As the economy sputters in Kazakhstan, the government has been forced into a review of the ambitious and costly infrastructure projects it had hoped would prove a tonic for growth.
Providing a fresh and sobering update, economy minister Yerbolat Dosayev told a meeting of the Cabinet on November 18 that it is now expected the economy will grow by 1.3 percent in 2015, down from the earlier forecast of 1.5 percent.
A spike in inflation is also expected as a result of the plunging value of the national currency, the tenge, Dosayev said in remarks quoted by Tengri News. The tenge has fallen by nearly 40 percent against the dollar since the move to a free float in August.
The inflation forecast has been increased to 8-10 percent from the previous expectation of 6-8 percent, Dosayev said.
Kazakhstan’s exports fell by 42 percent in the first nine months of this year, Total.kz quoted Dosayev as saying.
With President Nursultan Nazarbayev ordering belt-tightening to combat the revenue squeeze, Prime Minister Karim Masimov has ordered a review of the vast Nurly Zhol stimulus program, which was approved last year.
All regional governors are to review projects planned under the Nurly Zhol (Bright Path) strategy, Kazinform reported on November 23. Aset Isekeshev, the minister for industry and development, is to report back to the Cabinet with revised plans by March 1.
Tajikistan is the latest country in Central Asia to get a bad news update on its economy, although probably to nobody’s great surprise.
The World Bank said on November 17, during its latest bi-annual update on the state of the country’s economy, that gross domestic product growth is set to slow to 4.2 percent this year.
That dip in performance is down to the widely reported decrease in remittances from Russia, as well as reduced demand and prices for Tajikistan’s main export commodities — aluminum and cotton.
“Remittances are the second largest source of household income in Tajikistan, so this sharp decline in remittances is limiting household consumption and is putting the sustainability of recent gains in poverty reduction at risk,” World Bank country manager Patricia Veevers-Carter said in a statement.
The figure offered for this year marks a decline from the 6.7 percent growth registered in 2014, but is still higher than the deep slump to 3.8 percent growth seen in 2009, when the world was in the throes of a financial meltdown. But the immediate post-crash recovery seen at that time is unlikely to be repeated as swiftly since Russia’s economy is set to remain in the doldrums for some time to come at current estimates.
The World Bank suggested that Tajikistan’s way out of crisis will be to support job creation in the private sector, improve workforce skills and enable access to labor among the most vulnerable.
The country has the region’s most parlous foreign exchange reserves situation, chronically loss-making state enterprises and a dismal banking sector, which is compounding matters even further.
In a signal not all is well, Uzbekistan has posted a slightly below-average economic growth forecast for 2016.
And on the black market — typically a more reliable barometer of economic well-being than the generously massaged government statistics — the national currency, the sum, sank to new lows of 6,000 against the dollar on November 12.
Government figures on predicted gross domestic product (GDP) growth for next year, as reported by the UzA state news agency, suggest the authorities are gradually acknowledging Uzbekistan is not immune from the economic shocks roiling Central Asia.
According to a national budget for 2016 passed by Uzbekistan’s parliament on November 11, GDP will grow by 7.8 percent.
The number ostensibly looks healthy for a region suffering the consequences of low commodity prices and from the repercussions of slowdowns in Russia and China, both major trading partners and investors. To make matters worse, remittances from migrant laborers abroad have been falling steadily, by 14 percent in 2014 and 45 percent in the first quarter of 2015, compared to the same period the previous years, according to the International Monetary Fund (IMF).
But Tashkent has for years stubbornly predicted 8 percent growth and then proceeded to meet its targets precisely. Admission of anything even a whisker below is striking and shows the government is facing up to some of the economic challenges that will translate into slower growth.
Uzbekistan is also forecasting a budget deficit — of 1 percent — for the first time in years. It generally posts a surplus.
The government is sticking to its guns for this year at least and has reported 8 percent growth in the economy over the first three quarters.
Turkmenistan is set to experience a notable slowdown in economic growth in the coming two years because of falling revenues from oil and gas sales, the International Monetary Fund said in a statement on November 10.
Ashgabat’s rosy self-assessments have long been echoed by reputable international bodies like the IMF, so the warning of an imminent change in fortunes could ring alarm bells.
The judgement followed a weeklong visit to Turkmenistan by the IMF, which was in the country for its regular assessment of economic developments and challenges ahead.
As is typical for the IMF, the statement began with the good news.
“Turkmenistan has experienced strong output growth over the past decade. The authorities used a period of high prices for oil and natural gas to more than double per capita income through well-planned development of the hydro-carbon sector,” the IMF mission chief Björn Rother said in the statement.
Turkmenistan has capitalized on its energy wealth to build up healthy reserves, which the IMF said allowed for 30 months of import cover.
Unsurprisingly, however, the economy lacks diversity and has a weak private sector, which is needed to create high-value jobs.
Those internal problems have been compounded by international developments.
“Since 2014, three shocks have led to a worsened external environment for Central Asian countries and will likely have long-lasting effects. Oil and natural gas prices have plummeted and are expected to stay at low levels over the longer term, economic activity in major trading partners including Russia and China has been slowing, and pressures on currencies have intensified,” Rother said.
The era of cheap bread is coming to a close in Kazakhstan as the authorities prepare to scale back subsidies amid efforts to contain government spending.
Agriculture Minister Asylkhan Mamytbekov told parliament on November 9 that the government will lift price controls on the most basic type of bread — a subsidized loaf that is favored by the hardest-up.
As the minister explained in remarks broadcast by the private KTK TV channel bread subsidies not only put a burden on the state coffers but are also socially unjust since they are available to the rich and poor alike.
The authorities have pledged instead to provide targeted benefits to the needy in order to ensure that they do not go hungry. That will place the onus on those that normally rely on cheap bread to work out whether they qualify for assistance and to then go through the bureaucratic procedure of applying for that help.
No plan has been put in place for the transition and there are no plans to let bread prices rise until a new mechanism is put in place. One proposal under review involves handing out bread coupons.
The price of subsidized bread is set by the local authorities and is different in each region. The most expensive bread is on sale in Astana, at 65 tenge (around $0.20) per loaf, and Almaty, at 62 tenge. The nationwide average is 52 tenge (or $0.17), according to state newspaper Kazakhstanskaya Pravda.
By contrast, the price of non-subsidized bread varies wildly depending on location, outlet and quality, and can range from around 80 tenge per loaf to upward of 300 tenge.
Uzbekistan is on a mission to woo foreign investors, touting a massive privatization drive that will see the state relinquish some control over an economy in which it retains a heavy hand.
However, investors may be leery of channeling their cash into a country with a reputation for seizing foreign assets without recompense.
Uzbekistan is putting up stakes for sale in a whopping 1,247 enterprises, First Deputy Prime Minister Rustam Azimov said at an investment forum in Tashkent on November 6, as reported by the UzA state news agency.
Foreign investors are being offered the opportunity to snap up state-owned stakes in 68 companies and bid at auctions against local investors for another 667 enterprises, Azimov said.
They will also have the chance to take on 512 (evidently loss-making) businesses for free, if they take on investment obligations.
Kazakhstan’s embattled currency has continued its downward slide to hit fresh lows after the dismissal of the central bank chief this week failed to restore market confidence in the tenge.
The latest drop came after the National Bank of Kazakhstan announced late on November 5 that it would stop propping up the tenge and let market forces decide the rate.
The currency fell to 307 to the dollar on November 6, a significant but not precipitous 2.5 percent fall on the previous day.
However, the tenge has fallen by 10 percent overall in the five days since President Nursultan Nazarbayev fired Kayrat Kelimbetov as chairman of the National Bank and replaced him with Daniyar Akishev — a move Nazarbayev said aimed to restore confidence in the ailing currency.
The tenge has now lost 64 percent of its value against the dollar since August, when the National Bank abandoned its policy of maintaining it in a managed corridor — a strategy Kelimbetov inherited from his predecessor, Georgiy Marchenko.
