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How Deep Will Economic Crisis Bite In Central Asia?

  • Bruce Pannier

An employee changes an exchange rate at a currency exchange office in Almaty, Kazakhstan, in February.

An employee changes an exchange rate at a currency exchange office in Almaty, Kazakhstan, in February.

When Russia's economic decline started last year, many people forecast the effects would soon be acutely felt in Central Asia. These predictions were correct and six months into 2015 the signs of an economic downturn in Central Asia have been manifesting themselves.

To look at what is happening and how far the economic situation could further deteriorate RFE/RL's Turkmen Service, known locally as Azatlyk, assembled a panel of experts.

Azatlyk director Muhammad Tahir moderated the panel. Participating in the discussion from London was Alex Nice, a writer and analyst covering Central Asia for The Economist, and from Washington Catherine Putz, editor at The Diplomat and author of many articles about Central Asia. Here in the studio in Prague, Uzbek Service director Alisher Sidikov took part, as did our intern from Glasgow University, Bradley Jardine. I made some remarks also, as always.

A drop in remittances from Russia to Central Asia was unavoidable. At times there have been as many as 8 million citizens of Central Asian countries working in Russia. Most came from Kyrgyzstan, Tajikistan, and Uzbekistan. According to Russia's central bank, during 2013 migrant laborers sent some $6.63 billion to Uzbekistan, some $4.15 billion to Tajikistan, and $2.08 billion to Kyrgyzstan.

Sidikov noted that statistics from Russia on June 18 showed remittances to Uzbekistan fell by some 49 percent in the first quarter of this year compared to the same period in 2014. The National Bank of Tajikistan said the same day that remittances from Russia to Tajikistan in the first three months of 2015 fell 43.8 percent compared to 2014. Kyrgyz officials said at the start of June that remittances from Russia had dropped 37.3 percent year-on-year in the first quarter of this year.

But Sidikov explained that the drop in remittances did not presage a mass return of Uzbekistan's migrant laborers. He said some of Uzbekistan's migrant laborers in Russia are simply relocating from places such as Moscow and St. Petersburg to other areas inside Russia, like Tatarstan. And others are heading to Turkey, Middle Eastern countries, or even South Korea to find work.

Kazakhstan and Turkmenistan do not have so many migrant laborers as their Central Asian neighbor neighbors, but their economies have also been hit due to their reliance on hydrocarbons as their major exports.

Nice pointed out that "whereas last year we saw a growth of 5 percent [in Kazakhstan], then it's on course to be closer to 1 or 1.5 percent [in 2015]." Nice said the falling price of oil had hit Kazakhstan's economy hard, and, accompanied by yet another delay in the commercial launch of the country's key Kashagan oil-field project, this could lead to a slowdown in investment and delays in the completion of projects, like Kashagan, that are already under way.

Jardine noted that Turkmenistan had "been hit by the fact its partners no longer want to import [and] it's been hit by the falling prices." Russian imports have fallen from more than 40 billion cubic meters (bcm) less than 10 years ago to 4 bcm this year. Iran has already announced its expanding internal pipeline network will soon mitigate the need to import Turkmen gas for the Islamic republic's northern provinces. That leaves China as the only long-term customer for Turkmen gas and currently Turkmenistan is still using its gas shipments to pay off Chinese loans used to build the pipelines from Turkmenistan to China.

Putz added that "commodity prices across the board have fallen, so...you have the Uzbek economy very much wrapped up in cotton, that falls, gold in Kyrgyzstan, and similarly materials in Tajikistan, and so even states which are not necessarily rich in hydrocarbons still feel the effect."

All that has led to a devaluation of all five countries' currencies and while that has not yet led to serious social unrest, Nice predicted further devaluation was likely in the months ahead.

One more complication: an abnormal cold spell early this spring severely damaged fruit trees in the Ferghana Valley and it remains to be seen how that will affect the harvest this year.

What Can Be Done?

So what can the Central Asian governments do to alleviate the situation?

Nice said Kazakhstan was in a better position than the others since "they have the resources from the sovereign wealth fund to launch a counter-stimulus program to try to support growth which they've done, some $3 billion a year for the next three years."

The other four countries are not in the same position. Sidikov soberly stated that Uzbek President Islam Karimov, an economist by training, has been in power for a quarter of a century. During this time as head of state "whatever he could have done with the economy he's done," Sidikov said, holding out little hope that the Uzbek authorities could be creative in finding solutions to these current problems.

Putz pointed out that "some of these economic problems...they feel more acute right now but they're not new." Authorities in Central Asia have simply not prepared for the eventuality in which they now find themselves.

The five Central Asian states have always been more than content to rely on outside entities to help them out financially, especially Russia. But with Russia increasingly burdened with its own financial problems, China has taken the investment lead in Central Asia. It would be fair to say that without Chinese money in Central Asia, the region would be in dire straits at the moment.

One suggestion was to allow Western companies greater access to Central Asian projects. Western companies did play a large role in Central Asia during the 1990s but have signed few major contracts since the turn of the century. This is partly due to the risk factor of doing business in Central Asia, an area known for rampant corruption. But in the case of hydrocarbon projects in Turkmenistan and Uzbekistan, it has also been due to those governments' reluctance to sign contracts with Western companies to develop oil and gas fields on their territories.

The panel discussed these issues and others, such as the reasons international financial organizations accept the Central Asian governments' economic figures, and the entire roundtable can be heard here:

About This Blog

Qishloq Ovozi is a blog by RFE/RL Central Asia specialist Bruce Pannier that aims to look at the events that are shaping Central Asia and its respective countries, connect some of the dots to shed light on why those processes are occurring, and identify the agents of change. Content will draw on the extensive knowledge and contacts of RFE/RL's Central Asian services but also allow scholars in the West, particularly younger scholars who will be tomorrow’s experts on the region, opportunities to share their views on the evolving situation at this Eurasian crossroad. The name means "Village Voice" in Uzbek. But don't be fooled, Qishloq Ovozi is about all of Central Asia.

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