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The Corona Crisis in Central Asia: Economic Impact of the Pandemic

The coronavirus pandemic will negatively affect the economy of Central Asian countries. The current crisis response measures will define the seriousness of the consequences, experts say.

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Kazakhstan: Chain Reaction  

Gulbarshyn. Photo: CABAR.asia

Gulbarshyn got a loan two years ago and opened a store in Abay village of the Turkistan region of Kazakhstan. Previously, she earned up to three thousand dollars a month. During the first week of March, her goods were almost sold out, but now there are no customers. If this situation continues, she will have to close the store.

“People no longer have money, everyone is borrowing. Of course, I cannot lend to everyone. I do not even know what to do. When I saw on TV that we could postpone the payments for three months, I was very happy. But it is just empty talks. When we called the bank, they said that there would still be a penalty for late payments. Our president and banks are two separate institutions,” complains Gulbarshyn.

Our president and banks are two separate institutions.

On March 31, the President of Kazakhstan Kassym-Jomart Tokayev made a statement . He instructed to support small and medium-sized farms and to reduce diesel fuel prices for agricultural producers by 15% of the market price. The state will allocate 390 thousand tons of diesel fuel at a reduced price for this purpose.

“For small and medium-sized enterprises (SMEs) that operate in the most affected sectors of the economy, the accrual and payment of taxes and other payments related to payroll is canceled for 6 months (from April 1 to October 1, 2020). These sectors include: catering, selected trade sectors, transportation services, consulting services, IT sector, hospitality industry (hotels), tourism, etc.,” Tokayev said.

While the state gives promises, entrepreneurs began to go out on strikes. In Taldykorgan city of the Almaty region, entrepreneurs organized a rally. They demand to lower their taxes or close the large stores around the market for quarantine.

Photo: Sandugash Duysenova

After the introduction of the emergency in the country, about two million people lost their jobs, the Chairman of the Finance and Budget Committee Gulzhan Karagusova stated in the parliament. This is about a quarter of the total working population of the country.

Sandugash Duysenova. Photo: CABAR.asia

According to expert Sultan Ilyasov, the economy of Kazakhstan is now in distress. All risks and losses related to external factors affected the Kazakh business.

“Unfortunately, the National Bank did not support the rates and let it go. We do not expect anything good; all investment projects that we planned for 2020-2021 are re-evaluated. Many of them, unfortunately, have to be reduced. In Russia, everyone is crying now, same moods in Kazakhstan,” says Ilyasov.

Mukhtar Omarkhanov, the Candidate of Economic Sciences of the Abai Kazakh National Pedagogical University believes that services and trade sectors will suffer the most. According to his estimates, about 50% of businessmen who were engaged in trade will lose or close their business. As for tourism, it was not in the best situation even before the coronavirus pandemic.

“In 2018, 8.5 million tourists visited the country, but this is the official statistics of “Kazakh Tourism”. Average citizens had suspicions that the national company is manipulating statistics to demonstrate its effectiveness, since it did not have any impact on the budget of the country. Only 1% of the claimed 8.5 million people are the real tourists. They all came to visit forums and meetings,” said Omarkhanov.

More than 12 thousand businessmen have applied for the assistance from the government already. 80% of them are representatives of the small and medium-sized enterprises.

“The state is trying to accommodate requests. Tax holidays were announced for entrepreneurs. In addition, all akimats should buy domestic goods from our manufacturers so that businessmen do not search for a market for sales,” says Aykyn Konurov, a deputy of the Mazhilis of Parliament.

However, economist Marat Abdurakhmanov notes that before April 1, 2020, all enterprises operating under the generally established conditions had to declare corporate income tax returns, which they must pay by May 25. If the emergency continues, the business simply will not have the resources and the opportunities to pay taxes.

“The chain reaction effect in the economy will begin when both individuals and legal entities will be bankrupt, and both categories will not be able to pay taxes. The introduction of tax holidays makes sense only for enterprises where 100% of employees and owners are citizens of Kazakhstan, otherwise everyone except Kazakhs will receive benefits,” said Abdurakhmanov.

Kyrgyzstan: Small and Medium Enterprises Will Return to Decades Back in Their Performance

According to the results of the first two months of 2020, Kyrgyzstan had positive growth rates: 4.3% in GDP, 3.3% excluding Kumtor. However, this does not mean that the crisis did not affect the country.

Eldar Alisherov. Photo: kabar.kg

Due to coronavirus, the situation is getting worse not only in Kyrgyzstan, but throughout the world. The production volume is gradually reducing inside the republic. Together with the global crisis that all states are experiencing today, this affects the domestic sectors of the economy.

“According to the first quarter results, we will have a slowdown, but we still expect positive growth. However, starting from the second quarter, the impact of the coronavirus and the global economic crisis will fully affect the indicators,” Eldar Alisherov, Deputy Minister of Economy of Kyrgyzstan, told CABAR.asia.

