BAKU, Azerbaijan, April 11. Growth in Central Asia is forecast to more than halve from 5.1 percent in 2021 to 2 percent in 2022 due to tight economic linkages with the Russian economy, said the World Bank’s latest Economic Update for the region, Trend reports citing the report.
The bank said the severe recession in Russia is expected to dent remittances and trade flows with Central Asia, while sanctions on Russia pose challenges to financial intermediation.
“Although higher global commodity prices should help to buoy activity and fiscal balances in some Central Asian economies (Kazakhstan and Uzbekistan), weakness in Russia—a key trading partner—will be a drag on growth,” the report said.
The WB noted, the war is magnifying other vulnerabilities, including high debt distress risks in the Kyrgyz Republic and Tajikistan.
“Both countries are expected to experience a contraction in output this year, wider deficits, and sharp exchange rate devaluation. Remittances from Russia serve as a major source of income—accounting for over 10 percent of GDP in most countries in the subregion, and approaching 30 percent of GDP in the Kyrgyz Republic and Tajikistan. Following the annexation of Crimea in 2014, remittance outflows from Russia to Central Asia fell by more than 40 percent, weighing on economic activity and household incomes,” the report said.
The WB noted because the war dwarfs the earlier conflict in 2014–15, it is likely to trigger a significantly sharper and more enduring decline in remittances, derailing the post-pandemic recovery in Central Asia that had emerged in 2021.
“Indirect effects from sanctions could be significantly damaging where Russian banks play an important role, or where Russia is a critical partner in processing foreign transactions (Tajikistan and the Kyrgyz Republic). Consequently, Russia’s blockage from SWIFT, and the subsequent self-sanctioning measures adopted by the financial sector, could cascade into disruptions in trade, investment, and finance flows for those countries that rely on Russia to complete cross-border transactions,” the report said.
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