Astana is slashing growth expectations and cutting its budget revenue forecasts as Kazakhstan eyes its gloomiest economic outlook for years, sources in parliament report.
The government intends to cut this year’s GDP growth forecast to 1.5 percent (against its previous forecast of 4.8 percent) and reduce budget spending by a whopping $7 billion, sources in the ruling Nur Otan party told Vlast.kz following a presentation to parliament by National Economy Minister Yerbolat Dosayev on January 16.
Such growth would represent a significant slowdown on last year’s 4.3 percent, and would be Kazakhstan’s lowest since 2009, the height of the global credit crunch.
As President Nursultan Nazarbayev acknowledged last week, Kazakhstan is facing a litany of economic problems, from low prices for oil and metallurgical output to the knock-on effect of Western sanctions against Russia and pressures on the tenge as a result of the ruble’s precipitous fall.
The government is cutting the oil price on which its budget is based from $80 to $50 in its revised budget (which will have to be approved by parliament), Dosayev confirmed, after global prices dipped below $50 this month.
Russia's ruble became worth less than a Kyrgyz som for the first time on December 12. (xe.com)
The Russian ruble crossed a psychological barrier in Kyrgyzstan on December 12, becoming worth less than the som for the first time. Across Central Asia, the ruble’s slide is pushing local currencies to new lows. But they can’t seem to fall fast enough to keep a competitive advantage.
Central Asian economies are deeply dependent on Russia as an export market. When the ruble is weak, Central Asia’s exports are relatively expensive for Russian consumers. So, weaker local currencies benefit the region’s producers. Of course falling currencies also mean inflation, as the price of imported goods from outside the region shoots up—as does the cost of servicing foreign debt. The World Bank projects inflation in Kyrgyzstan this year to top 10 percent. In Tajikistan, food prices rose 10.5 percent in November alone, according to a Deutsche Welle report.
In terms of statistics, unless they are the rosy government sort, Tajikistan often appears to be on the edge of an abyss. But somehow the poorest country to emerge from the Soviet Union chugs on.
So a grim World Bank report out this week probably does not indicate imminent collapse. But it is unnerving to see that almost every macroeconomic indicator suggests trouble ahead. And Tajikistan’s latest predicament coincides with a push from Moscow to join Russia’s new Eurasian Economic Union.
Tajikistan’s economic dependence on Russia is, as economists have long warned, a liability—and not only because it gives Moscow enormous influence. “The possible spillover effect from the Russian slowdown onto the Tajikistan economy is estimated to be one of the largest in the [Europe and Central Asia] region: a 1 percentage point reduction in the growth of Russia’s GDP would reduce growth in Tajikistan by the same amount,” says the October 27 report, “Tajikistan: Moderated Growth, Heightened Risk.”
For starters, over a million Tajiks, or about one-half of working-age Tajik men, labor in Russia, usually in menial jobs. Their transfers are worth about half of Tajikistan’s GNP, making it the most remittance-dependent country in the world.
But as the Kremlin sacrifices Russia’s economy for its Ukraine policy, which has caused a new low in relations with the West, the resulting downturn is hurting the ruble and Tajikistan’s economy at large. An ailing ruble buys fewer dollars to send home.
From the EBRD report: “The chart shows that Belarus, Armenia and Tajikistan (the latter predominantly through remittance flows) have the highest overall economic exposure to Russia. Such exposures are also significant for the Kyrgyz Republic, Moldova and Ukraine.”
As Russia’s economy goes, Central Asia’s follows. So it is no surprise that the current downward drift in Russia will hurt the region, potentially for years to come. Remittance-dependent countries like Kyrgyzstan and Tajikistan should be especially worried, the European Bank for Reconstruction and Development, a multilateral lender, says in a new report.
In its September regional assessment, the EBRD forecasts growth in Russia will come to a “standstill” in the coming months. Already pronounced, Russia’s economic slump is being exacerbated by the war in Ukraine and Western sanctions. The EBRD said Central Asia, and formerly communist countries more broadly, can expect “significant spill-over effects.”
