstan rose 11 percent in the first half of 2022, while remittances to Uzbekistan “increased by 96% year-on-year in the first half of 2022”. The ever-volatile Kyrgyzstan is now expected to see GDP growth of 7.0% in both 2022 and 2023, after contracting 8.6% in 2020 and growing around 3.6% in 2021. Tajikistan is also expected to experience high growth, forecast at 7 percent in 2022 and 8 percent in 2023. Uzbekistan’s growth is forecast at 5.5 percent in 2022 and 6.5 in 2023.

Also adding to the prospects for Central Asia are efforts by Russian households to park their foreign currency savings in the region. The relocation of Russian individuals and companies has further boosted regional economic prospects. Shadow economies are also contributing to economic growth in the region. For example, the EBRD noted that “Tajikistan has seen an 85 percent increase in imports from China” in the first seven months of 2022, “suggesting that the country is serving as a shadow import conduit to Russia.” .

It is important to note that the economic outlook released at the end of September was prepared before Russian President Vladimir Putin’s September 21 statement. Announcement of “partial mobilization” it unleashed a new tsunami of Russians who fled across borders into countries like Kazakhstan and also took flights to Kyrgyzstan, Uzbekistan and Tajikistan. This may upset the economic trajectory or perhaps serve to reinforce it as more Russians flee to Central Asia and additional job opportunities open up in Russia, both in the regular labor sector and more Russians are diverted to the war in Ukraine, but also with him russian military.

That said, the situation in the region is far from stable or positive. Inflation, in particular, is a serious problem. According to the EBRD, average inflation in the regions it covers reached 16.5 percent in July 2022. Inflation in Kazakhstan in August reached 16.1 percent. It reached 12.3 percent in July in Uzbekistan, and is currently around 14 percent in Kyrgyzstan. Tajikistan reported that inflation in August was around 8.3 percent. The EBRD noted that, in general, “Central Asian governments are not tightening fiscal policies fast enough, as they enjoy record tax revenue and have political reasons to spend it.”

Outside the scope of the EBRD’s economic outlook, but no less important, are the social and political ramifications of the new wave of Russians fleeing to Central Asia and the Russian government’s efforts to lure Central Asians into the Russian military. The latest wave of Russian immigrants in Central Asia consists of more desperate youth to relocate entrepreneurs, and the result spikes in rental prices in places like Kazakhstan and Kyrgyzstan are of concern for both economic and social reasons. What is good for an economy may not be good for social cohesion. Many Central Asians will remember flats in Russian cities rented by “only slavs” and are frustrated by the possibility that prices will exclude them from their own neighborhoods. The Russians may also bring the paternalistic and frankly racist view of Central Asians held by many in Russia into the heart of Central Asia itself, which could lead to conflict.

Regional governments will have to navigate increasingly turbulent waters, balancing the windfall gains presented by the war in Ukraine with the social upheaval and tensions that it also brings. This, of course, adds to balancing relations with an increasingly isolated Russia.

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