Central Asia’s Economic Malaise

The World Bank has scaled back its projections for growth in Eurasia for 2016. Based on weaker-than-expected growth in 2015, the new projections put average growth across the region in 2016-2017 at 3.3 percent. The economic story is sharply divided between oil exporters and importers, countries tied more closely to Europe and those closer to Russia. Looking at the Central Asia contingent (the World Bank puts Eastern Europe, the Caucasus and Central Asia in a region together), 2015 looks to be the nadir of the downslide but there are significant risks that the economic malaise will linger for years to come.

“The moderate growth improvement in the forecast period over 2015,” the January 2016 Global Economic Prospects report says, “depends on the management and mitigation of several key vulnerabilities, including persistent geopolitical tensions, sustained low oil prices, continuing policy uncertainty, and challenging external financing conditions.”

Russia looms as the largest influence on economic forecasts for Central Asia. The latest forecasts – which show slight improvement in growth rates for 2016 – are predicated on the bottoming out of Russia’s recession and a slow creeping recovery beginning in 2017. In 2015, the World Bank estimates Russia’s economy contracted by 3.8 percent. In 2016, growth is expected to remain negative at minus .7 percent.

Moscow’s own economic woes have several roots, but the most important are the dependence of the Russian’ economy on the energy trade and the persistence of tension with Europe (and the associated sanctions levied in both directions). Russia’s economic trouble has direct repercussions for the states of Central Asia – for which Russia is a major partner. Plus, many Central Asian countries are similarly dependent on the energy trade. The degree to which Central Asian states are hurting economically is defined by their economic relations with Russia and with oil.

Kyrgyzstan, which does not have significant energy resources, illustrates the sheer weight of Russia’s troubles on Central Asia. Kyrgyzstan’s economy has a rollercoaster quality – fluctuating from 6 percent GDP growth in 2011 to below 0 in 2012, then soaring to 10.9 percent in 2013. This volatility has further economic and political implications, not the least of which is Bishkek’s quest for stable partners.

The news in late December that Kyrgyzstan might be looking for new partners for two major hydropower projects highlighted the effects of Russia’s economic crisis. During his year-end press conference, Kyrgyz President Almazbek Atambayev said Russia was not able to implement its financing of the massive Kambarata-1 dam and the Upper Naryn cascade (comprising four smaller dams). According to 24.kg, the president commented that the “Russian energy minister in spring said one thing, in summer another, and here again. I don’t like uncompleted construction project, one should be realistic, we all see the state of the Russian economy, it is, shall we say, not on the rise, the trends on the oil price go down, and for objective reasons, these agreements (on the construction of hydropower plants) can’t be implemented by the Russian party.”

Atambayev’s December comments weren’t intended as a snipe at Russia, but a recognition of reality. “For me, it is a bitter thing,” Atambayev said “because as long as I’m the president, I would like to open at least one HPP (hydropower project) of the cascade in time, and I believe that we will find an investor, and Russia will feel better – one obligation less.”

One obligation less, despite the best wishes of the Kyrgyz, is unlikely to make Russia feel better. It isn’t, after all, going to impact the price of oil, which is flirting with lows below $30 per barrel not seen in more than a decade.

After Russia, Kazakhstan has been hit hardest by low oil prices but also suffers from its close trade ties with Russia. Kazakhstan’s GDP growth in 2006 soared over 10 percent and although the 2008 crisis brought it down to 1 percent in 2009 by 2010 the rate had recovered to 7.3 percent. Current estimates for 2015 place Astana’s growth at .9 percent. The slowdown this time, in contrast to 2008’s shock and quick recovery, has occurred over a few years. As the recent World Bank outlook notes, Kazakhstan began to recognize in the later half of 2015 that the “slowdown of growth may be structural rather than just cyclical.” Even if (when) oil prices recover, Kazakh growth may not bounce back – double-digit growth is not sustainable in perpetuity. The Economic Intelligence Unit, for its part, forecasts negative growth for Kazakhstan in 2016, based on the continued slide in oil prices.

Kazakhstan’s economic pain has been most obvious when looking at the currency’s plummet after Astana untethered the tenge from the dollar in the late summer. The World Bank says that the Kazakh central bank “intervened aggressively” to prop up the currency, spending about 23 percent of reserves to maintain a rate between 198 per dollar and 170 per dollar. In August Astana let the currency float, recognizing the futility of propping it up. On January 11 the tenge hit what Reuters called a “fresh all-time low” of about 357 per dollar. That new low was beaten a week later as the tenge fell to 379 against the greenback.

Tajikistan, in its own way, is also wrestling with the reality that there is a structural flaw in its economic balance. In Kazakhstan that flaw is heavy dependence on the energy trade, in Tajikistan it is reliance on remittances. Because most of the Tajiks working abroad are in Russia, they have been directly hit by Russia’s economic collapse. Not only are there fewer jobs for migrants, but they pay less and the authorities are putting greater pressure on those who have migrated illegally. Still, a recent survey of Tajiks indicated that while the value of remittances had indeed fallen, Tajiks are not returning en masse. As difficult as finding work in Russia has become, it’s still better than returning home.