Joshua Kucera
eurasianet.net
 
The economies of the post-Soviet Eurasian states are growing faster than Asia as a whole, and are suffering from higher-than-average inflation, according to a new report issued by the Asian Development Bank.

Overall, the economy of the eight states of the Caucasus and Central Asia grew by 11.6 percent in 2007, as compared to 8.7 percent for the developing countries of Asia in general. Even so, the 2007 total for Central Asia and the Caucasus represents a downward trend, as the regional growth rate registered 13.2 percent in 2006. The reason for the drop: the region suffered from the same economic shocks as the rest of the world, including skyrocketing costs for food and fuel. They also felt the consequences of the US credit crisis, said the ADB in its report, titled Asian Development Outlook 2008.

On an individual basis, nearly all of the post-Soviet Eurasian states grew faster than the Asian average in 2007, the ADB reported. Azerbaijan possessed the fastest-growing economy, with recorded growth of 25.4 percent. Armenia’s economy expanded by 13.7 percent and Georgia’s by 12 percent.

Only Kazakhstan (8.5 percent), Kyrgyzstan (8.2 percent) and Tajikistan (7.8 percent) posted lower growth rates than the Asian average of 8.7 percent last year. Turkmenistan’s economy grew by 10 percent and Uzbekistan’s by 9.5 percent.

Growth across the Caucasus and Central Asia is expected to slow down over the next two years, according to the ADB’s projections. The ADP predicts a 7.5 percent regional growth rate this year and an 8.4 percent rate in 2009.

"Growth in Central Asia is expected to decelerate sharply … on the back of weaker expansion in the region’s largest economy, Kazakhstan. A sudden halt of capital flows to Kazakh banks has triggered a reduction in lending and downturn in the non-oil economy," the ADB said. Astana’s efforts to increase the state’s share in large-scale energy projects may be dampening the enthusiasm of foreign investors for making new deals in Kazakhstan.

Inflation is worse in the Caucasus and Central Asia than in any other part of Asia, the ADB said, adding that regional rates are projected to keep on rising. The regional inflation rate was just under 12 percent in 2007, and the ADB predicted it would rise slightly this year. The bank projected that inflation would rise in every country in the region and that several countries would suffer from double-digit rates: Kazakhstan (17.4 percent), Tajikistan (17 percent), Azerbaijan (13 percent), Kyrgyzstan (12 percent) and Uzbekistan (10.9 percent).

During a presentation of the report, held in Washington on April 7, ADB chief economist Ifzal Ali said that inflation indicators have even worsened since the report was prepared. Ali added that inflation – especially when it is driven by rising food prices – affects the poor more than the rich, and thus can lead to increasing income inequality and social instability. "This is a clear and present danger for developing Asia," he said.

In Azerbaijan, the ADB noted that oil growth continues to vastly outpace growth in other sectors of the economy. The country is "showing the symptoms of ’Dutch disease,’" the report said.

"Agriculture – the largest employer, accounting for nearly 40 percent of total employment – has in particular been hard hit by the real appreciation of the manat, which has stimulated imports of agricultural commodities from neighboring countries," the ADB states, adding that the Azerbaijani government needed to accelerate economic diversification efforts. "The [agricultural] sector contracted by 1.7 percent, in spite of administrative attempts at support, including subsidies and concessional loans to farmers," the ADB noted.

Kazakhstan, the region’s other booming energy economy, is in better shape, as it is a net exporter of both oil and food, making the high prices for both a boon rather than a crisis, the report said.

In Georgia, government reforms have brought about increased foreign direct investment, which helped cushion the blow of the Russian embargo against Georgian products, the report said. But overall macroeconomic success has yet to translate into poverty reduction.

The ADB lauded Turkmenistan’s moves toward a unified exchange rate. In January, the government introduced a new official exchange rate that was closer to the black market rate, although still only about a quarter of the unofficial rate. The government also established a new "commercial" exchange rate that is significantly closer to the real rate, and announced plans to unify the exchange rates in 2009.