EBRD forecasts that in 2022 Central Asian economies will likely experience significant collateral damage resulting from the war on Ukraine and international sanctions on Russia. In particular, it sees five main channels that will negatively affect the region: remittance, investment and job creation, returning migrants, increased energy prices and supply chain disruptions

Remittances are a major source of income and foreign currency earnings for Central Asian economies (31 per cent of GDP in the Kyrgyz  Republic, 26.7 per cent in Tajikistan and 11.4 per cent in Uzbekistan). Russia is a major source, accounting for more than 50 per cent of the total received in the first nine months of 2021 by Tajikistan and Uzbekistan, and more than 80 per cent of the total received by the Kyrgyz Republic.

Second, uncertainty is affecting investment and job creation. Domestic labour markets may be slow to create new jobs because of major uncertainty affecting investment (as already reported by EBRD clients). With Kazakhstan and the Kyrgyz Republic still reeling from recent political upheavals, labour market pressures may have implications for their continued political stability. 

Third, returning migrants may put strain on labour markets. If Russia goes into a protracted crisis, many Central Asian countries will see migrant workers returning to the region, putting pressure on wages and increasing competition in the low-qualification segment of the labour market. Such pressures may be particularly acute in Uzbekistan and Tajikistan due to their migrant workers being concentrated in the Russian construction industry (Russian-speaking Kyrgyz migrants are mostly employed in the Russian services industry). On the other hand, the inflow of Russian, Belarusian and Ukrainian migrants to Central Asia may provide the region’s knowledge-intensive sectors with a strong impetus given that many of these migrants are entrepreneurs, developers and digital nomads.

Fourth, increased energy prices will negatively affect net energy importers – the Kyrgyz Republic and Tajikistan. Kazakhstan, Mongolia, Turkmenistan and Uzbekistan, on the other hand, will reap significant benefits.  Elevated prices for gold, ferrous and non-ferrous metals will be a major compensating factor for all Central Asian economies.

Last, supply chain disruptions will affect all Central Asian countries, but will be particularly acute for countries with the highest share of transit trade through Russia, such as Kazakhstan and Mongolia. Lingering Covid-19 restrictions on the Chinese border will be an aggravating factor. Turkey will likely emerge as a major regional distribution hub serving Western, South Korean and Japanese companies, resulting in additional transport and logistics costs. Russia’s share in Central Asia’s imports is very substantial, ranging from 42 per cent for Kazakhstan to 21 per cent for Turkmenistan. Economies also faced quick pass-through from devaluation and higher global commodity prices to inflation.

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