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The International Monetary Fund has revised downward its forecast for growth in Central Asia and the former Soviet Union to account for dramatically lower oil prices and the shriveling Russian economy. The region’s poorest countries can expect sharply higher inflation.
The assessments are part of an economic update released January 21 in Washington.
For energy importers like Kyrgyzstan and Tajikistan, the IMF says, any gains from lower oil prices are overshadowed by weakness in Russia, Central Asia’s largest trade partner and the destination for millions of Central Asian labor migrants. The IMF projects Russia’s economy to shrink 3 percent this year due to “geopolitical tensions” (the Kremlin’s adventure in Ukraine) and sharply lower prices for its chief export, oil.
Already the Central Asian countries are reeling from the 45 percent drop in the value of the ruble against the dollar last year. Kyrgyzstan’s currency, the som, lost 17 percent against the dollar, even as the National Bank spent hundreds of millions of dollars defending it. Oil-exporter Kazakhstan devalued the tenge by 19 percent last February and another downward adjustment appears imminent. Turkmenistan’s manat dropped 19 percent on January 1.
Tajikistan spent over half its hard-currency reserves in 2014 defending the somoni, the Central Bank said this week. Yet the rumpled somoni still fell 11 percent and is bound to plunge further as remittances – which make up the equivalent of half of Tajikistan’s GDP – shrink.
Yet because the Central Asian currencies have fallen more slowly than the ruble, they have actually appreciated in real terms, says the IMF, putting a damper on exports. For example, GM Uzbekistan sold 38 percent fewer cars in Russia last year than in 2013, AzerNews reported this week.
With the prices of metals also broadly falling, gold exporters like Kyrgyzstan will see gains dampened.
In several parts of the report, data are missing from sections on Uzbekistan, appearing to support analysts’ convictions that the rosy statistics Tashkent touts are partially imagined.
Inflation is the response to all this glum news. The IMF expects inflation in Kyrgyzstan to jump from 7.5 percent in 2014 to 10.1 percent this year; in Tajikistan from 6.1 percent to 13.8 percent. Inflation is also expected to rise slightly in Uzbekistan, to 9.2 percent, and Turkmenistan, to 5.5 percent, while staying roughly level at 6.8 percent in Kazakhstan.
Throughout the region, banking systems are vulnerable to shocks because they are highly dollarized and contain other structural vulnerabilities. Non-performing loans make up around 30 percent of Kazakhstani banks’ credit portfolios. In Tajikistan, they jumped from 14.6 percent of the total last June to 22 percent by September (the most recent data available).
Energy exporters like Kazakhstan and Turkmenistan may have large reserves to spend as a buffer, as Kazakhstan has indicated it will, but they “would be well advised to maintain a cautious approach to fiscal policy, because a prolonged period of lower oil prices would ultimately require significant adjustment in most countries,” the IMF said.
It is oil importers, paradoxically, that will be worst hit by the falling oil price and concomitant downturn in Russia. Though Tajikistan is expected to gain about 2.5 percent of GDP thanks to lower oil prices, this will be more than offset by the effects of Russia’s crisis. Overall growth is expected to fall from 6.5 percent in 2014 to 4 percent. The IMF has revised upward its estimate of Kyrgyzstan’s fiscal deficit (where expenditures exceed revenue) by over 7 percent of GDP since October.
It is not only oil and Russia’s economy that haunt the region. The IMF expects slowing growth in China, which has splurged in Central Asia recently, also to pinch.
By David Trilling
Source - http://www.eurasianet.org/
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