The Economic Impact of COVID-19 in Central Asia

Introduction

The impact of the COVID-19 pandemic is so profound that the world will never be the same again. Human communication, social norms and habits have transformed immensely due to this. More digitalisation and less physical interactions have become a daily routine in medical treatment, educational spaces, entertainment, and business sectors. Similarly, global politics and the economy have also gone through drastic changes.

Not surprisingly, the Central Asian republics (CARs) have also become a part of these global changes. Many sectors are severely affected by the coronavirus pandemic. The COVID-19 hit the already fragile health care systems of CARs and became a pressure test for the respective governments. The Global Health Security Index (GHSI) in its report highlighted that 73 percent of the world’s population lives in countries that scored below 50 on a scale between 0 (absolutely not prepared) and 100 (well prepared). The report found that no country was genuinely prepared for pandemic (scoring 100) – all lacked fundamental health care capacities as a necessary response for epidemic and pandemic. None of the Central Asian countries scored above 50, although their degree of preparedness based on the GHSI score differed.¹

World Bank’s ‘Europe and Central Asia Economic Updates’ suggest various negative scenarios for the region, including a significant recession in 2020, with growth contracting between -4.4 and -2.8 percent. Prior to the global pandemic, Uzbekistan among the Central Asian republics was expected to have the highest and most dynamic economic growth rate in the region. It was projected to grow at 5.7 percent in 2020 and 6.0 percent in 2021. However, these numbers have now been revised to 1.6-1.8 percent due to the severe repercussions of COVID-19.

According to European Bank for Reconstruction and Development (EBRD), the economic forecast for Uzbekistan’s GDP growth in 2020 is about 1.5 percent, with a projected growth up to 6.5 percent in 2021. The Central Asian governments took precautions against the COVID-19 epidemic, depending on available resources and their awareness of the urgently needed interventions — the most common measure recommended by World Health Organization (WHO) was the implementation of lockdown and quarantine. This has further impacted the economic developments in the region.

The negative impact of the pandemic is visible in the region. There are three main reasons why the Central Asian economies registered an economic downturn:

• The initiatives that Central Asian governments undertook to contain the spread of the virus by closing borders;
• Restricting migration and economic activity;
• The decline in the raw materials’ export and the reduction in remittances.

Economic Impact

The distraction of global supply chains and international trade has affected the economies of Central Asian republics immensely. The prevailing scenario suggests that lockdown policies have impacted the operations of the self-employed and micro, small, and medium enterprises (MSMEs) across Central Asia. The specific sectors that are being disproportionately affected at this point include tourism, hospitality, personal services, construction and small-scale manufacturing.²

Table.1 Central Asian Economies: Real GDP, Consumer Prices, Current Account Balance, and Unemployment

1. Decline in Trade Turnover

Due to the disruptions in international trade, Kazakhstan’s global trade turnover dropped 7.4 percent in the first half of 2020 relative to the same period in 2019. Trade’s turnover with the members of the Eurasian Economic Union (EAEU) also dropped 10 percent. Uzbekistan’s foreign trade turnover fell 19 percent, or USD 4.7 billion, year-on-year between January and July 2020.³ The retail activity also decreased 2.9 percent for the same period. For the Central Asian republics, the natural gas exports witnessed significant drops due to the global economic slowdown in the wake of the coronavirus pandemic. China, the leading buyer of natural gas from Kazakhstan, Turkmenistan, and Uzbekistan, issued a force majeure note to its suppliers to halt supplies in March this year. This had a considerable impact on Turkmenistan’s economy as China is responsible for almost 90 percent of Turkmen exports. Uzbek and Kazakh economies are more diverse than Turkmenistan; therefore, they seem to be less impacted by China’s Force majeure.

2. Sliding GDP Growth

Asian Development Bank (ADB), in its report, projected Kazakhstan’s gross domestic product (GDP) growth to plunge to 1.8 percent in 2020 following the economic repercussions of COVID-19.4 However; GDP declined 2.9 percent in the first six months of 2020. Inflation was 7.1 percent, vaguely below the expectations. Kazakhstan, the leading gas exporter to China is also being adversely impacted by a reduction in Chinese demand for natural gas. Due to the COVID-19 outbreak, the Tajik economy has witnessed a reduction in remittances, a plunge in investments and deterioration in its foreign direct investments. Similarly, Uzbekistan’s economic reforms and developmental goals are also unable to meet the current challenges. Uzbekistan’s GDP growth will decelerate in 2020 due to a lower price for natural gas and copper. ADB also projects that the GDP growth of Uzbekistan to be 4.7% in 2020, slower than last year’s 5.6% growth.⁴

Figure 1.GDP Growth Rate of CARs

3. Jolt to Remittances

Three of the Central Asian countries have been getting benefitted from the outward migration to Russia and Kazakhstan. While Tajikistan and Kyrgyzstan are heavily dependent on remittances, Uzbekistan does not depend on migrant remittances. On August 3, 2020, Asian Development Bank announced that in 2020 almost a year-long pandemic-induced crisis had seen remittances to Central Asia fall by USD 3.4 billion, or about 24 percent.⁵ Russia, the largest source of Central Asian remittances, had also experienced a sharp economic decline due to coronavirus and low oil prices.

