Covid-19 Impacted, 2020 GDP Growth In The Caucasus & Central Asia
Op/Ed by Chris Devonshire-Ellis
While Covid-19 has been inflicting pain on the economies of the Belt & Road Initiative the past few months, Governments and world banking institutions have also been taking stock to count up the fiscal damage. Money will need to be lent, in some cases, debt relief provided. It is obvious that 2020 is not going to be a banner year for GDP growth anywhere. Yet, unless there is another, more devastating wave of the coronavirus to come along, the good news is that while all economies will take a hit, they are unlikely in the Central Asian and Caucasus regions to cause permanent damage. The figures below provide the latest in Government and World Bank regional assessments for 2020.
Scraping Into Growth: According to the World Bank, Georgia will narrowly avoid a recession this year, with GDP growth at 0.1%, for 2020, down from an earlier forecast of 5%. Economists have said that the closing down of Georgia’s increasingly important tourism industry will have one of the largest and most significant impacts on its economy. The Georgian lari has lost around 15% of its value since the start of the global coronavirus pandemic, despite the Central Bank selling off hundreds of millions of dollars of its reserves to try to prop it up.
Recession: Armenia is likely to tip into a recession in 2020, according to Prime Minister Nikol Pashinyan, confirming data from the Central Bank that the coronavirus has hit the economy hard. The Central Bank had earlier said that GDP growth would be 0.7% this year, down on the previously predicted 7.6%. The IMF said at a briefing that Armenia’s GDP would shrink by 1.5% this year because of the impact of the coronavirus. It has also said that the government current account deficit will grow to 5% of GDP from 1%. The IMF agreed to lend Armenia an additional US$175 million to help it deal with the impact of the coronavirus, with the extra cash arriving with the US$105 million previously made available to Armenia for meeting various economic reform criteria. The EU will give €92 million to Armenia to help it deal with the coronavirus, however this includes a previous €51 million package announced earlier. The EU has said the funds should be used towards medical supplies, training and supporting small and medium-sized businesses.
Scraping Into Growth: Azerbaijan said last month that it has set aside US$1.7 billion to help the economy deal with the impact of the coronavirus pandemic. It also said that it had allocated US$252 million to deal with the social implications of the coronavirus and the lockdown. The World Bank said that low oil prices and the coronavirus means that Azerbaijan’s GDP will rise by just 0.2% this year, compared to an earlier prediction of 2.3%. The IMF had a more downbeat assessment of the impact of the coronavirus and the drop in oil prices. It said on April 15 that Azerbaijan’s economy will shrink by 2.2% this year.
Recession: Kazakh officials have said that previous economic growth predictions of 5% have been slashed to below zero because of the combined effect of the coronavirus and a collapse in oil prices. The Central Bank said that Kazakhstan would tip into a recession this year. The Kazakh tenge has lost around 15% of its value since the beginning of March because of the spread of the coronavirus and the deflation in oil prices. The Central Bank has said that it has spent US$2.3 billion propping up its currency. Tengizchevroil, the operator of the country’s biggest oil-producing field Tengiz said last month that it was a suspending a US$45 billion expansion project due to the situation. Roughly 2.7 million people in Kazakhstan have applied for a US$100/month payment from the state, government officials said on April 16, emergency financial aid to help ease the implications of a lockdown triggered to stem the spread of the coronavirus. The World Bank said that the Kazakh economy will shrink by 0.8% this year, wiping out a previous forecast of 5%.
Scraping Into Growth: Kyrgyzstan’s President Sooronbai Jeenbkov was the first world leader to ask the IMF for financial help in fighting the impact of the coronavirus. The IMF on March 27 approved a $127m grant. The Kyrgyz som has lost around 15% of its value. Economists have warned that the currency will lose more its value because of an impending recession in Russia linked to the coronavirus and a collapse in oil prices that will push Russian into a recession. Kyrgyzstan, like its neighbour Tajikistan, is reliant on remittance flows from its workforce in Russia to prop up its economy. This flow will now dry up. The World Bank has slashed its economic growth rate for Kyrgyzstan for 2020 to 0.4% from a previously projected 4.5% because of the coronavirus. Kyrgyz President Sooronbai Jeenbekov has asked China for debt relief. He said that this was needed to balance out the expected economic hit from the coronavirus.
Growth: Mongolia’s economic growth is expected to decline further in 2020 as measures taken in Mongolia and globally to contain the spread of COVID-19 are weighing on the supply and demand sides of the economy. Mining and services sectors have already taken a hit. However, unless the impact of COVID-19 is prolonged locally and globally, growth is expected to accelerate in the medium term, supported by stronger impetus in the mining sector, private consumption, and private investment.
