The Coming COVID-19 Economic Hangover: Central Asia

What small recovery from the economic downturns of 2019 was in the offing at the start of 2020 in the Europe and Central Asia region writ large has been sorely interrupted by the coronavirus pandemic. In a special update released in April, the World Bank unhelpfully warned that the real impact of the pandemic on the region’s economies “will depend on how the outbreak evolves.”

Whatever the path of the pandemic past the spring, a recession is brewing for Central Asia.

Global growth slowed in 2019 to 2.4 percent, the slowest since the 2007-2008 global financial crisis, but the projections foresaw strengthening in 2020. Those hopes are now squarely dashed and in their place are questions of just how bad things will get.

Central Asia’s economic trajectory is tightly tied to global trends, particularly the fates of Russia and China, as well as global energy markets. The region’s already weak economies are at particular risk for several reasons.

First, a downturn in China’s economy will reverberate across every single Central Asian market. Beijing might be through the pandemic woods, but there is growing skepticism about its official data on cases and apparent recovery. There is also the possibility of a second wave of infections now that China is shifting back into normal operations. In any case, China’s economic role as the world’s producer will invariably be impacted by slowing global demand and interruptions to supply chains. The International Monetary Fund in April estimated that China’s economy will slow to 1.2 percent – down from 5.5 percent in 2019. While the IMF forecasts that this crash will be followed by a boom, as the world economy recovers, in the meantime economies reliant on China’s will suffer alongside Beijing.

Central Asia’s states are among those highly dependent on China. For Kazakhstan, Central Asia’s richest economy, China represents its top export destination – mostly metals, oil, and uranium – and its second largest source of imports, after Russia. Other countries in the region are in similar circumstances, with China as both a top export and import partner.

Beijing is Uzbekistan’s second largest export market – largely gas and cotton – and its top import source. Uzbekistan imports a wide array of goods from China with the broad category of “machines” – encompassing everything from valves and video displays to computers and ball bearings – accounting for a full 37 percent as of 2017.

While China is far from a top export destination for either Kyrgyzstan or Tajikistan, it remains the source of 45 percent of Bishkek’s imports and 43 percent of Dushanbe’s.

The impact of a slowdown in China’s production, and a rise in prices for what is produced, will have repercussions most seriously for Central Asia’s smaller economies, those dependent on Chinese goods. Kazakhstan and Uzbekistan will also feel pain, both a drop in their own exports and rising prices for imports.

Then there’s Turkmenistan. China, as of 2017, was overwhelmingly Turkmenistan’s top export partner. Beijing accounted that year for 83 percent of all Turkmen exports; 99 percent of what Turkmenistan exports to China is gas and that remains true. More than any other Central Asian state, Turkmenistan’s economy is intimately tied to China’s – if Beijing needs less gas, Ashgabat sells less gas. There are no other partners in the offing to pick up the slack.

This leads us to the second reason Central Asia’s economies are at particular risk in this pandemic-wracked world: oil and gas. The economies of Turkmenistan and Kazakhstan are built on the international energy trade; the rest of the region’s economies are closely tied to those of energy producers, whether within the region or nearby in Russia or China.

In April, Saudi Arabia, Russia, and a bevy of other oil-producing nations agreed to cut daily production by 9.7 million barrels in an effort to get under the freefall of energy prices as the world ground to a halt amid the pandemic. But some analysts think the cut – the largest in history – won’t be enough. Simply speaking, no one is sure when demand will recover and until it does oil will sit unbought while producers continue to pump and refine. Low prices in normal times spark demand, but times are far from normal.

In Central Asia, this will hit Kazakhstan hardest. (Turkmenistan’s fate, as noted above, is entirely tied to China and Chinese demand, specifically.) Nur-Sultan has for years espoused hopes and plans to move away from dependence on the fossil fuel industry, but the reality remains that much of the Kazakh economy is dipped in oil. As production drops, jobs will be lost in some of Kazakhstan’s poorest and most frustrated regions. When it’s safe to go out in the streets again, Nur-Sultan could be facing renewed unrest in its beleaguered oil towns.

Jobs are another reason Central Asia is particularly vulnerable to the pandemic’s economic impacts. With many jobs in Kazakhstan tied to the oil and gas industry, slowing demand and production cuts will mean at least temporary job losses. For Central Asia’s remittance-dependent countries – Kyrgyzstan and Tajikistan most heavily – the problem may be worse. Hundreds of thousands of Uzbeks, Kyrgyz, and Tajiks leave their home countries for seasonal work, largely in Russia, but also in Kazakhstan and Turkey. The spring sees the greatest wave of migrants leave the region, but many were already in other countries working when the pandemic hit.

As borders closed across the world, migrant workers first had difficulty and, for some, great expenditures, to find their way home. Now that they have returned, they are without jobs and without prospects. Migrant remittances in 2019 for Kyrgyzstan and Tajikistan were the equivalent of more than 29 percent of their respective GDPs. If those workers aren’t in Russia working and sending money home, the entire economy will feel the impact.

As of April 24, Central Asia had confirmed more than 4,800 cases of the novel coronavirus, COVID-19, across three states: Kazakhstan, Kyrgyzstan, and Uzbekistan. Tajikistan and Turkmenistan continued to deny having found any cases, though the veracity of these claims is up for debate. Whatever the numbers and however long the pandemic lasts, the economies of Central Asia will suffer and that suffering will persist after the pandemic passes.