Clare Nuttall in Bucharest -
The Russian economic slowdown is taking its toll on the former Soviet countries of Central Asia and the Caucasus, which have seen the first drop in remittance flows from Russia since 2009.
The European Bank for Reconstruction and Development (EBRD) says that Uzbekistan and Moldova were the worst affected by the drop in remittances recorded in the first quarter of 2014. Other countries whose economies are highly exposed to Russia’s have also suffered. In Tajikistan, remittances - mainly from Russia - make up 49% of GDP, while they contribute 29% of Kyrgyzstan’s GDP.
“Any further dampening of growth in Russia from the introduction of new sanctions would increase the effect on growth in this region,” according to the EBRD.
Despite this, GDP growth remained “quite strong” in Central Asia, driven by major extractive industry projects, although the region’s largest economy Kazakhstan had been held back by delays, in particular at the giant Kashagan oilfield.
Overall, economies in Central Asia are expected to grow by 6% this year (down from an earlier forecast of 6.2%). The Eastern Europe region is expected to contract by 0.5%, but the forecast average is pulled down by Ukraine, while forecasts for the three Caucasian economies, Belarus and Moldova are all in positive figures.
Some countries in the region may yet benefit from the sanctions imposed by Russia on Western producers of food and agricultural products. The “impact [of the sanctions] could be offset, particularly in Kazakhstan, by increased exports to Russia,” EBRD analysts say.
However, the biggest change within the region is not directly connected to the Russian slowdown. In Mongolia, the EBRD has slashed its 2014 growth forecast from 12.5% in May 2014 to just 5%. This dramatic deceleration is due to lower prices of key export commodities, delays to the second phase of the Oyu Tolgoi mining project and weaker investment activity, the EBRD says.
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