An emergency has been introduced on the territory of the country, and a state of critical emergency in certain areas. Many enterprises are closed and this will affect the volume of tax revenues, production and, as a result, the rate of economic growth.

“We have certain problems today with export and import from foreign countries. However, what we expected, is being delivered to us. In particular, the cargo traffic did not stop completely; it passes through the railway and by roads. The volumes for sure are not the same as before. Of course, this will affect customs payments. In total, the loss of customs and tax payments for 2020 is estimated at 28 billion soms ($329.8 million),” the Deputy Minister added.

However, not only taxes and customs payments are damaged. The damage to small and medium-sized enterprises cannot be calculated even by experienced industry experts today.

Avazbek Kerimbayev. Photo: sputnik.kg

“As an example, let us recall the situation of two years ago, when Kazakhstan closed the border for several days due to political discord between Kyrgyzstan and Kazakhstan. Then, the state lost $210 million. In just few days. Imagine the figures for a month or several months,” the Chairman of the Chamber of Commerce and Industry subcommittee on small and medium business support Avazbek Kerimbayev shared with CABAR.asia.

According to him, the main problem is that small and medium-sized businesses do not have an emergency reserves. Entrepreneurs receive revenue on a daily basis, and thus make their living. In addition, almost all SMEs are repaying the loans and the inability to work puts them in a difficult situation.

To understand the whole problem, it should be noted that the large part of the population of the Kyrgyz Republic works in small and medium-sized businesses. According to the estimates by the President of the Association of Markets of Kyrgyzstan Damira Dolotalieva, they are more than 250 thousand people.

The border is closed, there is no one to sell the goods to

According to her, the first problems with trade appeared on March 16, when the cargo traffic was suspended on the state border with Kazakhstan. Later, the situation seemed to normalize, but on March 19, Kazakhstan introduced restrictions on cargo transportation and even on individual traffic across the border.

“Up to 90% of our customers are from Kazakhstan. The border is closed, there is no one to sell the goods to. On March 23, the sellers requested to close the market. Since, regardless of whether there is trade or not, while the market is working, people are forced to obtain the licenses and pay to the social fund,” Dolotalieva said.

According to her, the main problem sellers are facing today is loan debt. The National Bank adopted a decree prohibiting banks from charging fines and fees, but only recommended to postpone the loan repayments. In fact, this measure could actually simplify entrepreneurs lives.

On March 31, the government finally presented a plan on measures to reduce the negative social and economic impact.

“These measures are mainly aimed at supporting business, entrepreneurship, our population and at minimizing the impact of external factors. Tax preferences are provided for entrepreneurs, in addition, the National Bank of the Kyrgyz Republic took measures to support business, namely, it is individual deferral of loan payments. As for the population, it will also receive assistance; the mechanisms are being developed together with the Ministry of Labor,” said Deputy Minister of Economy Alisherov.

He noted that in order to reduce the budget expenditure, a working group has also been created. It is working on restructuring and prolonging the republic’s external debt.

The official said that in order to cover budget losses, Kyrgyzstan turned to international donors. The IMF has already allocated $120.9 million to the Kyrgyz Republic. Negotiations are currently ongoing with the World Bank, the Asian Bank and the EBRD, as well as with the UN and other partners.

Uzbekistan: Som Course May Plummet Dramatically

The spread of COVID-19 virus has paralyzed almost all sectors of Uzbekistan’s economy. In particular, transport, trade, tourism, industry, the restaurant business, and educational services fell under quarantine rules.

In Tashkent, where 46 cases of coronavirus infection were recorded on March 23, the work of the subway, buses, and fixed-route taxis was stopped indefinitely. The authorities recommended sending employees of budgetary and commercial organizations on leave, or changing their working conditions to remote work. In fact, only law enforcement agencies, emergency services and grocery stores remain fully operational.

Due to the cancellation of spring bookings, the tourism sector alone lost 31 million US dollars, as previously stated by Deputy Prime Minister Aziz Abdukhakimov.

Президент Шавкат Мирзиёев выделил свыше миллиарда долларов на поддержку антикризисных мер. Фото: president.uz
Президент Шавкат Мирзиёев выделил свыше миллиарда долларов на поддержку антикризисных мер. Фото: president.uz

On March 19, President of Uzbekistan Shavkat Mirziyoyev signed a decree aimed at mitigating the effects of the coronavirus epidemic on the country’s economy. According to the decree, 10 trillion som (about 1.05 billion US dollars) will be allocated to the Anti-Crisis Fund; this capital is planned to be borrowed from international lenders.

The fund will help affected entrepreneurs, state-owned companies, as well as provide social assistance to the population. Tax and other benefits for business, including the abolition of fines for late loans and tax deductions, are foreseen to be implemented.

