© CABAR - Central Asian Bureau for Analytical Reporting
Please make active links to the source, when using materials from this website

When and How Will Central Asian Economies Recover From COVID-19?

During the ongoing coronavirus pandemic, the issue of post-COVID economic recovery in Central Asia is already included in the agenda. International institutions and the expert research community’s representatives present various timelines of economic recovery to the pre-crisis level. Meanwhile, there are proposals about the transformation of the economic model itself.

Follow us on LinkedIn

According to the forecast from the latest Fall 2020 Europe and Central Asia Economic Update by the World Bank, the GDP in Central Asia may contract 1.5% in 2020. Overall, the World Bank assesses the pandemic’s impact on the region as the worst economic downturn in 25 years, after the recession during the region’s transition to a market economy.

In addition to the report, the Regional Director for Central Asia Lilia Burunciuc and Lead Economist for Central Asia Ivailo Izvorski in the World Bank blog note that the economic contraction was influenced by three main forces:

  • the measures governments in the region undertook to save lives by closing borders;
  • limiting mobility and economic activity;
  • decrease in the raw materials’ export and the volume of remittances.

Experts believe that economic growth in Central Asia may recover in 2021, reflecting recovery in demand abroad, including for commodities, modestly higher commodity prices, and increased foreign direct investment. According to the optimistic forecasts, its rates can reach 3.1%, and according to pessimistic, 1.5%.

The blog’s authors state that two main factors will determine the region’s development. The first is the creation of favourable environment for private entrepreneurship. As explained, higher public investment in infrastructure can play a major role in creating the conditions for dynamic growth. The private sector should lead, whether it is investment in technology and greener solutions in Kazakhstan and Uzbekistan or more transparent and efficient investment in Tajikistan and Kyrgyzstan.

The second factor is human capital, the most important asset for any economy. The education and healthcare system should be transformed, which will not only compensate for the damage from the pandemic, but also guarantee quality development.

Sustainable and resilient recovery of the Central Asian countries from the crisis depends on how the governments cope with these tasks, according to the World Bank representatives.

“With such policies, Central Asia can fully recover from the worst economic contraction in a quarter century,” they conclude.

Extraordinary Reforms Needed

According to Asian Development Outlook 2020 Update by Asian Development Bank, the subregional GDP will decline 2.1% in 2020 and grow 3.9% in 2021. The Outlook provides a description of the situation and forecasts for further development for each country separately. 

The Outlook notes the subsequent recovery of the region after a significant economic contraction this year will be slow and have a low growth trajectory. The GDP of the Central Asian countries in 2021 will be lower than the pre-pandemic expectations.

Director General of ADB’s Central and West Asia Department Werner E. Liepach and Principal Economist of this Department Guntur Sugiyarto stated in the ADB blog that the governments must introduce extraordinary reforms to confront this unprecedented crisis and to avoid further deterioration of the situation.

In particular, they should include such key elements as deepening regional cooperation and integration, reviving domestic tourism, and igniting the engine of growth. Experts believe that the revitalization of small- and medium-sized enterprises, which contribute significantly both in terms of output and employment, can stimulate the growth.

In addition, the need of economy diversification and use of “social remittances” to employ the migrant workers are indicated.

“With challenges related to their redeployments, the government must employ this productive workforce to strengthen domestic labour markets, support small- and medium-sized enterprises, and domestic industries. As many of the migrants have worked abroad in the tourism sector, their “social remittances” – or the value they bring beyond monetary rewards – can also be part of the revitalization of domestic tourism and beyond, including discovering new activities,” the authors explain.

Avoiding Repetition of Drastic Lockdown Measures

The report Looking ahead: Economic Policy Options for COVID-19 and Beyond in Central Asia prepared as part of the implementation of USAID’s Future Growth Initiative project notes that the economic effects of the global recession induced by coronavirus will be painful for the region. Only Uzbekistan’s GDP is expected to grow; the economic indicators of the rest of the countries will decline by 2-4%.

The report suggested the possibility of partial recovery of the Central Asian countries from mid- and late-2020 as quarantine measures are gradually lifted. At the same time, it mentions that potential second or third waves, or even the perceived threat of them occurring, can aggravate the situation so that it would take years to exit the crisis.

By the way, this point is common for almost all reports. The unpredictability and uncertainty of the course of the pandemic, its possible protracted nature are indicated as the main risks of disrupting the estimated recovery period.

Preventing the repetition of lockdown measures, which will become particularly detrimental for developing countries, is also a general recommendation. The USAID report identifies it as the most important short-term measure for the economic recovery in the region. One of the most effective ways to achieve this is to keep track of current outbreaks of the disease.

The report recommends the governments of the countries to develop capacities in high-potential sectors, such as IT, Agriculture, Textiles, Renewables, Petrochemicals and others.

Favorable Epidemiological Situation Is the Main Factor

Kazakh economic observer Sergei Domnin believes that recovery from the pandemic will be different for different countries of the region. As he clarifies, for Kazakhstan, this is return to pre-crisis volumes in the service sector and oil production. For Kyrgyzstan – the resumption of the work of large mining enterprises and the restoration of the volume of remittances from labour migrants.

Sergei Domnin. Photo: ekonomist.kz

For Uzbekistan, which, according to the latest IMF estimate, will show an increase of 0.7% in 2020 returning to the pre-crisis growth path of 5-6%, it is a series of factors. Remittances from migrants, attraction of foreign investment and the privatization of part of state assets are among them. 

