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Central Asia's Economic Crisis Arrives

Kazakh officials are now talking about a period of "austerity," when just a few weeks back they were bidding to host the Winter Olympics.
Kazakh officials are now talking about a period of "austerity," when just a few weeks back they were bidding to host the Winter Olympics.

When the price of oil started falling and Russia's economy began to weaken in 2014, it was clear the five Central Asian states -- Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan -- would face economic difficulties.

The economies of the five sputtered along as the effects slowly set in across the region. But Kazakhstan's recent decision to devalue its national currency, coupled with the sudden downturn in China's economy, herald the start of the bad economic times the region has been dreading.

RFE/RL's Turkmen Service, known locally as Azatlyk, assembled a panel to review the situation now and consider how bad, and how long, the situation might become and what that might mean to the Central Asian regimes.

Azatlyk director Muhammad Tahir moderated the discussion. Participating were Dr. Luca Anceschi, professor of Central Asian studies at Glasgow University; Paolo Sorbello, deputy editor and analyst at the Conway Bulletin; and I chimed in with a few comments.

Anceschi summed up the situation aptly: "I think this is probably the worst possible scenario for Central Asia because last year we had the crisis of the ruble, which of course impacted Kazakhstan and Turkmenistan but more so Uzbekistan, Kyrgyzstan, and Tajikistan, who actually have a big number of migrants in Russia. So financial crisis in Russia, monetary crisis in Russia in turn hit the real economy back home because those migrants were not sending home the same amount of remittances that they used to, whereas this year the crisis hit the big producers of commodities, so now the other side of Central Asia."

So no one in Central Asia is escaping this.

The panelists noted the turn of events in August seemed to indicate the governments in Kazakhstan and Turkmenistan were not prepared for the new realities.

Sorbello said in Kazakhstan's case it appeared the authorities "were not expecting a crisis after all the projects [that] were planned," as part of the ambitious Nurly Zhol economic program President Nursultan Nazarbaev unveiled in November 2014.

Turkmenistan also was forging ahead with huge projects that will cost billions of dollars -- major overhauls and renovation of Caspian port facilities in Turkmenbashi City and billions more on construction of facilities for the Fifth Asian Indoor Games Turkmenistan is hosting in 2017. But with the price of Turkmenistan's main and almost only export, natural gas, likely to be a mere 30 percent of its value less than two years ago, it's unclear how the country can afford these projects at the moment.

The economic situation is unlikely to change anytime soon. In terms of hydrocarbon exports, Iran's expected reentry into the world oil and gas market should keep prices for both these fossil fuels low for at least a decade. There is also shale oil to consider, since estimates put the break-even production mark for this new energy source at $60 per barrel. Once oil rises above that mark production of shale oil will be ramped up again, and to understand what that would mean look up "Venezuela" and "Orinoco oil."

China has become the "central banker" of Central Asia in recent years, investing billions into pipelines and transportation infrastructure improvements. And China has become a major customer for Kazakhstan's oil and Turkmenistan's gas. The Central Asian states have become heavily dependent on, and heavily in debt to China. But China's days of big spending in Central Asia appear to be numbered for the near future.

The remittance-dependent countries also have little reason to believe the economies of Russia or Kazakhstan will improve much in the coming years, which presents a double problem since besides the reduction in money coming from abroad, Kyrgyzstan, Tajikistan, and Uzbekistan also face the return of migrant laborers who will small prospect of finding employment back home.

Cracks Start To Show

That thought brought the panelists to another matter, possibly the most important: the damage this economic crisis will do the Central Asian regimes. As Sorbello noted, officials in Kazakhstan are now talking about a period of "austerity" when just a few weeks back they were bidding to host the Winter Olympic Games and promising they had the money to build all the facilities needed. Plans to host EXPO-2017 are moving forward but new housing and other social programs have been suspended.

Anceschi said Turkmenistan's dreams of becoming a second Kuwait "are simply vanishing" and pointed out that earlier this year the government cut subsidies for gas and electricity that have existed since independence and oil workers in Lebap had even gone on strike, something unheard of in Turkmenistan.

Tajik President Emomali Rahmon has already had to break a promise to increase wages and pensions.

Expressions of discontent are far more probable now than they were just a year ago and it is unclear how much worse the situation will get and how long it will last.

These topics and others were discussed in greater depth by the panel. You can listen to the recording here:

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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 the dots to shed light on why those processes are occurring, and identify the agents of change.​

The name means "Village Voice" in Uzbek. But don't be fooled, Qishloq Ovozi is about all of Central Asia.


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