The local expert unsurprisingly note that the situation, on one hand, leads to decrease of economic activity within the country, and on the other, weakens economic relations with other states.

For Uzbeks, this means one thing – increase in prices for goods and services.

In an interview with CABAR.asia, economist Khaetkhan Nasreddinov expressed the view that Uzbekistan is now not able to take the currency market under tight state control, as it was during the time of the first president Islam Karimov’s rule.

“Mirziyoyev is forced to reckon with international lenders who require transparency in the financial market. Consequently, in the foreseeable future, the national currency may dramatically plummet against the backdrop of global shocks. For Uzbeks, this means one thing – increase in prices for goods and services,” Nasreddinov said.

At the same time, he believes that the crisis can have some positive outcomes. In particular, the expert predicts agricultural liberalization.

“Exporting farmers will receive more benefits and freedom from cotton slavery. And quarantine will give an impetus to the development of electronic commerce and the market of information technologies,” Nasreddinov suggested.

Tajikistan: There Will Be Fewer Migrants, As Well as Currency

The Government of Tajikistan has adopted a plan of measures to prevent and reduce the impact of possible external risks on the country’s economy, the Ministry of Economic Development and Trade stated. In particular, the plan introduces measures to increase the production of essential goods and provision of food.

As well as measures to ensure macroeconomic stability, proper state budget execution and the effective use of its funds.

The construction and commissioning of new industrial plants and enterprises with the state and direct investments and measures for the efficient use of land are also planned.

The statement also acknowledges that the decline in global oil prices, the drop in the exchange rate of the Russian ruble and the spread of the coronavirus pandemic affected the republic’s “trading partners”.

At the same time, the Ministry declares that there are significant domestic production capabilities and that the authorities take measures to provide the republic with domestic products under the influence of external risks on the country’s economy.

Recently, the government representatives discussed the implementation of measures with international donors: representatives of UNDP, World Bank, Asian Development Bank, OSCE, USAID in Tajikistan.

Всемирный банк готов выделить Таджикистану 11,3 млн долларовдля предотвращения внешних рисков. Фото: gavi.org
Всемирный банк готов выделить Таджикистану 11,3 млн долларовдля предотвращения внешних рисков. Фото: gavi.org

Donors expressed their willingness to support the current activities. In particular, the Permanent Representative of the World Bank announced the allocation of $11.3 million to the republic to prevent external risks.

Experts talk about the negative consequences that the republic’s economy should expect. First, they connect the loss with a sharp reduction in the number of labor migrants and a drop in the volume of currency entering the country.

Russia announced the temporary closure of its borders for all foreign citizens until May 1. During this period, hundreds of thousands of Tajik migrants usually go to Russia for seasonal work.

“A drop in the ruble exchange rate by 30% reduces the volume of remittances in dollar terms,” a Tajik economist anonymously told CABAR.asia.

According to him, the Russian measures for preventing the new coronavirus spread will lead to the fact that many Tajik migrants will not be able to go to work. Along with this, it is possible to predict an increase of unemployment rate in Russia, which will complicate the situation of Tajik citizens who are already there, and many of them will be forced to return.

“A drop in remittances will affect not only the families of migrants, but also the country’s economy as a whole. The country will actually be left without currency, since about 80% of the currency inflow is provided by labor migrants. The reduction in foreign currency inflow will lead to a sharp decrease in the volume of imports of goods and a shortage of products on the markets,” the economist said.

He stressed that Tajikistan has exported only raw materials so far, and almost all finished products have been imported.

“It is necessary to create enterprises and workshops for the domestic production of at least priority goods and products. The received currency should be allocated  to the fuel and grain purchase,” the economist advises.

The economist also noted the probability of the business activity recession, a decrease in revenues of transport, airports, travel agencies, hotels, which will lead to a decrease in tax revenues to the budget.

“This can lead to delays in the wages payment to state employees, since more than 70% of the state budget revenues are taxes,” he said.

The economist does not exclude the possibility of social tension in the republic due to a sharp increase in unemployment rate and a decrease in the purchasing power of the population.

“People should not rely on the authorities. Agriculture can become the solution for many people, where they can work and create added value for themselves,” says the expert.

A former high Tajik official, anonymously said that the damage from the coronavirus could be minimized if the government chose the right strategy.

He described the anti-crisis plan developed by the government as “a set of abstract wishes”. The specialist recommends the government to develop a document with specific measures, a roadmap, ensuring its implementation with the necessary budget funds.

However, regardless of the strategy chosen by the government, the country will experience an economic recession, especially in such sectors as transport, retail, services and tourism, small and medium-sized businesses.

The former official noted that it will take several years to overcome the consequences of the impending crisis.

“There will be both a shock of production, as global value chains will be disrupted, and a shock of consumption, since the population without any income, will try to spend less,” he said.

This article was prepared as part of the Giving Voice, Driving Change – from the Borderland to the Steppes Project.

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