BAKU, Azerbaijan, October 4. Growth in Central Asia is projected to reach 3.7 percent in 2022—1.3 percentage points above the June 2022 projections—as higher global commodity prices have helped to buoy economic activity and fiscal balances in some Central Asian economies (Kazakhstan and Uzbekistan), the World Bank report said, Trend reports.
Activity in Central Asia has also benefited from better external demand than envisioned, reflecting a shallower-than-expected recession in Russia. Although it is expected that output in the Kyrgyz Republic and Tajikistan will substantially exceed the June 2022 projections—owing to stronger-than-expected remittances from Russia—renewed border tensions between the two countries pose considerable downside risks.
Growth is expected to increase moderately to 3.9 percent in 2023 and further to 4.3 percent in 2024, with downside risks largely emanating from a deeper contraction in Russia.
Inflation remains elevated despite monetary policy tightening—likely reflecting a strong push from external factors, earlier currency depreciation, and weak monetary policy transmission. As a result of inflationary pressures, two-thirds of the firms surveyed in the Kyrgyz Republic, Tajikistan, and Uzbekistan have experienced increasing costs, with many struggling financially as a result of reduced profitability and greater difficulty accessing new credit financing (World Bank 2022f).
However, the monetary policy stance in Central Asia has diverged somewhat, with central banks in Kazakhstan and the Kyrgyz Republic hiking rates by 50 and 200 basis points, respectively, as of August 2022. In contrast, the Central Bank of the Republic of Uzbekistan cut interest rates by 100 basis points in July 2022.
Long-term growth and investment prospects could be dampened by stability concerns, as escalating tensions, political instability, and social unrest erode confidence. Central Asia also faces the difficult challenge of reducing its heavy reliance on fossil fuels, with recent carbon emission reduction, or carbon neutrality, initiatives announced in Kazakhstan, Tajikistan, and Uzbekistan.
Given weak administrative and investment capacity, governments will need to lean on the private sector and green financing to help facilitate the region’s climate goals.
Finally, digitalization efforts could help significantly to improve potential growth and productivity, as nearly half of the population in Central Asia remains not digitally connected (World Bank 2022e).