BISHKEK (TCA) — There is something about economic forecasts proclaimed by institutions such as the International Monetary Fund and the World Bank: in cases they are mildly positive, realities that follow them tend to be better, and in cases they are mildly negative, realities turn out to be worse. Forecasts and subsequent realities concerning Central Asia in this context appear not just unexceptional, but even exemplary.
Kyrgyzstan witnessed the sharpest economic nosedive through the first two months of the current year since the overall gross domestic product (GDP) fell by 7.8 per cent year-on-year, according to figures recently released by the Kyrgyz National Bank. According to the Moscow-based Interstate Statistics Committee of the Commonwealth of Independent States (CIS), however, Kyrgyzstan’s GDP decreased by 10.7 per cent in January alone. The loss was mainly due to reductions in the output of the country’s largest gold mine Kumtor, owned and operated by the Canadian mining company Centerra in which the state of Kyrgyzstan owns around one-third. Without Kumtor, GDP in the first two months only slightly declined by 0.1 per cent on-year, according to the national statistics agency. Kyrgyzstan’s gold and silver production, which accounts for most of its industrial output, dropped 56.5 per cent by volume in the first two months, following an all-year decline of 8.2 per cent through 2015, statistics read.
Draining on personal reserves
To some extent, Kyrgyzstan’s decline was predictable – even though its proportions are more dramatic than foreseen. In the Committee’s calculations, Kyrgyzstan’s GDP over the month of January 2015, expressed in local currency, amounted to 24.5 billion som, up by more than 20 per cent from 20.2 billion in January 2014. In the first eleven months of last year, however, on-year growth had narrowed to 22 million som, or in the order of 12 per cent, from 351.1 billion to 373.1 billion som.
According to the CIS Committee, in January this year Kyrgyzstan’s industrial output declined by 29 per cent on-month and by 40.7 per cent on-year. For Kazakhstan and Russia, those figures stood at 17.2 versus 0.7 and 19.7 versus 2.7 per cent respectively. Retail trade, which is a good parameter to measure purchasing power, went up for Kyrgyzstan in January by 2.9 per cent on-year but fell by a staggering 66.7 per cent from the previous month of December. In can only mean that through the year 2015 people have been draining on their reserves and are nearing their bottom. By comparison, in Kazakhstan a similar situation exists, with retail trade through the month of January this year having dropped by 38.7 per cent on-month but only 7.3 per cent on-year. In Russia, it looks as though the worst has been prevented with an on-month drop of 6.3 per cent against an on-year one of 26.4 per cent in January.
Economic salvation
The Russian Federation, to the economy of which Kyrgyzstan’s conditions are heavily pegged, if it were only for the remittances by Kyrgyz workers abroad, can be seen as representing much of both Kyrgyzstan’s trouble and the key to its economic salvation. Russia’s GDP can be expected to decline between 1.5 and 2 per cent in 2016 against oil prices of $30-40 a barrel and will show “minor growth” – meaning between 0 and 1 per cent – through 2017, Itar-Tass reported on March 21.
For some reason, international observers do not see an overall economic contraction occur in Kyrgyzstan this year. Thus, Standard & Poor’s still sticks to a growth prospective of 3 per cent through the year of the country’s GDP. The question remains whether the economic losses posted for Kyrgyzstan so far are indeed recoverable through the rest of the year. If not, consequences could be extremely grave.
Shrinking perspectives
Any economy that feeds on growth due to value increases in only a specific sector of that economy tends to get dragged down entirely as soon as trouble arises in that particular sector. Losses in employment and in personal incomes’ purchasing power, which will be the inevitable result if the current economic contraction, persist through the year. This mean that volumes of goods on sale will be significantly reduced, and assets built up during the previous period of strong growth will no longer be profit-making but turn from affordable into unaffordable – meaning unsold capital goods and empty real estate while demand for affordable purchases will increase against decreased availability.
Shrinking perspectives within the “official” economy for large parts of the population will inevitably lead to people moving, entirely or in part, to the black sector, much to the joy of mobsters ready to exploit the situation. Such a trend is a lot easier to provoke than to reverse. The only thing authorities can do is to get a grip on cash flow – but that is something they should have done when things went well instead of taking retrospective action too late.
