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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. What does the crisis mean for the FSU economies?.

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the economic crisis and the former soviet union central asia and tajikistan

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

what does the crisis mean for the fsu economies
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
transition and growth the example of russia
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”

transition and growth in central asia
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

growth matters for poverty reduction inverted u
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.

growth poverty and human development
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
poverty rose after 1998 russian financial crisis
Poverty rose after 1998 Russian financial crisis

Absolute income poverty, measured against PPP$4.30/day threshold. World Bank data.

how bad might it be jp morgan growth forecasts
How bad might it be? JP Morgan growth forecasts

Annual GDP growth. IMF, JP Morgan publications

contagion transmission mechanisms
Contagion: Transmission mechanisms
  • Trade shocks:
    • Prices (terms of trade effects)
    • Quantities (falling export demand)
  • Financing gaps will be harder to fill
  • Falling remittances
trade shock leading indicators in key markets
Trade shock: Leading indicators in key markets

Change in industrial output, October 2008 – February 2009 (year-on-year)

Sources: Eurostat, EIU, national statistical offices

terms of trade shock exports prices collapse
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

refinancing current account balances 2008
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.

remittances who s most at risk
Remittances: Who’s most at risk?

Remittances as % of GDP. Source: World Bank, 2008 data.

whither russia s special economic role in the fsu
Whither Russia’s special economic role in the FSU?

In billions. Source: Central Bank of Russia. 2008 data are preliminary.

world bank data very high poverty rates in central asia
World Bank data: Very high poverty rates in Central Asia

2005 World Bank data, based on 2005 PPP exchange rates

and very high rates of water consumption
. . . 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

due to irrigation not household consumption
. . . Due to irrigation, not household consumption

Share of population without access to improved water sources

2004 data. Source: UNDP Human Development Report Office

but water reserves in 2008 2009 below normal
. . . But water reserves in 2008-2009 below normal

2008-2009 data, relative to monthly averages from 1991-2007. Source: SIC-ICWC, UNDP calculations.

electric shock stops industrial growth
“Electric shock” stops industrial growth . . .

Change in industrial output

Electric power generation, 2008

* Kumtor production not included

Source: National statistical offices

as energy costs rise
. . . 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

and food prices remain high
. . . 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

driving inflation higher
. . . Driving inflation higher

Tajikistan

Average annual inflation rates. Source: National statistical office

remittance inflows have weakened
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

as have tajikistan s export prices and exchange rate
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

where to look for hope three possible areas
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
is the drought over
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

not in the syr darya basin
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

food price inflation rates are now dropping
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

remittances may well fall but from very high levels
Remittances may well fall, but from very high levels

Wages and transfers received, in million. Sources: National Banks of Tajikistan, Kyrgyzstan; IMF.

conclusions
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?