ANALYSIS - Challenges and opportunities for Central Asian economies in 2022

*The writer is a UK-based analyst and has worked with universities in three Central Asian countries.

LONDON

The economic outlook of the Central Asian states for 2022 is expected to be guided by reviewing last year's progress, proposing recipes for the recovery as well proposing a roadmap to advance economies over the year.

In Kazakhstan, Turkmenistan, and, to a lesser extent, Uzbekistan the rise in commodity prices has proved a boon for exporters of oil, gas, and metals. At the same time, commodity importers such as Kyrgyzstan and Tajikistan are benefiting from increased demand for migrant workers which led to increased remittance flows from Russia.

Analysts at the European Bank for Reconstruction and Development (EBRD) have noted a rise in consumer price inflation in all Central Asian countries. They have also warned that high liquidity is driving more credit and higher asset prices across the region.

To make a recovery with the least disruptions, the three necessary measures are to gradually cut spending, reduce the budget deficit and withdraw additional liquidity throughout 2022, said Erkik Livin, an economist at the EBRD.

At the same time, EBRD has cautioned about some impending threats in the future including high commodity and energy prices, deteriorating labor markets, and supply chain disruptions. Furthermore, weakening local currencies in several Central Asian states have FUELLED waves of inflation.

While Central Asia may be geographically remote, its economic growth is nevertheless closely intertwined with the demand from several external centers of global demand, observers a recently published report by the Organization for Economic Cooperation and Development (OECD).

Requires diversification

For ensuring long-term economic growth, the report has sought to foster further diversification of economic activity and carry out long-overdue reforms of competition policy frameworks and the governance of state-owned enterprises.

While economies recover, the experts believe the growth in the region is expected to be moderate in 2022 at the rate of 3.8%. At the same time, forecasts are characterized by a high degree of uncertainty due to risks associated with the future track of the spread of COVID-19, the possibility of a deterioration in the external economic situation, and a slowdown in economic growth in the countries of their trading partners.

According to UN experts, the coronavirus hit these countries hard in the form of capital outflows. A rise in the cost of loans, depreciation of currencies, and loss of export earnings due to the collapse of commodity prices are also observed.

One of the important financial sources for the Central Asian states is remittances of laborers working outside primarily in Russia. For Uzbekistan, Kyrgyzstan, and Tajikistan remittances also come from Kazakhstan and for Turkmenistan, a large number of remittances come from Turkey.

Devaluation of local currencies, rising prices and inflation, business stagnation, and rising unemployment threaten all Central Asian economies. All these factors can be the basis for the growth of social tension, warns Kazakh commentator Dosym Satpaev.

Evgeny Vinokurov, chief economist at the Eurasian Development Bank has pointed out the risks of instability associated with Afghanistan and advocates politico-military cooperation as critically important for strengthening stability and minimizing risks.

He claimed that Central Asia's strategic importance for the Russian economy is also growing, both in terms of exports and investments and in the context of the development of the West-East and North-South transport corridor. The possibilities of cooperation between the states of the region and Russian business have not been utilized optimally yet. The potential for building transit corridors to South and West Asia is becoming clearer.

Specific challenges

All Central Asian states are eager to find out the most appropriate recipes to steer the country towards a recovery from the recession caused by the COVID-19 pandemic. Each country faces a specific set of challenges to address. At the same time, they also face several hurdles to be overcome.

The first response to the crisis has been an increasing trend towards regional cooperation, which could lead to the development of a regional, inclusive, and mutually beneficial recovery agenda.

More than ever before, the Central Asian states need sustainable and more resilient growth models. Despite attempts for reforms across the region in the years before the pandemic, several factors which contributed to a loss of momentum loom large such as underdeveloped private sectors, serious defects in the business climate, overreliance on exports of primary commodities, and migrant labor, and weak competition.

Experts at OECD have mentioned three-fold challenges confronting the Central Asian region, which need to be addressed to create the foundations for a sustainable and inclusive economic trajectory. The first challenge is to ensure that firms and workers emerge strongly from the ongoing crisis. This will require better and targeted support and market discipline.

The second challenge is in the form of structural weaknesses, apparent well before the crisis and have compounded the impact of COVID-19. This requires improving the domestic business climate to create conditions that are more favorable for entrepreneurship, investment, and innovation.

The third challenge is that policymakers must develop policies that could maximize the competitiveness of Central Asia in the future global economy as the world moves towards low-carbon transition and digital transformation.

Managing these challenges is essential and critical to ensuring productivity growth, job creation, and investment.

**Opinions expressed in this article are the author's own and do not necessarily reflect the editorial policy of the Anadolu Agency.