As CABAR.asia source emphasized, a main factor for economic recovery after this crisis is a favourable epidemiological situation within countries, in neighbouring countries and key trading partners.

The growth is limited not by some market, structural imbalances, but by the coronavirus, countering which governments apply rather tough measures,” he said. “Data for Kazakhstan, Uzbekistan and Kyrgyzstan indicate that the second wave of coronavirus is just beginning in the region. Considering same data, countries’ healthcare systems were not able to become significantly stronger over the past months than they were at the beginning of the crisis.

According to him, the authorities of the countries of the region are not ready to stop the outbreak quickly, as was done, for example, by the Chinese authorities in Qingdao, where 3 million people were tested in two days due to three new cases of COVID-19 in early October. In addition, the population of countries still largely ignores distancing measures.

Ultimately, this all together may lead to the coronavirus outbreak and the authorities again will introduce restrictions on the work of people and enterprises.

“This means that the recovery, even if it starts in the fourth quarter of this year in some countries, will be unstable,” Domnin summed up.

Economy and/or Ecology

The approaches and strategies for sustainable development in the post-pandemic period for Central Asian countries were discussed at the First Central Asia Nobel Fest in October. The speaker of one of the sessions, Nobel Peace Prize laureate (2007), Chairman of the Global Energy Prize International Award Committee Rae Kwon Chung expressed the opinion that the pandemic should be considered not only as a healthcare problem, but also as an environmental crisis.

Rae Kwon Chung. Photo: globalenergyprize.org

“Many countries are thinking about economic recovery after solving the coronavirus problem,” he said. “However, as soon as we begin to recover our economy, we will face a much higher volume of carbon dioxide emissions. Speaking about the economic recovery today, we need to think about making it greener. This is the most important task now.”

The current period, Chung believes, may become a turning point for the rebooting and transformation of the economic model, its transition from short-term to long-term development strategies. The Nobel laureate believes that investing in renewable energy sources with great potential in the region will open up new opportunities for economic growth and job creation.

Kazakhstan can become their exporter by joining the global Silk Road Super Grid project aimed at creating an international network of transmission and trade of electricity from renewable sources over long distances.

Other speakers of the festival also talked about the importance of reloading. For example, the Chief Economist at the CAREC Institute Hans Holzhacker is confident that support of the transition to green technologies will contribute to the economic growth of Central Asian countries exporting raw materials.

“The countries of the region need to adjust their economies and take this approach into account in their recovery strategies, because there will be general decarbonisation in the world,” he said.

Asian Development Bank (ADB) President Masatsugu Asakawa previously stated the need to rebuild Asian countries’ economy with green, sustainable and inclusive measures. It is obvious that the pandemic has made the green trend in the economy demanded and timely.

Following European Union Example

According to various estimates, the instability period may last from 12 to 36 months, as Nurbek Achilov, economist researcher and expert on Central Asia, said in response to CABAR.asia. In his opinion, at this time, everybody should focus on education and science, because human capital is a key factor for the society development. In addition, the pandemic revealed a low level of healthcare in the countries of the region, as well as an insufficient scientific and research base in all areas of the economy.

Nurbek Achilov. Фото взято с личной страницы в Facebook

Therefore, according to Achilov, the activation of these areas and investment in them will be important, as well as in the pharmaceutical industry, biotechnology and food.

“It is also important to provide the population of the region in all villages with broadband Internet,” Achilov said. “This will provide access to education and form a base of scientific specialists. In addition, during the pandemic, it is necessary to invest in start-ups and build up small enterprises.”

The expert is confident that this all can become the basis for the subsequent economic growth of the Central Asian countries during the post-crisis period.

He considers integration to be the main factor of economic recovery and further development of the region. This is due to not only the geographical location, transit potential, and historical and cultural community, but also to economic dimension.

“A market of 10, 15 and even 30 million people is not enough for developing new technological areas,” the expert explained. “To produce and sell innovative products on the global market, we need to start at least with a market of 50 million. No single country in the region has such a population. For the same reason, projects on import substitution also have problems: launched infrastructure projects either work for 2-5 years, or close, as, for example, happened in Kazakhstan with the computer-manufacturing plant.”

The source considers the demand of a 50 million market to be a good reason for uniting.

It could grow to a volume of 100 million and more, if other countries of the Central Asian region in a broader sense (Afghanistan, Mongolia, the Caucasus in the future) joined us,” he continues. “Moreover, I am talking about uniting not only at the level of economic integration, but also as a single infrastructure, common external borders, following the European Union example.

“This would allow reaching a new level of economic development, effectively exporting, taking advantage of the geographical location, successfully competing and selling products to all directions, becoming a kind of bridge between Europe and Asia,” Achilov concluded.

The recent events in Kyrgyzstan, which is transit dependent on Uzbekistan and Kazakhstan, according to the expert, are even more convincing of importance of integration with other countries of the region.

The political crisis added to the global corona crisis will certainly worsen the already difficult situation in Kyrgyzstan, which was affected by the pandemic more than other countries in the region. The prospect of it lagging even further behind its neighbours due to a double blow is obvious.

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

If you have found a spelling error, please, notify us by selecting that text and pressing Ctrl+Enter.

Spelling error report

The following text will be sent to our editors: