Impact of possible economic downturn in Russia for Central Asia might not be as hard as it was in 2014

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An article by Bruce Pannier “Analysis: Do Oil Price Cuts Signal Bad Economic Times Will Return To Central Asia?” that was posted on Radio Liberty’s website on March 14 notes that it’s looking like deja vu of the worst kind in Central Asia as a new economic jolt is coming to the region, only this time with some added bad news.

The jolt reportedly means that the price of oil has dropped dramatically on world markets -- much as it did in 2014.

For the five Central Asian countries -- whether dependent on hydrocarbon exports for revenue or remittances from millions of migrant laborers in Russia -- the decrease in oil prices six years ago heralded significant downturns in their economies.

Some of the Central Asian governments are already moving to head off the problems they faced in 2014, and there are some reasons to think the difficulties that beset the region then will not be as severe this time, according to the article.

But the added bad news -- the spread of the coronavirus and the accompanying global deceleration of production and trade -- is something that didn’t exist in 2014 and will certainly add to the woes that await Central Asia.

The article notes that Tajikistan is one of the most remittance-dependent countries in the world (currently occupying the fourth spots) and the vast majority of Tajik labor migrants work in Russia.

According to World Bank data, remittances accounted for almost 44 percent of Tajikistan’s GDP in 2013, just over 37 percent in 2014, down to under 29 percent in 2015, and to a bit under 27 percent in 2016. The share of GDP reportedly went up to 31 percent in 2017 and was 29 percent in 2018.

In early 2016, the National Bank of Tajikistan (NBT) said Tajik migrant laborers in Russia actually sent back more rubles in 2015 than in 2014, but the depreciation of the ruble meant the money sent back to Tajikistan was worth 33 percent less in 2015.

In 2014-15, the Russian ruble fell from 32.85 to $1 to 72.69/$1.

The Russian ruble rate was about 66/$1 on March 3, 2020, and one week later it fell to 71/$1 (down from a high of 74/$1 on March 9).

The health of the Russian economy is of course of vital importance to the Central Asian economies.

And with the economic problems for Moscow just starting, Russia’s Finance Ministry said on March 9 that the country had sufficient resources to keep afloat for six to 10 years if the price of oil was $25-$30 per barrel.

But the Finance Ministry may have just been putting on a brave face and the situation could deteriorate much further, according to Mr. Pannier.

If the ruble does take another dive, that creates another problem for Central Asia.

The number of migrant laborers going from Kyrgyzstan to Russia actually increased in 2015 by 2 percent, owing, no doubt, to Kyrgyzstan’s entry into the Russian-led Eurasian Economic Union that year, which afforded better working opportunities in Russia for citizens of member states.

But Russia’s Federal Migration Service reported that the number of migrant laborers from Tajikistan decreased by 3.8 percent (some 35,000) and the number from Uzbekistan by 4.1 percent (some 80,000 people) in 2015.

Some may have returned home, and Tajik President Emomali Rahmon recently claimed the number of Tajik migrant laborers had decreased to some 486,000.

But there were other options for Central Asian migrant workers five or six years ago when they could choose to go to countries in the Middle East, Turkey, Japan, or South Korea.

But with the spread of the coronavirus, many countries are closing off access and those arriving face enhanced scrutiny. The opportunity to travel to any of the above places to seek a job will be reduced.

That could lead to more people returning home, but employment will be difficult to find in Kyrgyzstan, Tajikistan, and Uzbekistan, and the addition of thousands of working-age citizens to the ranks of the unemployed in those countries would put additional strains on the public dissatisfaction that exists in those societies, the article says.

Tajikistan’s National Bank spent some $452 million in 2015 defending the somoni.

The exchange rate for the somoni was 9.68/$1 on March 3, 2020, and was roughly the same on March 10.

What’s different now as opposed to 2014 is that the impact of a possible economic downturn in Russia might not be as hard as it was six years ago.

The Central Asian governments gained experience from the previous drop in oil prices and announcements from central banks in Kazakhstan and Kyrgyzstan indicate that the governments in those countries are reacting early to head off currency problems.

But Kyrgyzstan and Tajikistan, in particular, have limited reserves and cannot continually move to prop up national currencies.

No one in Central Asia wants the economic problems that appear to be coming. They might be better prepared to deal with some aspects of these problems.

Source: Asia Plus