A Russian Recovery and a Kazakh Recession

The economies of Central Asia are inextricably linked that of Russia. Recent hopeful overtones from Moscow, citing that the country’s economy is “stabilizing,” may entail a more hopeful outlook for Central Asia as well. The catch, however, is that even if Russia’s economy recovers and the pressure on its southern neighbors lessens, the systemic failure within their economies, and the problematic political systems that feed those failures, remain intact.

How real is the prospect of a pending Russian recovery? That depends who you ask and how you frame the answer.

At the G20 summit in September, Russian President Vladimir Putin said the Russian economy had “stabilized.” An economist with the European Bank for Reconstruction and Development (EBRD), however, categorized the Russian economy as merely moving from recession into stagnation. Sergei Guriyev, a self-exiled former Kremlin advisor who is now the chief economist of the EBRD, told RFE/RL, “The situation, to put it mildly, is not easy.”

For perspective, five years ago – before the Ukraine crisis kicked into high gear, before Russia annexed Crimea, before Western sanctions, before the crash of oil prices – Moscow commanded a GDP of $1.9 trillion. Russian GDP crested a year later with 2012’s haul breaching the $2 trillion mark. The IMF estimates Russia’s GDP in 2016 at only $1.1 trillion. The forecasts do not project Russian GDP returning to $2 trillion any time before 2020.

Guriyev thinks that if the Russian economy grows at all next year, it will be by less than 1 percent. Russian officials float similar numbers. The Economy Ministry put forth a prediction that the Russian economy would contract by 0.2 percent in 2016 and in 2017 move into the green again with growth at 0.8 percent.

In 2015, the Russian economy tumbled into honest recession, shrinking by more than 3.7 percent, according to World Bank data. But that was the bottom falling out. Russia’s growth had been slowing since 2007. As with most world economies, the 2008 financial crisis shows up on GDP growth charts as a devastating drop in 2009 – Russia’s economy contracted by 7.8 percent that year – and after initial recovery in 2010, began to slide again.

Relative to 2015, almost anything is an improvement, but Moscow is nowhere close to where it once was as an economic power and its downslide has stymied the economic progression of its former fellow Soviet states.

Like a shockwave, the ripples from the crash of the Russian economy took time to reverberate into Central Asia. None were spared. Central Asia’s economy felt not just the shake of the Russian economy but also the slowdown in China’s economy, and those states with oil and gas businesses of their own felt the 2014 drop in prices directly. Case in point: Kazakhstan.

Throughout the year, an increasing number of international financial institutions and economic analysts have begun predicting Kazakhstan’s first recession since the 1990s. The Economist Intelligence Unit forecasted early in the year negative growth of 0.3 percent for 2016 – the country’s first recession since 1998. As of June, the World Bank’s baseline estimate for Kazakh GDP growth was 0.1 percent – the low case projection was a contraction of 0.5 percent.

For perspective, five years ago Kazakhstan’s economy was chugging to new heights. In 2011, Astana’s GDP crested $200 billion for the first time, riding a wave of oil prices above $100 a barrel. By 2013, the Kazakh GDP was worth $243 billion. As of 2015, Kazakh GDP has slid to below $185 billion, with further decline almost guaranteed.

Kazakhstan made great leaps and bounds in economic terms since being pushed into independence 25 years ago, but the oil and gas boom that carried Astana forward is gone now. Although President Nursultan Nazarbayev has promulgated plans upon plans – 100 Concrete Steps to put into practice the Five Institutional Reforms to put Kazakhstan on the Bright Path to a top-30 global economy – governance and accountability reforms, let alone diversification plans, remain lackluster.

A prime example is the Kashagan oil field which – defying most projections – restarted production as scheduled in October. But the field, one of the largest discovered, is said by many observers to only be profitable at barrel prices closer to $100. While oil prices have recovered since the depths of 2015, they have only recently settled around $50 a barrel, nowhere close to what Kashagan or Kazakhstan needs.

The Kazakh people, like the state, can no longer ride the oil wave. Incomes are no longer increasing and the devaluation of the national currency, the tenge, devastated many, particularly those who had mortgages in dollars. During a small protest in February, EurasiaNet spoke to a Kazakh mother of two who pulls in a salary of 60,000 tenge a month. When the tenge was pegged to the dollar, that was worth $300; but when the tenge was let free and devalued sharply, that 60,000 dropped in dollar-worth to around $160. Though the state enacted a scheme to transfer dollar-delineated mortgages into tenge, it comes at a cost to the state of $345 million, which Astana is hard-pressed to spare.

The Kazakh government has scrambled to respond to these crises, but with uneven results. The World Bank called Kazakhstan’s 2015 macroeconomic policy stance “mixed,” noting that the government modified on-budget spending to reflect lower oil prices, but “off-budget support to the national oil company increased the non-oil deficit, counteracting consolidation efforts.” Essentially, in propping up the state oil company, Kazakhstan continues to dig a hole for its economy overall. The transition to a free-floating currency was “difficult,” the World Bank said.

Here is where the tension of economic troubles runs into the rigidity of an authoritarian system. When a state’s economy crashes in the West, whether it is objectively the fault of those in power and their policies or the unfortunate winds of world economics, leaders often find themselves on the sour end of an election. “It’s the economy, stupid,” the saying goes in the United States. States like Kazakhstan (and Russia), however, don’t have the same pressure release valve of a free election to redirect public frustration or freshen up the halls of power with new faces and ideas. Add to this the real personal danger of criticizing the state too harshly – or in ways the state finds unacceptable – and the result is a government that is not accountable for its decisions and a public that isn’t encouraged to think outside the box, let alone agitate for better policies.

In Kazakhstan, frustration – both with the economy and government decisions – has sparked so-far peaceful protests. But as 2017 draws near, the lesson of Russia’s “economic recovery” should be on the mind of the powerful in Astana: is a relative recovery enough? Certainly Russia, and her leaders, have stayed the course in true Soviet style and the Kazakhs are on the same route. How long can the former Soviet Union muddle through?