Central Asia faces rising economic uncertainty amid Ukraine war

Russia’s invasion of Ukraine has sparked instability in Central Asia with most of the sprawling region’s inhabitants seeing it as having negative effects on their lives.

Vladimir Putin’s weakened position has increased the Central Asian states’ willingness to openly criticise the dictator and target his allies in countries like Armenia and Kyrgyzstan. But the economic and social impacts of Putin’s illegal war have gained less media attention.

The European Bank for Reconstruction and Development (EBRD) estimated regional inflation at up to 16 percent.

Kazakhstan has been seeking closer relations with the European Union since the war

Kazakh President Kassym-Jomart Tokayev in September said the more than 100,000 Russian men who had fled into Kazakhstan were largely “forced to leave because of the hopeless situation. We must take care of them and ensure their safety.”

Kazakhstan abstained on both United Nations General Assembly votes condemning Russia’s invasion and supposed annexations of Ukrainian territory.

Russia has imposed a ban on grain exports to Eurasian Economic Union members, which has sparked rising living costs alongside increased energy prices.

The arrival of draft-dodging Russians into Kazakhstan and Tajikistan is causing disruption. Their higher incomes have been contributing to economic growth but they are associated with rising inflation and food, property and rent prices.

Russia’s stuttering economy in the face of western sanctions and the disruption caused by the exodus of working-age males avoiding Putin’s call-ups has affected remittances heading to Central Asia.

Seasonal migration to Russia is a key source of income for Central Asian states because of Russia’s higher wages.

Remittances contributed an estimated 31.3 per cent of the gross domestic product of Kyrgyzstan and 26.7 per cent of Tajikistan’s GDP in 2020.

The EBRD recently reported that Uzbekistan, Kyrgyzstan and Tajikistan continue to receive large-scale remittances from Russia.

Uzbekistan from January to June this year received US$6.5 billion in remittances from Russia, doubling year on year from 2021.

But the war is causing uncertainties amid fears of increasing volatility.

The World Bank has estimated that remittances will decline by 33 per cent to Kyrgyzstan, 21 per cent to Uzbekistan and 22 per cent to Tajikistan. The vacuum created by the departure of draft dodgers might, however, increase employment opportunities for Central Asian migrants.

Rising oil and gas prices have boosted revenues for energy exporters Kazakhstan and Turkmenistan. The re-export of Chinese goods to Russia has also boosted business in Kyrgyz.

But most Russian projects are being suspended or cancelled and rising production costs have hit firms in Uzbekistan, Tajikistan and Kyrgyzstan.

The Kyrgyz economy is still closely linked to Russia. Picture credit: Flickr