The return of large-scale, conventional war to Europe earlier this year coupled with surging international commodity prices sent economic shockwaves around the world. Following the Russian invasion of Ukraine, countries in Central and West Asia have come into sharp focus given their proximity to the conflict and close economic ties with Russia.
While some of these economies have performed better than expected due to knock-on effects such as large incoming money transfers from Russia, others suffered major disruptions and the situation remains highly uncertain. In the meantime, ordinary citizens are feeling the pinch of higher living expenses and reduced purchasing power.
This month, ADB approved support programs for Uzbekistan, Pakistan, and Tajikistan under an enhanced facility to help its members deal with the economic impacts of the war. The bank will consider a similar program for the Kyrgyz Republic next week. ADB’s Director General for Central and West Asia Yevgeniy Zhukov explains how the bank is supporting its developing member countries.
How has the Russian invasion of Ukraine affected the economies in Central and West Asia?
Russia is a major trading partner for many countries in the region. One of the main impacts has been the disruption of trade and supply chains which, on top of global supply chain disruptions following the COVID-19 pandemic, has caused spiking food and energy prices. Some countries also have many migrant workers in Russia, and the war will likely increase returnees or reduce remittances.
For example, around 133,000 Uzbek migrant workers had returned home by end of March, and more are expected by end of this year. Most of them are from the provinces and diminished household income and higher food prices could push an extra 1 million people in Uzbekistan into poverty. In Tajikistan where 1 in 5 households are food insecure, higher food prices and reduced remittances from its 1 million migrant workers in Russia could nearly double the number of food-insecure households. In Pakistan, almost 10 million Pakistanis were projected to fall into poverty from 2020-2022 due to soaring food and energy prices. And this was prior to the devastating floods, which have undoubtedly made things worse. Overall, higher food and energy prices threaten to undermine gains in poverty reduction in the last decade.
However, some economies have benefitted from the inflow of highly mobile Russian citizens, including their money and businesses. The region’s oil and gas exporting countries also benefited from higher global commodities prices. These boost growth prospects and mitigate the higher cost of food imports in the short-term, but also drive prices through domestic demand.
This shows the war affects different parts of the population disproportionately, and economic risk remains high. Moreover, we don’t know what else the war could bring. For example, there has been a second wave of migrants from Russia after the announcement of the military draft there in September. The risks of economic downturn may prevail. These challenges come against a backdrop of the ongoing recovery from COVID-19, and as the impacts of climate change in the region appear to be getting worse.
What is ADB doing to help these countries mitigate the economic impact of the war?
We stand ready to help our developing member countries weather the crisis and support the poor and vulnerable. This is key to ensuring countries stay on track toward their sustainable development goals.
ADB has a countercyclical facility that provides fast-disbursing emergency budget support during times of crisis. We enhanced this facility in May and subsequently rolled out the Building Resilience with Active Countercyclical Expenditures (BRACE) Programs to help our members cope with external shocks such as the invasion. We’ve already approved a $500 million loan for Uzbekistan, a $1.5 billion loan for Pakistan, and a $50 million grant for Tajikistan. Next week, ADB’s Board will consider a BRACE Program proposal for the Kyrgyz Republic.
These programs provide much needed fiscal space for these economies to increase public spending on social protection, food security, and support businesses. For Pakistan, the financing is even more critical as the country grapples with the devastating floods that have affected more than 33 million people.
How will ADB’s support help bring down food prices in the region?
In Pakistan, about 4.7 million people were classified as acutely food insecure in mid-2022, and the rise in food prices coupled with major crop damage due to the floods have exacerbated the situation. ADB’s support will help ensure wheat is transported to parts of the country facing shortages, and that food staples such as rice and pulses are affordable through subsidies and tax relief. It will also support more affordable fertilizers, seeds, and other agricultural inputs, helping to enhance crop yields.
In Uzbekistan, ADB’s support will help the government import wheat and exempt essential food products from value-added tax and customs duties. Government measures in the other countries also aim to boost agricultural production and ensure food is accessible.
Who will benefit from ADB’s support for social protection?
Generally, these are vulnerable groups such as pensioners and low-income families with children, but the actual beneficiaries depend on each government’s social assistance program.
Pakistan, for example, will be able to expand the number of poor households who receive cash transfers and improve access to education and health services. In the Kyrgyz Republic, pensioners and low-income families will be supported through increased pensions, allowances, and safety net programs. And in Uzbekistan, a direct subsidy to the Tashkent city public transport network will help mitigate rising fuel prices, making travel more affordable for nearly 3 million people including over 200,000 university students.
What about businesses and workers?
In Tajikistan measures include vocational training to reskill returning migrants and targeted concessional loans to small businesses such as those in agriculture. Small businesses and agricultural sector producers in the Kyrgyz Republic also stand to benefit from loan financing support to strengthen food security, reduce losses, and boost export capacity.
Source: Asian Development Bank