New sanctions by the EU and U.S., which will dampen growth in Russia, “will negatively affect growth in the Central Asian countries.”
As in 2009, during the financial crisis, migrants and their dependents back home will be the first to feel the pain. Remittances from Russia to Central Asia fell in the first quarter of 2014 compared with the previous year, “for the first time since 2009, primarily due to the slowdown in Russia,” the EBRD said. “Particularly vulnerable are [the] Kyrgyz Republic and Tajikistan, where even a small drop in remittances from Russia is substantive, as remittances make up 29 percent and 49 percent of GDP respectively.”
A fall in remittances “may significantly dampen consumer demand in lower-income countries in the region.”
Chevrolet is having a hard time satisfying demand in Uzbekistan.
Though the country's flagship industrial enterprise, a General Motors plant, recently produced its two-millionth unit since opening in 1996, that’s not enough to go around in Uzbekistan, where the economy is tightly controlled and high tariffs push imports out of most people’s reach. Adding to the shortages, many of the cars, produced under a joint venture with the hard currency-strapped Uzbek government, are sold in Russia and Kazakhstan.
So GM, which took the joint venture over from Daewoo in 2008, enjoys something of a monopoly in the country and yet fails to satisfy local demand.
Demand spilled into chaos this week when potential buyers of the Chevrolet Matiz, Nexia and Cobalt stampeded a dealership in Tashkent, a video shared by Olam.uz (and above on YouTube) purports to show.
Acquiring a car in Uzbekistan is not a simple process: Much like in the era of Soviet shortages, buyers must queue and leave an 85-percent deposit to get on a list. At that Tashkent cash collection point (oh yeah, and the cars, in practice, can only be purchased for dollars) on August 7, fears of yet another shortage lead to the chaos (and the bloodcurdling screaming), reported Olam.uz.
Though it’s unclear if anything other than Tashkent’s image was hurt, the Uzbek government may wish to think if exporting its limited supply of cars (and gas…) is worth these kinds of scenes.
Making sense of Uzbek economic figures is a difficult task. With no way to verify official data, observers must parse the limited information Tashkent drips out. And those official stats often appear more like a wish than reality.
So take the following in that spirit.
Citing parliamentary budget committee papers, the Novyy Vek newspaper reports that Tashkent posted a budget surplus worth 0.4 percent of GDP in the period from January to March this year.
The surplus stood at 86.7 billion sums ($41.6 million at the official exchange rate) in the first quarter of 2013, Novyy Vek said on June 4. Budget revenue was $2.58 billion (24.8 percent of the first quarter GDP) and expenditure totaled $2.53 billion (24.4 percent). The newspaper did not provide budget figures for 2012, but said the 2013 national budget was approved with a deficit of $575.5 million, or 1 percent of GDP.
"The main factors increasing the state budget's revenue … are the expanding tax basis and increasing tax collection," Novyy Vek reported, citing the parliamentary documents.
While local income and corporate tax rates have stayed largely unchanged over the past year, Tashkent increased the petrol tax by 20 percent in 2013 and has slapped unpopular new excise and customs duties on a wide range of imports, sparking inflation fears.
With foreign trade already under tight government control, Uzbekistan increased customs duties on a number of foodstuff imports from May 1.
The Novyy Vek newspaper reports that, according to a government resolution signed by President Islam Karimov last week, the import duty on meat products rose from 50 percent previously to 70 percent; on pasta it rose from 20 to 30 percent.
Tashkent, a major supplier of produce to CIS countries, slapped a 50 percent duty on imports of fruit and vegetables (up from 30 percent) and a duty ranging from 10 to 30 percent on fresh vegetables.
The duty on imported beer increased to 100 percent of declared customs value, up from 70 percent. The duty on imported cigarettes jumped from about $18 to $40 per 1,000 smokes.
The new taxes are probably attempts to reverse a trend by encouraging Uzbek shoppers to buy local. According to official figures from the State Statistics Committee, food imports increased by about 19.5 percent to $1.2 billion last year, while food exports fell by 55.9 percent to $884 million.