Figure 2: Top Recipients of Remittances, 2019

Kyrgyzstan and Tajikistan’s economies are hugely reliant on remittances. In 2019, Kyrgyzstan and Tajikistan received cash transfers from labourers abroad, which was equivalent to about 30 percent of these countries’ GDP. For Tajikistan, remittances from the Russian Federation declined 15 percent year-on-year in the first half of 2020. In 2019, those payments amounted to around USD 2.5 billion, which is equivalent to around one-third of GDP.⁶ Remittances coming into Uzbekistan were also cut down to USD 3 billion, seven percent in the first seven months of 2020.⁷ Besides, due to the virus spread in Russia, migrant workers from Central Asia faced severe problems. Due to lockdown, some of them went out of money and jobs. Migrant workers also got stuck at border check posts due to the closure of interstate borders. After reaching their destination countries, another challenge was finding a job to meet their daily livings.

4. Tourism Sector

In 2019, the tourism sector added more than 400 USD million to the Kyrgyz economy, which is estimated to be equivalent to 5.3 percent of its GDP in 2019.⁸ In Uzbekistan, the spring season attracts a high number of tourists. Due to the pandemic, the Uzbek tourism sector has lost over 30 million USD due to spring bookings’ cancelation. Uzbekistan has announced a package of measures worth about USD 1.3 billion and various benefits. It also approved deferrals to several businesses for USD 2 billion, including the tourism sector. In order to meet these economic challenges, Tashkent requested 1 billion USD in budget support from the Asian Development Bank on April 1, 2020.⁹ Subsequently, in June, ADB approved a USD 500 million loans to help Uzbekistan’s Government assuage the coronavirus pandemic’s undesirable health and economic impacts.¹⁰

Way Forward

• Extraordinary reforms are needed for the post-pandemic economic recovery of the Central Asian region; however, the approaches will differ based on each republic’s internal socio-economic condition.
• Diversification of the economy is a must as countries like Turkmenistan are solely dependent on China for its exports.
• Creation of jobs for migrants workers
• Deepening regional cooperation will give impetus to the regional trade and investment, and it will also help the region becoming a transit hub.
• Reviving of domestic tourism
• Avoiding repetition of strict lockdown measures
• Epidemiological cooperation and strengthening of health infrastructure

Conclusion

The Central Asian states started closing their borders as soon as the magnitude of China’s war with the novel coronavirus became evident in January 2020. The region was coronavirus-free until the first case was registered on March 13, 2020, in Kazakhstan. Since then it the virus has spread to all Central Asian countries except for Turkmenistan. Consequently, they did not escape one thing which took the region by the throat in March; the economic depression. Central Asian countries closed their borders and adopted measures such as lockdown to curb the threat of the virus. This has resulted in trade decline, Chinese goods disappeared from the markets, and exports of China’s most wanted Central Asian commodity – natural gas – have sharply plunged following a force majeure. This directly impacted the regional development and deterioration of the individual countries’ socio-economic index. The current situation is slightly better. With the help of the regional and domestic financial institutions, these countries have been able to cope with the economic downside of the coronavirus. Besides, the Central Asian republics need to make extraordinary efforts to revive their economies in the post-pandemic period.

Endnotes

1. Global Health Security Index (GHSI), October 2019. https://www.ghsindex.org/wp-content/uploads/2020/04/2019-Global-Health-Security-Index.pdf [3]
2. ‘COVID-19 and Central Asia: Socio-economic impacts and key policy considerations for recovery’, UNDP Report, November 2020 available at https://www.eurasia.undp.org/content/rbec/en/home/library/sustainable-development/covid19-and-central-asia.html [4]
3. ‘Coronavirus economics watch: Central Asia and the Caucasus, Eurasianet, August 2020; https://eurasianet.org/coronavirus-economics-watch-central-asia-and-the-caucasus-august-2020 [5]
4. Asian Development Outlook 2020: What Drives Innovation in Asia? ADB Report, 2020. https://www.adb.org/sites/default/files/publication/575626/ado2020.pdf [6]
5. ‘COVID-19 Impact on International Migration, Remittances, and Recipient Households in Developing Asia’, ADB Briefs, August 2020. https://www.adb.org/publications/covid-19-impact-migration-remittances-asia [7]
6. ‘Coronavirus economics watch: Central Asia and the Caucasus, Eurasianet, August 2020; https://eurasianet.org/coronavirus-economics-watch-central-asia-and-the-caucasus-august-2020 [5]
7. Ibid.
8. P K Gupta, ‘COVID-19 in Central Asia: Responses and Resolutions’, Article, April 11, 2020. https://www.vifindia.org/article/2020/april/11/covid-19-in-central-asia-responses-and-resolutions [8]
9. Ibid
10. ‘ADB Provides $500 Million Loan to Mitigate Health and Economic Impacts of COVID-19 in Uzbekistan’, Asian Development Bank, News release, 25 June 2020 https://www.adb.org/news/adb-provides-500-million-loan-mitigate-health-and-economic-impacts-covid-19-uzbekistan [9]

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