Specialists in economy make downside forecasts regarding the economic situation in the republic for the year to come.
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Due to the coronavirus pandemic announced in early 2020, the economy of Kyrgyzstan became stagnant and suffered bad losses. Actually, such situation developed almost in all countries of the world. Since March, the country introduced strict lockdown measures that were lifted a few months later. Almost all sectors of economy, but food producers, were in stagnation at this period.
Now, the budget shortfall is predicted at 35.6 billion som, and GDP is 4 per cent lower than the expected level because of the pandemic and political events in the country.
The economic crisis has had a direct impact on the welfare of people and their purchasing power. Those people who worked in service industry and lived on daily earnings and were employed in the small and medium-sized businesses were hit so hard.
World Bank’s assessment and forecast
According to the World Bank in Kyrgyzstan, the poverty rate in 2020 can increase by 5-6 per cent in average compared to 2019. According to the pessimistic forecast, the growth can amount to 17.5 per cent.
According to the World Bank, their optimistic forecast failed. According to them, food prices make up 60 per cent of all factors.
According to the World Bank, the main sources affecting the poverty rate in Kyrgyzstan due to the pandemic are: labour income, transfers from migrant workers, and rise in food prices. Thus, the rise in food prices leads to the increased number of people living in poverty. For example, if food prices rise by 5 per cent, the poverty rate rises by 3.5 per cent.
The reduction in money transfers is related to the lockdown measures in Russia and Kazakhstan, where the bulk of Kyrgyzstanis work. In particular, the sectors of construction and service were suspended. The reduction in money transfers will have its impact on Batken, Osh and Dzhalal-Abad regions.
“34 per cent of people in Batken region and 23-24 per cent in Osh and Dzhalal-Abad regions live on money transfers. These factors will affect the growing poverty rate. It is worth mentioning that in the last 10 years, money transfers in these regions have played a significant role in the reduction of poverty,” according to the World Bank.
As to the labour income, according to the World Bank, 70 per cent of employed population work in the high-risk sphere during the crisis.
“It’s obvious. The economic activity was suspended. Then, economic activity slowed down. We have outlined three groups of economic activities that are highly exposed to the crisis due to the Covid-19 pandemic: average risk – sectors that continued to work at the same level, and even increased production of services, and high risk,” according to the WB experts.
High-risk sectors are retail industry, hotel business, restaurants, construction. These are the industries that employ the majority of poor population. In fact, this leads to the growth of poverty and children are the most vulnerable group.
“Our forecasts show that the child poverty rate will increase depending on economic consequences at least by 36 to 55 per cent. This is quite a high child poverty rate,” according to the WB.
Experts predict a sharp increase in the poverty and extreme poverty rates in Kyrgyzstan in 2020.
According to expert Denis Berdakov, a sharp increase in the poverty rate will be faced by Bishkek, Chui region and Osh, where the majority of economic activities are concentrated. In particular, service industry, retail industry, and small businesses.
Naryn and Batken regions, where previous poverty rates were high, won’t see a sharp gap.
“0.5 per cent of our people live in extreme poverty, according to the statistical data. These people live on less than a dollar per day. According to the latest data, the poverty rate in the country is 20 per cent. Dzhalal-Abad, Naryn and Batken regions are the regions with the poorest population groups,” he said.
Based on the 2020 results, Berdakov predicts a rise in the poverty rate in Bishkek, Osh and Chui region up to 30-35 per cent.
According to the official data of the National Statistical Committee of Kyrgyzstan, in 2019 20 per cent of people in Kyrgyzstan live in poverty. The poverty rate in Bishkek was 11.9 per cent, in Chui region 19.1 per cent, in Osh 14 per cent.
Speaking about extreme poverty, according to the 2019 data, 35,836 citizens belong to this category in the republic. The majority of citizens living in extreme poverty reside in Osh region – 12,050 citizens, in Naryn region – 7 thousand people, in Dzhalal-Abad and Issyk-Kul regions – 6 thousand people each. Last year, no one in Bishkek, Osh and Talas region belonged to the category of extreme poverty.
The expert in economy Adilet Mamatov added that high poverty rates are expected in 2020 because of the suspension of the service and retail industries, which makes people run into debts.
He said that a massive number of people would slip into poverty, and the middle-class people would fall into poverty.
“The poverty rate will grow up to 15 per cent,” Mamatov said.
