Investing in People is Crucial to Economic Recovery in Central Asia

ALMATY, October 7, 2020 – Central Asian economies are on course to contract by 1.7 percent  this year, a sharp reversal from the 4.9 percent growth in 2019, says the latest edition of the World Bank Economic Update for the Europe and Central Asia region released today.

The impact of the coronavirus (COVID-19) pandemic varies across Central Asia. Kazakhstan and the Kyrgyz Republic will see an economic contraction of 2.5 percent and 5.5 percent, respectively this year. Tajikistan and Uzbekistan, on the other hand, will avoid a recession but growth is likely to be tepid at 1.6 percent (from 7.5 percent in 2019) in Tajikistan and 0.6 percent (from 5.6 percent in 2019) in Uzbekistan.

The pandemic-induced contraction in 2020 is also expected to increase poverty in all countries of Central Asia. At the $3.20 per day poverty line, estimates suggest that an additional 1.4 million people may slip into poverty. At the $5.50 per day poverty line, customarily used in upper-middle-income countries (such as Kazakhstan), the increase in poverty could be over 1.8 million people. and, in the worst-case scenario, over 2.6 million could become poor in the region.

In Central Asia, the World Bank projects growth to recover to 3.1 percent in 2021, supported by a modest rise in commodity prices and foreign direct investment as the region deepens its integration with China’s Belt and Road Initiative. However, the outlook remains highly uncertain as the region continues to grapple with negative spillovers from the euro area, Russia, and China through trade, commodity, and remittance channels. As a result, the downside scenario for Central Asia projects a 1.5 percent growth in 2021.

The pace of recovery also depends on the duration of the pandemic, the availability and distribution of a vaccine, global demand for commodities and the degree of improvement in global trade and investment.

In Kazakhstan, growth could recover to 2-3 percent in 2021and return to its pre-pandemic level by 2022. However, the economy remains vulnerable to the course of the pandemic that could affect businesses and restrain employment.

The Kyrgyz Republic is among the countries hard-hit by the pandemic. Growth is likely to rebound to 4.8 percent in 2021, assuming the pandemic is brought under control and external demand improves. Over the medium term, economic performance will continue to be vulnerable to developments in Russia and Kazakhstan – the country’s major trading partners.

Tajikistan is experiencing its slowest economic growth in two decades. Across sectors, hospitality and tourism experienced the deepest hit from the pandemic. Growth could improve to 3.7 percent in 2021. Risks to the outlook primarily depend on the progress in finding a vaccine or a cure for COVID-19 and the restoration of remittances and external trade.

The COVID-19 crisis in Uzbekistan has almost entirely extinguished GDP growth in 2020. Despite the setbacks, the country’s outlook remains positive as reforms continue to shift the economy towards greater resource efficiency and private sector growth. Assuming limited further lockdowns, an easing of the pandemic, and a broader global economic recovery, growth is projected between 4.8-5 percent in 2021.

A special analysis in the Europe and Central Asia Economic Update focuses on human capital, an area that requires serious attention of the governments given the severe impact of the pandemic on health and education. The report finds that improving access to and quality of tertiary education and reducing adult health risk factors, such as obesity, smoking and heavy drinking, are key for a resilient recovery in the countries of Europe and Central Asia. While the region’s countries provide relatively good basic education and health services, as measured by the World Bank’s Human Capital Index, more needs to be done for individuals and countries to succeed in the future.

The report reconfirms that COVID-19 has deeply strained already-weak health care systems in the Central Asia states. It also shows that across Central Asia, more than 16 percent of the population is obese, nearly 12 percent of people are heavy episodic drinkers, and almost 18 percent are current smokers. Prevalence of these risks increases not only the likelihood of conditions such as cardiovascular disease, but also the mortality and morbidity consequences of infectious diseases like COVID-19.

The pandemic has also adversely affected education and learning in Central Asia, threatening economic losses of $44 billion. School closures may lead to learning losses equivalent to one-third to one full year of schooling, and they are likely to exacerbate inequalities, by disproportionately affecting students from disadvantaged backgrounds. In Central Asia, the gap in reading between students from the richest and the poorest households is expected to increase by between 8 and 30 percent. Given the demographic composition of Central Asia, where young people make up over half of the population, the current education crisis will have long-lasting negative consequences.

“The World Bank cannot emphasize enough the need for Central Asian countries to focus on improving access to quality education for all students, as well as on recovering learning losses that threaten to keep an entire generation from achieving their potential,” said Lilia Burunciuc, World Bank Country Director for Central Asia region.

Good quality higher education is critical for people to remain competitive in fast-changing labor markets. Improving higher education in the Central Asian states would help them retain their high-skilled labor force in the face of sustained out-migration.