EBRD lowers growth outlook for Central Asia

By bne IntelliNews May 14, 2015

bne IntelliNews -



The European Bank for Reconstruction and Development (EBRD) lowered its economic growth estimates for Central Asian countries to an average 2015 rate of 3.7%, from a previous estimate (dating back to January) of 3.9%, the bank says in its latest Regional Economics Prospects report.

“Growth in Central Asia is expected to decelerate significantly on account of the region’s strong economic ties with Russia,” the report reads. “In addition, growth prospects in Kazakhstan and Turkmenistan are negatively affected by lower commodity prices.”

The Russian economic woes have spilled over to Central Asian economies mostly through the remittance channel, with inward remittances from migrants working in Russia decreasing at an “alarming” rate, the EBRD notes.

“The decline in remittances reflects not only the weaker rouble, but also return of a significant number of migrants to their home countries. For instance, hundreds of thousands of migrant workers are reported to have returned to Tajikistan and Uzbekistan. Returns may be significant in the Kyrgyz Republic, too (including from Kazakhstan where growth has also slowed following the oil price decline). Migration on this scale poses the significant challenge of how to absorb the returning workers into the domestic economy.”

Lower remittance inflows from Russia, compounded by weaker export demand and investment inflows, is putting pressure on Central Asian currencies, which, in turn, leads to a “significant acceleration of inflation in countries like Kyrgyzstan, which heavily depends on imports to meet its internal demand.


Growth in Kazakhstan, the largest economy and oil producer in the region, is projected to slow to 1.5% in 2015, from 4.3% in 2014, the EBRD estimates. “Growth in Kazakhstan is sharply lower, due to the collapse of the oil price, and to a much lesser extent, negative effect of influx of cheap imports from Russia on domestic industries and spillovers of negative investment sentiment from the Russia/Ukraine crisis,” the EBRD report reads.

The $9bn Nurly Zhol public investment programme announced by President Nursultan Nazarbayev in November “should provide some material boost to growth”, the report says. On the other hand, pressure from cheap imports from Russia following the ruble collapse at the end of 2014 has hit some regions and sectors disproportionately. Therefore, some “material increase in new non-performing loans (NPLs)” and “social pressure can be expected”, the EBRD believes.

Taking the current cycle and imbalances into account, the tenge “is widely expected to depreciate during 2015”, the report adds.


GDP growth in Kyrgyzstan is expected to decline to 3.0% in 2015 from 3.6% in 2014, according to the latest EBRD forecasts.

“The slowdown reflects sharply lower remittances from Russia [which fell by 1% y/y in 2014 and should fall further in 2015] and more difficult export environment due to recession, depreciation of the Russian rouble and sharply slower growth in Kazakhstan, the country’s main trading partner and a source of remittances,” the report reads.

The Kyrgyz authorities will likely face increasing “fiscal and social pressures”, reflecting legacy from lower remittances and returning migrants in 2015, as well as the negative effects of continued recession in Russia and sluggish growth in Kazakhstan in 2016.

On the other hand, increased investment carried out using financing provided by Russia and Kazakhstan as part of the accession to the Eurasian Economic Union (EEU) will help “partially mitigate” negative impact of external factors, the report adds.


Uzbekistan’s GDP growth is expected to decline to 7% in 2015, from 8.1% in 2014, “reflecting a sharp drop in remittances from Russia [which fell by 10% y/y in 2014] and slowdown of economies of some of the main trading partners”, the EBRD says.

The som depreciated significantly in 2014 and in the first months of 2015, with the “street course” of the exchange rate falling to over 4,200 soms to the dollar, from around 3,000 soms to the dollar back in September, widening the fork with the official exchange rate provided by the Central Bank of Uzbekistan, which is stuck at 2,522 soms per dollar. The local currency “is expected to weaken further in the course of 2015,” the EBRD says.


In Turkmenistan, “officially recorded GDP growth is expected to be dented only slightly, notwithstanding the commodity price decline”, the report reads.

Growth will decelerate to 9.5% in 2015 from 10.3% in 2014, reflecting lower oil and gas prices, and the economic slowdown in the trading partners in the region.


In Tajikistan, GDP growth is expected to decline to 3.8% in 2015, from 6.7% in 2014, “reflecting a sharp contraction in remittances from Russia [in the last quarter of 2014, remittances from Russia dropped by 27% y/y in US dollar terms] as well as reported return of migrants”, the EBRD report reads.

“Overall, reduction in remittances, returning migrants and overall weakness of the economies heighten social security risks in the country,” it says.

Returning migrants are likely to end up unemployed and tend to join opposition movements, often characterized by a strong Islamic component like the Islamic Renaissance Party of Tajikistan, if not the more extremist movements like Islamic State. Government authorities are now cracking down on Islamic affiliation through a series of measures aimed at delegitimizing Islamic symbols or habits such as the hijab worn by local women or Islamic names, risking polarising even further Tajik society.  


Growth in Mongolia “is likely to decelerate significantly this year and next on account of lower foreign direct investment, continued delays with the second phase of Oyu Tolgoi, a large mining project, China’s weaker demand for commodities, as well as policy tightening”, the EBRD report reads.

GDP growth is expected at 3.8% in both 2016 and 2017, down from 6.7% in 2015, the EBRD forecasts. 

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