Other risks to the outlook include political uncertainty with the 2020 election, climate shocks (drought/flooding, harsh winter), and limited progress on banking sector reforms and on addressing anti-money laundering issues. GDP growth can be expected to be about 1%.
Recession: Economists have said that a recession is looming in Russia because of the combined impact of the coronavirus and also a sharp drop in the value of oil, and have said that any Russian recession will also hit Tajikistan. Around 40% of Tajikistan’s GDP is earned from workers in Russia sending their cash back home. Thousands have already returned to Tajikistan because their jobs have disappeared. Prices have increased sharply in Tajikistan for staple goods. Reports said that potato prices have increased by 20% in a week. Tajikistan asked the IMF on April 15 for emergency funding to help it through the downturn triggered by the coronavirus. The Tajik economy is particularly prone to a downturn in Russia, and remittances from Russia make up around a third of its GDP. The EU has already pledged to give €48 million to Tajikistan to help it through the coronavirus economic crisis. Tajikistan’s government said last month that a fall in remittances from Russia, and to a lesser extent Kazakhstan, will wipe US$650m from its GDP in 2020, representing a fall of about 8.1%.
Scraping Into Growth: There is no data available for Turkmenistan, however it is obvious from reports that the local economy can be expected to take a hit. The government said that it was stopping freight from moving across the country during the coronavirus pandemic. Turkmenistan has closed its land borders with Iran, Uzbekistan and Afghanistan, and Turkmenistan Airlines suspended all its international services from April 13. Reporters Without Borders reported that talk of the coronavirus had been banned in Turkmenistan and that the government was deliberately creating an “information black hole”. The economy is built on large scale agricultural production in addition to oil and gas supplies, so it will not be quite as affected as more oil reliant economies.
Growth: Uzbekistan ‘s government said that it wants to borrow US$1.1 billion to support its economy deal with the impact of the coronavirus, and that it would borrow this cash on the international debt market. Fitch, the ratings agency, said that Uzbekistan’s economy has been relatively resilient to the shock of the spread of the coronavirus. It said that the resilience was built on the government’s “robust external and fiscal buffers, a diversified commodity export base and access to external official financing”. It said that GDP growth in 2020 in Uzbekistan would drop to 2% from an earlier prediction of 4.9%. Uzbekistan’s Central Bank cut its interest rate by 1 percentage point to 15%, its first interest rate move since 2018, to give businesses support to borrow money to offset the impact of the coronavirus. President Shavkat Mirziyoyev said on April 29 that he would allow vegetable and fruit trucks to travel between regions to keep the important agricultural sector alive. Key to these routes are the pass between the fertile Ferghana Valley and Tashkent and the roads between Samarkand and the remote Karakalpakstan in the west of the country.
As mentioned in the opening paragraph, the economic damage caused by Covid-19 appears to be regionally recoverable – assuming no secondary wave of infection appears. At present, the scenario across Central Eurasia points to a temporary, year long slowdown to slightly above or below zero growth. In short, productivity levels will remain the same as those achieved in 2019.
In our previous, related article, After The Coronavirus, The Asian Belt & Road Economic Recovery 2020-2021 we examined data from the Asian Development Bank as concerns impact and expected regional into 2021. That was summarized the table below:
In terms of China’s Belt & Road Initiative, there will be projects that will resume next year following the Covid-19 pandemic. Some media have suggested that China’s Belt & Road spend is down, and that the project is running out of steam. There is some truth to the headlines, however the reasoning is usually off. In Q1 2020, Chinese companies signed US$26.2 billion worth of new construction contracts in the 57 countries participating in the BRI. About 30% of that can be attributed to Central Asia and the Caucasus. Overall, that outbound investment figure is about 14% down on the same period in 2019.
However, huge SOE’s such as China Communications Construction (CCCC) saw a decrease of just 4% by actual value for new contracts and construction during the same time, meaning that the profitability element of BRI related projects has not been affected to such a degree. It is also true that new policy loans agreed by China are at a six year low, however this can also be attributed to the fact there there are still a large amount of agreed deliverables – some 283 projects – still to be met from the Belt Road Funding 2 programme that was agreed at the last Belt & Road Initiative global meeting in Beijing in April last year. The Covid-19 pandemic has also necessitated the restructuring of some of these loans to grants and debt relief, which is a reasonable move under the current circumstances. Overall, we can still expect 2021 to be on track for a resurgence in BRI related projects and for the Central Eurasian portion of that to rebound.
We are grateful to The Central Asian & South Caucasus Bulletin for their assistance with some of the economic data provided.
Silk Road Briefing is published by Dezan Shira & Associates. The firm was established in 1992 and has 28 offices throughout Asia, including the ASEAN countries of Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam, in addition to 12 offices across China and three in India. We assist foreign investors throughout the region. Please contact us at email@example.com or visit us at www.dezshira.com