(EnergyAsia, March 29, 2017, Wednesday) — Despite a near doubling in crude oil prices over the past year, the resources-dependent economies of Central Asia are nowhere near a full recovery and will continue to struggle in the near term, said the World Bank and Asian Development Bank (ADB).
In separate reports, the two agencies said the region’s eight countries have just come off from probably their worst economic slump since the collapse of the former Soviet Union in the early 1990s. Collectively, the economies of Armenia, Azerbaijan, Georgia, Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan and Uzbekistan grew by 1.5% last year, down sharply from 3% in 2015 and 5.1% in 2014.
The region is dominated by energy-rich Kazakhstan and Azerbaijan, which together account for 65% of its US$442-billion gross domestic product (GDP), according to the World Bank. They have also been its worst performers and will remain as Central Asia’s biggest deadweights in the coming years.
Central Asia’s Economies: Growth and Size.
Source: World Bank
2014 2015 2016 2017 2018 2019 Size in US$m, 2015
Armenia 3.6 3.0 2.4 2.7 3.0 3.2 10,882
Azerbaijan 2.0 1.1 -3.0 1.2 2.3 2.3 75,198
Georgia 4.6 2.8 3.4 5.2 5.3 5.0 16,530
Kazakhstan 4.2 1.2 0.9 2.2 3.7 4.0 212,248
Kyrgyz Rep 4.0 3.5 2.2 3.0 3.7 4.9 7,404
Tajikistan 6.7 6.0 6.0 4.5 5.2 4.5 9,242
Turkmenistan 10.3 6.5 6.2 6.5 6.8 7.0 47,932
Uzbekistan 8.1 8.0 7.3 7.4 7.4 7.4 62,644
Azerbaijan’s economy shrank by 3% last year while Kazakhstan’s managed a meager 1.2% expansion, making them the region’s two worst performers. Turkmenistan and Uzbekistan, Central Asia’s two other energy-producing countries, reported robust growth of 6.2% and 7.3% respectively.
Combined, the four energy-surplus countries account for just over 90% of Central Asia’s GDP.
Of the region’s four energy-deficit countries, Georgia has the largest economy that is only a third of the size of Turkmenistan’s.
Despite breaking from the former Soviet Union in 1991, Central Asia’s economies remain dependent on Russia, which remains a major market and employer of workers from the region.
“Growth in the subregion’s energy exporters—Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan—suffers as lower revenues from hydrocarbon exports squeeze public budgets, leaving no room for significant increases in public investment,” said the ADB.
These four countries traditionally channel their oil and gas revenues into public investment, mostly construction, that have contributed to their growth.
“While hydrocarbon exports remained virtually unchanged by volume during 2011–2015, averaging 3.1 million b/d, the average Brent crude oil price fell from 2014 to 2015 by 47%, and the World Bank’s natural gas price index by 34%,” said the ADB.
As a result, Azerbaijan’s state capital expenditure fell from 10.5% in 2014 of GDP to 9.2% in 2015 while Kazakhstan’s was down from 2.6% to 2% and Turkmenistan’s was off by 1.1 percentage points to 6.6%.
These cuts in investment have slashed the medium-term growth prospects of these hydrocarbon-rich countries, said the ADB.
Their governments have adjusted their budgets to accommodate the effects of sustained weak oil and gas prices by reducing public investment and allowing for higher budget deficits to maintain social expenditures.
The Kazakhstan government raised its 2016 expenditure by 7.8% over the original budget while Turkmenistan’s widened its fiscal deficit to 2% of GDP to boost social spending. The Uzbek government implemented development programmes worth US$1.9 billion in the first half of last year to boost economic growth.
Central Asia’s energy importers have much l
The share of worker remittances in the GDP of energy-importing Armenia, Georgia and Tajikistan has been declining. Agriculture and construction partly fuelled by public investment has helped growth in these countries and the Kyrgyz Republic.
With social and domestic spendings largely compensating for the lack of growth in oil and gas export revenues, Central Asia faces years of strong inflation.
The ADB estimates the region’s inflation rate last year at 11.5% due largely to sharp price increases in Kazakhstan and Azerbaijan.
Faced with worsening fiscal and current account deficits, both countries sharply devalued their currencies last year to set off a round of inflation. The Azerbaijan manat lost 38% of its value against the US dollar while the Kazakh tenge fell by 42%.
Weak food and stable fuel prices will help moderate the region’s inflation rate to 6.4% for 2017.