THE COVID CRISIS IN CENTRAL ASIA COMPLIANCE, CAUTION AND DENIAL

WWW.OCAMAGAZINE.COM OCA#35 SUMMER 2020 text by Gareth Stamp

As the whole world is coming to terms with what is a ‘new world’ post pandemic, the spotlight is falling on the response of countries to the crisis and as of equal importance how they are dealing with economic recovery. At the time of writing (mid May 2020) the situation around the globe is still very fluid and cautious but an initial focus on the countries of the Central Asian region shows a wide variety of responses and different levels of effectiveness in those responses.

Central Asia has a population of about 72 million, consisting of five republics: Kazakhstan (pop. 18 million), Kyrgyzstan (6 million), Tajikistan (9 million), Turkmenistan (6 million), and Uzbekistan (33 million) and while the Novel Coronavirus itself seems to have reached Central Asian states relatively late, they were among the first to feel its economic effects. Across Central Asia, governments ordered confinement measures, paralysing most of the economy, both formal and informal but did so at different speeds.

“Saving lives has been and will continue to be the driving principle behind the government’s actions. The government is communicating clear and consistent guidelines for the reopening in certain regions. A measured and responsible approach will ensure the economy can begin reopening while keeping the risk to people’s lives low,” said Erzhan Kazykhanov (Kazakhstan’s ambassador to the United States.) writing in the New York Times in early May as measures were beginning to be lifted in the country.

Most, but not all, Central Asian governments have prepared and implemented specific policies to respond to the health situation and to try to mitigate the fallout from the economic consequences. Some have delved into national funds to continue financial flows and support small businesses through the crisis including Kazakhstan, Kyrgyzstan and Uzbekistan. This has included loan deferrals, postponing tax declarations or exempting firms from social contributions among other measures.

Several countries have called for emergency financial support from international partners and have received emergency funding to mitigate the immediate economic impact of the COVID-19. For instance, Kyrgyzstan was the first country to benefit from emergency support funds from the IMF.

Economic issues are highlighted by the fact that Chinese imports from Central Asia fell sharply in the first quarter, and PetroChina issued a force majeure notice, cutting planned gas purchases from Kazakhstan, Turkmenistan and Uzbekistan. According to Chinese trade data, January-February imports from Turkmenistan and Kazakhstan were down more than 17 and 35% respectively. Trade turnover with Kyrgyzstan fell almost 12%. Given that more than 75-80% of Turkmenistan’s exports have been to China in recent years, the cost to that country is particularly great, according to OECD data.

Based on the experience of the 2008 financial crash and subsequent commodities price issues, it is predicted that regional growth will fall significantly, and public finances will come under more strain. The shock of the global drop in commodity prices has a particularly strong impact on countries with large mining and raw material sectors. The combination of reduced export earnings, particularly for hydrocarbon exporting economies such as Kazakhstan and Turkmenistan, and significant trade disruptions will narrow the monetary gap for governments to respond, limiting their ability to stimulate local demand, support businesses, and address long-term priorities.

Central banks in the region are adopting differing policy responses. The National Bank of Kazakhstan adopted an initially restrictive monetary policy, increasing its policy rate, while supporting the currency against over-depreciation, in an attempt to prevent a surge of pass-through inflation. By contrast, the central banks of Mongolia and Kyrgyzstan have eased constraints on banks’ liquidity ratios and lowered policy rates in an attempt to channel additional liquidity to the economy. Kazakhstan followed suit in early April. Uzbekistan has adopted a third approach, allowing for targeted and eased refinancing operations of commercial banks, while keeping its policy rate unchanged at a record high.
The countries of Central Asia are geographically fragmented and the real effect on communities varies widely. Tested COVID-19 outbreaks have been focused in the major urban hubs and whether by geography, climate or luck the virus has not appeared to spread rapidly. Early action and testing have proved successful in countries such as Mongolia, which at the time of writing only had a small number of cases which were all ‘imported’ and their lengthy lockdown was all but eased. Other countries were less quick and even denied the existence of any cases – all of this will be highlighted in post pandemic enquires by local and international organisations.

Central Asia, which already faces challenges with public service delivery, has overall coped with testing and tracking but in this region such measures need to be adapted to local conditions as there is no system to fit all.

And what of life for the everyday person in Central Asia at this time? Well again the experience has been seen to be polarised. Those with income in the formal business sectors have been able, on the whole, to weather the storm. Those involved in the informal sectors have fared less well. Anecdotal evidence from rural areas show the resilience of small communities – maybe used to the isolation and more self-sufficiency. The real impact appears to be on the young aspiring middle classes that have over the past twenty years moved to the new cities and new jobs. The levels of credit for this group was already high and now many of them may well be saddled with unemployment, debt and destroyed dreams.

But there have also been a large number of positive stories, the renewal of community spirit and online connectivity. Examples of coordinated charitable giving, artistic and creative people working together and sharing their work internationally for the first time and even enterprising people seeing exciting new opportunities for business development. Only time will tell what the true fallout will be, but based on previous experiences and hardships, the resilience and positivity of Central Asian people will win through.

images by Natalie Mahod, Chris Bentley