According to experts, the situation would be somehow improved by money transfers from migrant workers, but no big contributions can be expected as many Kyrgyzstanis abroad were left unemployed or had to come back to the home country.
According to Denis Berdakov, the countries of the region rely mainly on remittances from migrant workers today, so no significant growth of the poverty rate is expected in Naryn and Issyk-Kul regions.
Coronavirus and coup consequences
According to ex-deputy chair of GKNB of the Kyrgyz Republic Artur Medetbekov, street robberies and looting tend to increase in 2020. He noted that in times of crisis, crimes both at the street and national levels, namely, corruption and smuggling, become most frequent. This is the trend seen in Kyrgyzstan. He specified that small and medium-sized businesses involving the majority of population suffered the most because of the pandemic and political events.
According to the General Prosecutor’s Office of Kyrgyzstan, 92,430 cases were filed in 9 months of 2020 with the Unified Register of Crimes and Offences (ERPP). In the same period of 2019, 73,619 cases were filed.
According to the Ministry of Interior Affairs of Kyrgyzstan, crime rates tend to decline, but they failed to provide any information or figures to prove their statement.
What will be with migrant workers?
The lion’s share of migrants from Kyrgyzstan work in Russia. Their money transfers support the significant part of the population of Kyrgyzstan, especially rural citizens. However, coronavirus has affected this sector. The Russian economy, just like in other countries, suffers a crisis, which has reduced the total amount of remittances.
According to the director of the Institute of Social and Economic Studies at the Financial University of the Russian government, Aleksei Zubets, Russia coped with the crisis easier than it was expected. He explained that the economy of Russia would be better than in other countries because after autumn the national government did not introduce a hard lockdown, whereas other countries still have partial or full lockdown.
“On the other hand, we should understand that we won’t see rapid development either. By results of the year, GDP can rise by 2-3 per cent after all fallouts. Next year, we’ll manage to make up for time lost in 2020 and to see a minor growth. Thus, the economy will be developing at a slower pace,” he said.
According to Zubets, unemployment in Russia has risen 3-4 times since the beginning of the crisis. It can cause some irritation towards migrants. In other words, the national government will prefer its citizens when employing. The director of the Institute said that some segments of the labour market can be fully blocked for migrants. For example, the taxi industry in Moscow.
“Migrants were already unwelcome in this sector before the crisis. Russian citizens are very angry over the number of migrants in this industry. The same refers to the construction industry,” he said.
Aleksei Zubets acknowledged that there are no good news for the migrants from Kyrgyzstan so far. According to him, the Russian labour market will be more unavailable for the migrants. The exception is made for qualified specialists such as physicians and teachers.
How to solve the problem?
In the mid-run, according to Denis Berdakov, more emphasis must be placed on creating jobs within the country. By 2022, the world will not need unskilled workers. But the majority of migrants from Kyrgyzstan are unskilled workers.
“We’ll have to give jobs to hundreds of thousands of such workers,” he said.
The expert predicts a large outflow of skilled workers, programmers, physicians, teachers, and others.
“In the short term, it’s the launch of serious projects in Kyrgyzstan that can utilise this workforce. We’ll see a good scenario if we re-launch projects, construction of roads, dams, substations, tunnels, etc. We can pay little money and work for one and a half or two years,” he said.
Besides, the expert said that we needed to train specialists who will be in demand abroad. In particular, we should restore vocational training schools.
“We need to give our citizens an opportunity to find jobs within their specialty in South Korea, Turkey, Japan, Dubai, etc.,” he said.
According to Adilet Mamatov, in the short term, loan repayment holidays must be announced to support people in this situation. People took out loans for their businesses, but businesses are now suspended, and no loans can be repaid. He said that almost all sectors suffer. It affects the purchasing power of people. For example, nearly 800 cars used to be sold and bought on the car market each week, but today this number has fallen down to 120-150.
In the long run, Mamatov suggested to drive up demand for goods and services, create new jobs, and start implementing state and national projects. He admitted that this is a hard yet possible task to implement domestically.
“We should start building new housing, thus creating jobs and raising the product demand. The added value will work here,” he said.
According to Adilet Mamatov, the emphasis should be placed on already available markets for migrants, namely, Russia, Kazakhstan, Dubai, South Korea. However, only skilled workers must seek jobs there.
This article was prepared as part of the Giving Voice, Driving Change – from the Borderland to the Steppes Project.