Analysis: Do Oil Price Cuts Signal Bad Economic Times Will Return To Central Asia?

It’s looking like deja vu of the worst kind in Central Asia as a new economic jolt is coming to the region, only this time with some added bad news.

The jolt means that the price of oil has dropped dramatically on world markets -- much as it did in 2014.

For the five Central Asian countries -- whether dependent on hydrocarbon exports for revenue or remittances from millions of migrant laborers in Russia -- the decrease in oil prices six years ago heralded significant downturns in their economies.

Turkmenistan, for example, has still not recovered economically from the drop in the price for natural gas that accompanied the fall in oil prices, though much of the blame for Turkmenistan’s failure to bounce back lies in the government’s lack of diplomatic or foreign-trade skills.

Some of the Central Asian governments are already moving to head off the problems they faced in 2014, and there are some reasons to think the difficulties that beset the region then will not be as severe this time.

But the added bad news -- the spread of the coronavirus and the accompanying global deceleration of production and trade -- is something that didn’t exist in 2014 and will certainly add to the woes that await Central Asia.

Sending Money Home

Tajikistan and Kyrgyzstan are two of the most remittance-dependent countries in the world (currently occupying the fourth and fifth spots, respectively) and the vast majority of migrant laborers from these two countries work in Russia.

Among Central Asian migrant workers, Uzbeks actually send back the most money from Russia. Uzbekistan’s percentage of gross domestic product (GDP) in 2013 from remittances was only 9.69 percent, though it fell to 3.74 percent in 2015, according to the World Bank.

Interestingly, since President Shavkat Mirziyoev came to power in late 2016 -- and Russian-Uzbeks relations significantly improved -- remittances bumped up to account for some 12 percent of Uzbekistan’s GDP in 2017 and 15 percent in 2018.

According to World Bank data, remittances accounted for almost 44 percent of Tajikistan’s GDP in 2013, just over 37 percent in 2014, down to under 29 percent in 2015, and to a bit under 27 percent in 2016. The share of GDP went up to 31 percent in 2017 and was 29 percent in 2018.

Remittances accounted for some 30 percent of Kyrgyzstan’s GDP in 2014 and fell to about 25 percent in 2015. It increased to some 29 percent in 2016 and 33 percent by 2018.

In early 2016, Tajikistan’s National Bank said Tajik migrant laborers in Russia actually sent back more rubles in 2015 than in 2014, but the depreciation of the ruble meant the money sent back to Tajikistan was worth 33 percent less in 2015.

In 2014-15, the Russian ruble fell from 32.85 to $1 to 72.69/$1.

The Russian ruble rate was about 66/$1 on March 3, 2020, and one week later it fell to 71/$1 (down from a high of 74/$1 on March 9).

What’s Different This Time?

The health of the Russian economy is of course of vital importance to the Central Asian economies.

And with the economic problems for Moscow just starting, Russia’s Finance Ministry said on March 9 that the country had sufficient resources to keep afloat for six to 10 years if the price of oil was $25-$30 per barrel.

But the Finance Ministry may have just been putting on a brave face and the situation could deteriorate much further

Copyright (c) 2015. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave NW, Ste 400, Washington DC 20036.