Updated on July 15, 2024, 11:57AM (AST)

EBRD Economist Eric LIVNY:

In its latest macroeconomic overview the European Bank for Reconstruction and Development (EBRD) significantly worsened its forecast regarding Kazakhstan’s and Central Asia’s economic decline in 2020 amid the global crisis caused by the COVID-19 pandemic. Eric LIVNY, EBRD regional economist, talked in an interview with Interfax-Kazakhstan about what external factors have an impact on the performance of the region's economy and how small and medium-sized businesses feel in the current conditions.


- Earlier the EBRD had forecast a 3% drop in Kazakhstan's GDP in 2020, but revised it downwards. What does this relate to?

- In the first quarter, the Kazakh economy was still growing, at the level of 2.7%. When we made the previous forecast, we saw only this figure. In the second quarter there was already a drop of up to -6.3%, and -1.8% for the first half of the year as a whole. Our current forecast for Kazakhstan is -4% with further growth in 2021. Compared to the other countries in the region we forecast much harsher figures for Kyrgyzstan (-9.5%) and Mongolia (-6.5%).

The situation is somewhat different on Tajikistan and Turkmenistan, there is a slight drop over there. This is mainly due to the fact that they did not impose serious restrictions and lockdown measures domestically, and we do not much trust their statistics. We believe that their decline is more than what they are showing currently. For example, Turkmenistan gives us growth for the first half of the year in the amount of almost 5.9%, these are the official figures. This is unrealistic, but we cannot ignore these figures, so the forecast for these countries is at -1%.

We have also significantly worsened the forecast for Uzbekistan. We believed that there would be growth, albeit small. Now we came to the conclusion that the figure will still be negative this year and will amount to -2% [GDP drop in 2020]. The pandemic has dragged out on there, and external factors are affecting, so not everything is so good.


- Have you analyzed the dependence of the countries on external factors in the regions where the EBRD is active when preparing the forecast?

- External factors [in the region] are composed of three elements: raw materials exports, income from tourism and remittances from citizens working abroad. Kazakhstan [in the analysis] fell into the category of countries with a floating exchange rate. Kazakhstan is in 3rd place in terms of dependence on external sources among these countries after Georgia and Albania. I'm talking about all the countries in which we work. In countries with a high degree of dependence on external factors, the exchange rate is a kind of leverage with the help of which one can influence the situation. It is possible to mitigate the influence of external factors. If the exchange rate is allowed to fall freely, and it can only fall in such a situation, this will mitigate the impact of external factors on the economy.

Kazakhstan's dependence mainly consists of raw materials exports. But there are countries with a much worse situation, this is Mongolia, for example. There is a colossal dependence on external factors. I will also add that in Mongolia [there is] practically total dependence on China.


- In your overview, tourism is listed among the external factors that have an impact on the economy of Uzbekistan. How important is its role for the economy?

- Tourism has been rising very rapidly in Uzbekistan in the past three years. It is partially overshadowed because there is a lot of informal activity in tourism. There are different estimates, but overall, the tourism sector’s growth potential is huge. In absolute terms, it is not so small, by the way, just there are a fairly large diversification of the economy and a lot of other things in Uzbekistan.

The same is about remittances from abroad. In absolute terms, these remittances from abroad play a large role in Uzbekistan, as well as in Kyrgyzstan or Tajikistan.


- By and large, Uzbekistan has the best indicators in terms of economic growth rate in the region, what does relate to that?

- Namely due to the fact that Uzbekistan is less dependent on external factors than Mongolia and even Kazakhstan. It's just that most of the recession [growth rates] is related exactly to external factors. Mongolia has huge dependence [as well as] Tajikistan, Kyrgyzstan.

As for exports to the region for the first half of the year. Uzbekistan's gas exports to China fell sharply. In particular, everything is not so bad in Kazakhstan, Kyrgyzstan had even growth regarding gold. If gold is removed, they will also be negative with a negative export position.

Tajikistan got also engaged in gold exports. This is saving them now. I know from those statistics that we got that they just decided to export altogether a huge amount of gold to Switzerland and this helped them combat the crisis.


- Further you are providing a graph on remittance reduction from abroad to the Central Asian countries.

- Kazakhstan did not suffer so much, on the contrary, the republic even received additional income due to the fact that now less remittances are transferred from the country. Kazakhstan also hosted a lot of workers from Kyrgyzstan and Uzbekistan. They still transfer less remittances whereas the share of remittances in Kazakhstan’s GDP is insignificant.


- How does the EBRD assess the measures taken by the Kazakh government to restore the economic growth? Whether were social benefits to the unemployed population (in the minimum wage size) and state investments in construction effective?

- If we talk about the role of the government, then, of course, Kazakhstan has done a lot. The volume of fiscal measures, estimated in monetary terms, exceeds 8% of GDP. If you examine all the countries where the EBRD operates, Kazakhstan is in one of the leading positions [according to this indicator] and only the EU countries are ahead of it. In addition, the country's debt to GDP is insignificant. So, the forecast for the end of the year, and we are talking about the total state debt, is at the level of about 25%, may be closer to 30% [of GDP].

Another interesting thing herewith is that we ourselves interpreted this as a request for support among businesses. In Kazakhstan, in our opinion, this share is quite high, this is about 60% of small businesses. These are those businesses whose sales fell by more than 20%. This percentage is high, but not everything is so bad as, for example, in Kyrgyzstan. In Kyrgyzstan there are as many as 80% of such businesses due to stricter restrictions. In Kazakhstan, firstly, the restrictions were not so severe, and secondly, importantly that support is also more substantial. More than 30% of businesses, I reiterate, expect to receive this or that form of assistance [from the state].

If we talk about the sectors, then of course, in the first place, those, who work in trade, transport, logistics and tourism, suffered.

I can note that in Turkmenistan practically business was not restricted at all inside the country. This is more or less a real picture, these are survey data. There were few restrictions in Tajikistan as well.


- How will the loss of household income affect the ability to service retail loans? Did the level of NPLs (non-performing loans) in Kazakhstani banks increase, is there a threat of default?

- For the time being NPLs have not grown due to the fact that banks took the opportunity to extend loans, provide deferrals. We will not see NPL statistics until these deferrals are issued. The consumer loans are really a segment where serious losses are possible. Everyone expects that. But there are no statistics in order to estimate by which the size of this threat. But in no way there is a threat to the stability of the banking system. Banks [in Kazakhstan] have a large margin of safety.

As for liquidity, the government policy played a role here. Banks got access to fairly cheap government money. Unfortunately for the economy, they are "sitting" on this money at the moment. Maybe they sit very softly, and this is good from the point of view of reliability for the future, but it is not very good for stimulating the economy in the short term. It would, of course, be better if the banks had motivated and reliable borrowers who would use this money to create something useful: services or goods. This does not happen for the reason that you voiced in your question – individuals have no money. Domestic demand for goods and services is now at a low level. The level of risks is high accordingly, and potential borrowers also sit and think what to do. Now they do not run to a bank for new projects, if they do, then only to extend [a loan] what we see from our clients and their clients.


- Thank you for the interview!

October, 2020
© 2024 Interfax-Kazakhstan news agency
Copying and use of these materials without reference to the source is prohibited


Error message here!

Show Error message here!