The ADB has published a discouraging outlook for the next two years.
A report recently
published by the Asian Development Bank (ADB) outlined a forecast for the
“Developing Asia” region, which spans Central Asia to the Pacific. Low oil
prices have helped Eastern emerging markets to counterbalance the strengthening
of the dollar vis-à-vis global currencies and commodities. Thus,
growth in the area covered by the ADB will remain constant at 6.3 percent for
the next two years; even inflation is supposed
to fall on average. Through the looking glass, however, Central Asian countries
are the ones bound to suffer the most.
According
to the ADB classification, “Central Asia” includes all eight countries in the
post-Soviet region to the south of Russia (from Georgia to Kyrgyzstan). Across
the region, the depreciation of the national currencies will trigger inflation,
while low oil prices will negatively affect the budget in several countries
that rely on the windfalls from hydrocarbon exports. A boon for the rest of
energy-dependent Asia, falling oil prices can be a curse for Central Asia.
Kazakhstan, Turkmenistan and Uzbekistan are all poised to suffer.
The
crisis in the Russian Federation, caused by diminishing revenues from energy
export and the fall of the ruble,
worsened by Western sanctions, will result in a shrinking labor market, pushing
Central Asian migrant workers away. The tougher legislation on foreign workers
– who have to pass a Russian language proficiency exam and meet the
requirements to enroll in health insurance schemes – will also limit the
possibilities for migrant workers, who might choose other destinations. In
fact, most Central Asian currencies have not devalued as much as the ruble
against the dollar, which means that remittances have been losing
value. The galloping inflation and the threats of further devaluation
induce the ADB to see “recession next door” for Central Asia.
Economic setbacks in Russia
have also influenced Central Asian exports. “Exports from Central Asia
declined, by 5.4%, with sharp reductions in petroleum shipments and sluggish
demand from the Russian Federation” writes the ADB. A negative trend in the
trade balance will turn into a small current account deficit for 2015 across
the region. To sustain growth, countries that have the financial possibility
are funding construction projects with government money. Rising unemployment
and cuts in social expenditures could be a threat to the stability of the
regimes all across the region. One of the most troublesome sectors, according
to the ADB, is the mining industry, poised to fall by 10 percent in 2015 in
Kazakhstan. In Tajikistan, the national aluminum company, TAlCo, will
experience a 30 percent drop in output this year, which is potentially dangerous
for the whole economy as it represents the country’s leading exporter. In
Kyrgyzstan, instability at the
Canadian-controlled Kumtor gold mine can jeopardize output for the
single most important business venture in the country.
Investment from China,
around $6 billion in 2015-17, should mitigate the crisis and boost the
development of infrastructure in the region. Moreover, while Russia’s demand
for Central Asian natural gas is plummeting, China is completing the last
sections of the pipeline that will reorient eastwards gas from Turkmenistan,
Uzbekistan and Kazakhstan. Gazprom, Russia’s state-owned gas company, will
virtually cut to zero imports from Turkmenistan, slash to one billion cubic
meters from Uzbekistan, leaving Central Asian countries without the most
important export vector that has been the main source of income since
independence.
At this
global economic crossroads, Central Asia is seen as the black sheep of the
broader Asian continent. Dire economic conditions in Russia and the strength of
the dollar will have a negative impact on the region, which will have to
rethink its economic policy in order to face these challenges. By Paolo
Sorbello
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