Food already makes up a substantial chunk of the average Uzbek household’s income. The Korzinka.uz chain of supermarkets prices domestic beef at about $8.50 per kilo and domestically produced sausages at between $6.20 and $8.60 per kilo (at the black-market exchange rate). The average monthly salary is believed to be about $200.
Elite police units in Tashkent have started rounding up and arresting black market currency dealers days after new restrictions on the circulation of foreign currency came into force, according to witnesses and media reports.
Russia's RIA Novosti news agency quotes a law-enforcement official as saying that authorities are trying to prevent the exchange rate of Uzbekistan’s national currency, the sum, from plummeting against hard currencies.
"Since it is now impossible to purchase foreign currency in cash and there is a shortage, foreign currency has sharply gone up [in value] against the local sum, and authorities have decided to eliminate everywhere the so-called 'black [market]' dealers from whom in most cases the population and business buy foreign currency," RIA Novosti cites its source as saying. "The idea is that if there are no dealers, there won't be the possibility of selling and buying foreign currency; therefore, there won't be demand and foreign currency won't grow [in value]."
Sources in Tashkent have confirmed to EurasiaNet.org that elite Interior Ministry OMON troops have indeed raided major markets in the capital, sweeping areas where black market currency dealers operate, including the Sergeli car market. For practical reasons, major items such as apartments and cars are often traded for dollars: The Uzbek sum equivalent of a few thousand dollars is so bulky that it must be transported in garbage bags or suitcases.
OMON units wearing black balaclavas detained about 20 people, including women, in a raid on the Chorsu Market in Tashkent's old town on February 1, an eyewitness told EurasiaNet.org. The suspects were put onto a bus and driven away.
Numbers released this week by Kyrgyzstan’s National Statistics Agency suggest a strike at the crucial Kumtor Gold Mine last winter played a major role in shrinking the country’s economic growth from 5.7 percent in 2011 to minus 0.9 percent in 2012.
Workers at Kumtor laid down their tools last February to demand parent company Centerra Gold cover their social security taxes. The walkout was resolved after 10 days, with Toronto-listed Centerra – which is one-third owned by the Kyrgyz government – agreeing to make the payments, even though it said the strike was illegal because it violated a collective agreement with workers.
By then the damage was done. Centerra later reported that while workers were neglecting the high-altitude open-pit mine, ice had formed there, and the company decreased its production forecast by one-third. It had previously predicted it would mine 575,000 to 625,000 ounces of gold in 2012; it eventually pulled 315,238 ounces from the ground.
The mine’s fundamental role in the delicate Kyrgyz economy is well documented. In 2011, Kumtor’s output accounted for 12 percent of Kyrgyzstan’s GDP, and over 50 percent of industrial production, according to official figures. That year, GDP was hurt by another incident: In November, villagers blocked the road leading to the mine. Their weeklong protest drove down the country's year-on-year GDP growth from 8.5 percent for the first 11 months of the year to 5.7 percent by year's end.
As the temperature drops, and residents scramble to heat their homes, prices often rise in Uzbekistan.
But once again, Tashkent’s economic band-aids don’t look likely to provide much relief from the annual crisis. As he’s done before, on November 9, President Islam Karimov hiked salaries, pensions, and student allowances – this time by 10 percent. Starting December 1, the minimum monthly wage will be increased to about $30.
Can that compensate for the skyrocketing prices of goods and services?
According to the independent news outlet UzNews.net, the price of milk and butter in Tashkent has risen by 18 percent in the past month. Part of the rise in costs, milk sellers say, is to compensate for the 50 percent increase in train tickets on the rail line connecting the capital with its suburbs.
Tashkent residents complain of gas shortages and hikes in taxi fares. What’s more, says the UzNews report, the government is struggling to control the price of coal even though last month authorities set up distribution points for coal in the capital and many parts of the countryside and fixed coal prices and purchase quotas.
No matter what it does, Tashkent’s numbers don’t add up. Maybe because the numbers are wrong?