Under pressure from external forces ranging from the depreciation of Russia’s ruble to the fall in global oil prices, the tenge fell sharply in mid-September, prompting the National Bank to step in again to prop it up.
As of November 5, it has once more abandoned that policy, the central bank said in a statement, and decided on “the minimization of its participation in the currency market” in order to preserve hard currency reserves.
Kazakhstan’s President Nursultan Nazarbayev has dismissed the head of the central bank as the national currency continues to lose value against the dollar.
Nazarbayev dismissed Kayrat Kelimbetov, who has presided over two major currency devaluations during his two years as chairman of the National Bank, on November 2 and replaced him with Daniyar Akishev, a presidential adviser and a former deputy chairman of the central bank.
“Confidence in the [central] bank and in the national currency, the tenge, has been reduced, and this cannot be permitted,” Nazarbayev told parliament in remarks quoted by his office. “A shortage of tenge liquidity is being felt in the country, and the volume of credit to the economy has been reduced.”
The move did not appear to do anything to restore the confidence of the market in the tenge, however. The currency fell below 280 to the dollar in trading on the Kazakhstan Stock Exchange on November 2 for the first time since mid-September, to close at 281.13.
The tenge has lost around 50 percent of its value since the National Bank abandoned its policy of maintaining the tenge in a managed corridor — a strategy Kelimbetov inherited from his predecessor, Georgiy Marchenko.
Japan’s Prime Minister Shinzo Abe embarked on his historic days-long tour of the five countries of Central Asia with a small army of businessmen, banking officials and academics in tow.
This is the first time a Japanese leader has taken all the region’s countries, as well as Mongolia, in a single visit — a clear signal of intent to expand Tokyo’s presence in an area increasingly dominated by the rival economy of China.
Energy was at the top of Abe’s agenda, as suggested by the sealing of $18 billion in deals in Turkmenistan on October 23.
“We have signed documents on a range of projects in the chemical industry and for the construction of electrical generation plants for a total value of $18 billion,” Abe told reporters in Ashgabat.
Those projects include development on the huge Galkynysh natural gas field, building of power stations in the east of the country and polyethylene and propylene production plants, according to Turkmen officials.
The agreements will see Japanese companies like JGC Corporation, Mitsubishi, Chiyoda Corporation and Sojitz Corporation collective investing around $10 billion in Galkynysh, which is estimated to possibly hold 21.2 trillion cubic meters of gas.
Meanwhile, Sumimoto Corporation has received a $300 million order to complete gas-fired power plants with a 400 Megawatt capacity.
Large dollars figures were also flung about with abandon on October 25 in Uzbekistan, where the two countries signed off on $8.5 billion worth of deal.
According to Uzbekistan’s presidential website, Japanese investment will be primarily targeted at modernization of energy and transportation infrastructure, developing mineral resources, automobile construction, the oil, gas and chemical industries, and telecommunications.
Central Asia faces a bleak economic outlook and policy-makers should prepare for the long haul as the shocks buffeting the region are likely to be enduring, the International Monetary Fund has said.
In Central Asia, “the situation and outlook are worse than for the world economy as a whole,” Juha Kahkonen, deputy director of the IMF’s Middle East and Central Asia Department, said at a briefing in Almaty on October 23. “This is because the region has been hit by three major external shocks.”
The IMF identifies the wave of external shocks as the fall in global prices for the commodities that Central Asia exports, which range from oil and gas to metals, repercussions from the recession-hit Russian economy, which the IMF expects to contract by 3.8 percent this year, and the shifts in major global exchange rates pressuring regional currencies.
Added to all those woes is the slowdown in China, a major trading partner and investor for the Central Asian states.
The IMF says that as a result, the region will experience slower growth than it has become accustomed to in recent years.
Kazakhstan — which is suffering from low oil and metals prices and struggling with pressure on its currency that has seen the tenge lose around half of its value since the central bank moved to a free float in August — is expected to see growth of just 1.5 percent this year, according to both IMF and government forecasts. That is down from 4.3 percent last year.