CAREC Institute Holds a Joint CTTN Dialogue and CAREC Chai Event

The Russia-Ukraine conflict has a significant impact on the countries in the CAREC region, which were starting to recover from the COVID-19 pandemic. The effects of the conflict are being felt around the world, especially with the disruption of global supply chains, rising commodity prices, massive inflation, and food and energy insecurity. To discuss the economic impact of the conflict on the CAREC countries, including the impact of the sanctions imposed on Russia, the CAREC Institute and the Asian Development Bank (ADB) held a joint CTTN Dialogue and CAREC Chai webinar on April 27, 2022.

Dr. Lyaziza Sabyrova, Director of the Regional Cooperation and Operations Coordination Division, Central and West Asia Department of the ADB, welcomed the participants of the webinar and highlighted key questions for discussion. These included major economic impacts of the Russia-Ukraine conflict and sanctions on Russia on CAREC countries, national policies implemented by countries of the CAREC region to mitigate the impact of the conflict and to address emerging challenges, and the role of think tanks for advising such good policies. She stressed that the ADB, in cooperation with national governments, is monitoring the impact of the conflict on the economy and that the ADB has published an initial analysis as a special topic in the Asian Development Outlook.

Dr. Hans Holzhacker, Chief Economist at the CAREC Institute, noted that despite the multitude of shocks since 2020, all CAREC economies with data availability have exceeded 2019 real GDP levels; however, growth was generally more consumption-driven than investment-driven. Due to the surge in commodity prices, the countries of the region face strong polarization in foreign trade and the current account of the balance of payments as the net exporters of oil and gas have gained and net importers had losses. There are also geo-economic fragmentation costs and partially also opportunities that affect the countries of the CAREC region, although unequally.

Dr. Hans Holzhacker expressed the opinion that the relocation of Russian businesses to the CAREC region might contribute to fixed capital formation and thus stimulate productivity and economic growth, but that needs to be watched for how long and to what extent. Importantly, CAREC countries should continue to work together to increase intra-CAREC trade and economic cooperation, which might in part be a substitute for products imported from Russia.

Professor Richard Pomfret, Bologna Center, Johns Hopkins University, spoke about the organization of transit and the importance of economic cooperation in the CAREC region. The conflict has shifted the focus to developing sustainable alternative routes bypassing Russia. In March 2022, Georgia, Azerbaijan, Türkiye, and Kazakhstan signed an agreement on the development of the Trans-Caspian International Transport Corridor. In the longer term, the currently complex Uzbekistan-Turkmenistan-Iran and Uzbekistan-Afghanistan-Iran routes, which could connect Central Asia to the Turkish railway network or to Iranian seaports, could be realized. An agreement on the construction of a railway connecting Kashi with Uzbekistan (the PRC-Kyrgyz Republic-Uzbekistan route), which will provide an alternative route from the east to the Caspian (bypassing Russia), was signed at the Shanghai Cooperation Organization Summit in September 2022. CAREC countries need to continue cooperation for the use of a new alternative rail network that will provide key infrastructure for diversified exports of these countries.

Dr. Roman Mogilevskii, Senior Economist of the Central and West Asia Department of the ADB, spoke about trade re-orientation and migration developments in Central Asia. In 2022, many economies of the region recorded all-time high values of merchandise exports and imports driven by a dramatic increase in exports of energy, mostly crude oil, due to a price increase. Another major source of trade growth was re-exports, export creation, and export destruction resulted from the voluntary departure of international companies from the Russian market because of the sanctions. Continued increase in the number of job seekers’ registrations was observed among migrants from major migrant sending countries of the region to Russia, except for Armenia. There was also a net outflow of permanent migrants from the countries of Central Asia except for Tajikistan. Money transfers by Russian “relocants” affected the data on labor migrants’ remittances. Dr. Roman Mogilevskii concluded that, given the windfall re-export margins might be short-lived, the countries should 1) improve linkages with major production and trade hubs as well as labor markets both in the east and the west via the Middle Corridor and other transit routes; 2) monitor the ongoing changes in trade and migration.

In the second session of the webinar, members of the CAREC Think Tank NetworkMs. Yaroslava Babych, Lead Economist of the ISET Policy Institute in Georgia, Ms. Lidiya Parkhomchik, Chief Expert of the Eurasian Studies Program of the Institute of the World Economics and Politics in Kazakhstan, Mr. Kanat Tilekeyev, Associate Director of the Institute of Public Policy and Administration of the University of Central Asia in the Kyrgyz Republic, Mr. Abid Suleri, Executive Director of the Sustainable Development Policy Institute in Pakistan, and Mr. Farrukh Hakimov, Head of the Department of the Development Strategy Center in Uzbekistan, spoke about the problems caused by the Ukraine conflict in their countries, such as high inflation, especially for food and agricultural products, increased remittances, resettlement of Russian migrants, search for alternative trade routes and partners due to supply problems, re-export to Russia and others. Think Tank representatives also shared how their countries responded quickly to the external economic shock by putting in place the necessary fiscal, monetary, food security, and social policies, and how national think tanks contributed with knowledge products in the development of such policies.

In closing remarks, Mr. Kabir Jurazoda, Director of the CAREC Institute, emphasized the importance of cooperation among CAREC countries for sharing knowledge and best policy practices through the organization of international conferences, round tables, and discussions on emerging risks related with the conflict in Ukraine. “From our side, the CAREC Institute will continue to help our member countries overcome these challenges through cutting-edge research, development of capacity building services, knowledge sharing, and close collaboration with think tanks in CAREC countries,” said Mr. Kabir Jurazoda.