TURNING THE CORNER: THE ECONOMIC REVIVAL OF CENTRAL ASIA
Abstract
The Central Asian Republics (CARs) occupy a strategic position straddling East and West and have a significant development potential. In the aftermath of transition, however, the CARs witnessed a period of prolonged slow and negative growth and a rising incidence of poverty.1 Many factors have been put forward to explain the difficult transition experience, including the disruption in production and economic relations existing in the former Soviet Union, the collapse of aid as it was in the former Soviet Union, the nascent private sector, the lack of capital markets, the limited number of institutions required for a market economy, and the gaps in infrastructure.
Nevertheless, Central Asia seems to have turned the corner during the last few years. Economic growth, which accelerated to historically unprecedented levels, has been driven by high commodity prices—particularly for oil and natural gas—and buyout demand, increasing inward investment, im-proved macroeconomic management, and development of infrastructure.2 There are signs that oil-and-gas-sector-led growth has stimulated the development of the services sector (construction and banking), as well as some manufacturing activities. There are also indications that economic prosperity has been accompanied by job creation and some reduction in poverty. There is optimism in Central Asia’s political circles with some even predicting that the region will join the ranks of middle-income countries within a decade or so.
Against this backdrop, this paper reviews the characteristics of the boom that has evolved since 1997, with particular reference to macroeconomic developments and poverty. Distinctions are drawn between the economic structure and performance of resource-rich (oil and natural gas) economies and other CARs which have fewer resources. Drawing on this analysis, the outlook for the CARs for the next ten years is projected against a background of global prospects. The paper also seeks to guide CARs’ policymakers by suggesting the direction of future economic performance, as well as indicating key policy issues. As long-run forecasts can change in response to external events, the risks for the CARs’ outlook are also highlighted.
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The views expressed in the paper are solely the responsibility of the authors and cannot be attributed to the organ-izations to which they belong.
A plethora of literature exists on the history, strategic significance, economic record and reform experience of Central Asia during the first decade of transition to a market economy. For a selection, see: S.F. Starr, “Making Eurasia Stable,”Foreign Affairs, January-February 1996, pp. 80-92; idem, “Central Asia in the Global Economy”, Foreign Policy, September-October 2004; E. Trushin, E. Trushin, “Basic Problems of Market Transition in Central Asia,” in: Central Asia and the New Global Economy, ed. by B. Rumer, M.E. Sharpe, New York, 2000; R. Pomfret, K. Anderson, “Economic Development Strategies in Central Asia Since 1991,” Asian Studies Review, Vol. 25, No. 2, 2001, pp. 185-200; N.F. Campos, F. Coricelli,“Growth in Transition: What We Know, What We Don’t and What We Should,” Journal of Economic Literature, XL, Sep-tember 2002, pp. 793-836; Transition: The First Ten Years: Analysis and Lessons for Eastern Europe and the Former So-viet Union, World Bank, 2002, Washington DC; S. Zhukov, “Central Asia: Development Under Conditions of Globaliza-tion,” in: Central Asia: A Gathering Storm, ed. by B. Rumer, M.E. Sharpe, New York, 2002; E. Loukoianova, A. Unigov-skaya, “Analysis of Recent Growth in Low-Income CIS Countries,” IMF Working Paper/04/151, 2004.
In its first regional economic outlook for the Middle East and Central Asia, the IMF notes that “a favorable exter-nal environment combined with generally sound economic policies to produce strong macroeconomic performance for the countries of the Middle East and Central Asia in 2003 and early 2004…Prospects are for continued strong performance through 2005” (Middle East and Central Asia: Regional Economic Outlook, International Monetary Fund, Washington DC,2004, p. 2).
Despite these recent gains in income growth, per capita income in the CARs remains low by international stand-ards as they are categorized as low income countries (with the exception of Kazakhstan, which is a middle income country).
Nevertheless, the pace of structural change in Central Asia has been slower than those witnessed in the high per-forming Asian economies such as South Korea, Malaysia and the Peoples Republic of China (see: G. Wignaraja, A. Tay-lor, “Benchmarking Competitiveness: A First Look at the Manufacturing Export Competitiveness Index,” in: Competitive-ness Strategy in Developing Countries, ed. by G. Wignaraja, Routledge, London, 2003).
Although the data are very sketchy and there are issues of data consistency and reliability, the available international poverty line estimates suggest that poverty has declined in several CARs. It seems that greater economic prosperity in re-cent years has spilt over into employment creation and some reduction in poverty in the region. Furthermore, it seems that the oil exporters typically have a lower poverty incidence than the non-oil exporters (for detail, see: Central Asia: Mapping Future Prospects, Asian Development Bank, Manila, 2005).
For more detail, see: Ibidem.
These projections were based on forecasts of oil prices, production capacity, proven reserves and anticipated de-velopments in transportation (e.g. pipelines).
These projections were based on forecasts of oil prices, production capacity, proven reserves and anticipated de-velopments in transportation (e.g. pipelines).
For an analysis of some of the policy issues in the oil and gas sector of Kazakhstan see: B. Khusainov, K. Beren-taev, “Kazakhstan: Problems of Developing the Oil and Gas Sector and Improving the System for Taxing Subsurface Us-ers,” Central Asia and the Caucasus, No. 5 (29), 2004, pp. 70-81.
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