The economic crisis and the former Soviet Union, Central Asia, and Tajikistan

1. The economic crisis and the former Soviet Union, Central Asia, and Tajikistan Ben Slay Senior economist UNDP Regional Bureau for Europe and CIS Dushanbe, 14 April 2009

2. What does the crisis mean for the FSU economies? • Break in economic growth: Stagnation or recession for virtually all economies in post-Soviet region • Sharp increases in: • Income poverty, inequality • Other dimensions of poverty

3. Transition and growth: The example of Russia • Transition creates “U-shaped” economic growth path, reflecting: • Transition recession (1990-1996) • Russian financial crisis (1998) • Recovery growth (1999-2008) • Quite typical of other FSU economies, including Tajikistan Source: CIS Statistical Committee “Transition recession” “Recovery growth”

4. Transition and growth in Central Asia • More growth needed to offset population trends • Tajikistan: • Strong recovery since civil war • But growth performance among region’s weakest • Uzbekistan: • Mild decline • Strong recovery • Kazakhstan: • Sharp decline • Strong recovery • Kyrgyzstan: • Sharp decline • Mild recovery Source: CIS Statistical Committee

5. Growth matters for poverty reduction (“inverted U”) Millions living in absolute income poverty in FSU, Turkey, Balkans, new EU member states. World Bank data, using 2005 PPP exchange rates.

6. Growth, poverty, and human development • Reductions in income poverty are good—but human development is better • Non-income dimensions of poverty—also important • Health • Education • Equality • Development: Choices, freedoms, opportunities • UNDP’s human development index measures: • Per-capita GDP (in PPP terms) • Education attainment • Life expectancy

7. Poverty rose after 1998 Russian financial crisis Absolute income poverty, measured against PPP$4.30/day threshold. World Bank data.

8. How bad might it be? JP Morgan growth forecasts Annual GDP growth. IMF, JP Morgan publications

9. Contagion: Transmission mechanisms • Trade shocks: • Prices (terms of trade effects) • Quantities (falling export demand) • Financing gaps will be harder to fill • Falling remittances

10. Trade shock: Leading indicators in key markets Change in industrial output, October 2008 – February 2009 (year-on-year) Sources: Eurostat, EIU, national statistical offices

11. Terms of trade shock: Exports prices collapse • These trends are good for food and energy importers in Europe, but . . . • . . . Most FSU countries export primary products: • Energy: Azerbaijan, Kazakhstan, Russia • Metals: Armenia, Georgia, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Ukraine, Uzbekistan • Food: Kazakhstan, Moldova, Ukraine World price trends (June 2008=100) IMF data

12. Refinancing: Current account balances (2008) No refinancing issues Significant refinancing issues could be present. Much depends on FDI, concessional finance (IMF) Significant refinancing issues are present Shares of 2008 GDP. Source: EIU.

13. Remittances: Who’s most at risk? Remittances as % of GDP. Source: World Bank, 2008 data.

14. Whither Russia’s special economic role in the FSU? In billions. Source: Central Bank of Russia. 2008 data are preliminary.

15. World Bank data: Very high poverty rates in Central Asia 2005 World Bank data, based on 2005 PPP exchange rates

16. . . . And very high rates of water consumption . . . In cubic metres per annum. From various years, 1998-2007. Source: (http://www.fao.org/nr/water/aquastat/dbase/index.stm

17. . . . Due to irrigation, not household consumption Share of population without access to improved water sources 2004 data. Source: UNDP Human Development Report Office

18. . . . But water reserves in 2008-2009 below normal 2008-2009 data, relative to monthly averages from 1991-2007. Source: SIC-ICWC, UNDP calculations.

19. “Electric shock” stops industrial growth . . . Change in industrial output Electric power generation, 2008 * Kumtor production not included Source: National statistical offices

20. . . . As energy costs rise . . . Average household electricity tariffs (TAJ) Imported gas costs Price (per 1000 cubic metres) of gas importsfrom Uzbekistan, purchased by TAJ, KYR Per kWh. World Bank data

21. . . . And food prices remain high . . . Tajikistan: 1.5 million food insecure 650,00 severely food insecure, requiring immediate support Kyrgyzstan: Nearly 1 million vulnerable UN food security appeals in both countries 2007 2008 2009 Sources: FAO, national statistical offices; UNDP calculations

22. . . . Driving inflation higher Tajikistan Average annual inflation rates. Source: National statistical office

23. Remittance inflows have weakened . . . Quarterly growth in remittances (year-on-year) Sources: National Banks of Tajikistan, Kyrgyzstan; IMF. 2009:Q1 data are for January-February

24. As have Tajikistan’s export prices and exchange rate In 2 months, the somoni has lost 10% of its value against the US dollar Som/$ Somoni/$ Source: IMF Source: OANDA

25. Where to look for hope? Three possible areas • Water-energy-water tensions may lessen • Inflation rates are falling • Remittances may drop . . . But from very high levels

26. Is the drought over?? Water volumes for these months in 2008-2009, relative to average volumes for these months during 1991-2007. Source: ICWC-SIC, UNDP calculations

27. Not in the Syr-Darya Basin . . . Water volumes for these months in 2008-2009, relative to average volumes for these months during 1991-2007. Source: ICWC-SIC, UNDP calculations

28. Food price inflation rates are now dropping . . . • . . . But food prices are still rising • Pressures on food security continue • When will falling global food prices translate into falling food prices in Tajikistan? 2008 2009 Source: National Statistical Office

29. Remittances may well fall, but from very high levels Wages and transfers received, in million. Sources: National Banks of Tajikistan, Kyrgyzstan; IMF.

30. 2009 growth prospects: Highly uncertain

31. Conclusions • The crisis will reduce growth, human development in the region • Poverty will rise • Much development progress could be lost • Key priorities in the response: • Protect those most vulnerable: • Better targeting of social benefits • Scaling up those initiatives that can quickly and effectively reach vulnerable communities • Don’t forget about other, longer-run development threats (e.g., climate change) • Once growth returns, or accelerates: • Will it be as strong as before? • Will reforms and “transition” resume?