Central Asia's crisis response to COVID-19 (2023)

context

Due to their relatively small and in most cases rather monolithic economies, Central Asian economies rely heavily on foreign trade. The region's trade-to-GDP ratio averages 65 percent, above the OECD average of 58 percent.(World Bank, 2020[21]), although its inland location entails higher shipping costs. The global health crisis has already had a serious impact on trade in the region, both in terms of demand impacts and logistical disruptions: freight volumes (measured in tonne kilometers) are expected to be 53% lower in 2020 than last year.(ITF, 2020[22]).

One of the consequences of the decline in world trade is the impact on freight-related CO2 emissions, reminiscent of the sustainability challenges that governments in the region are grappling with related to the expansion of freight in Central Asia. In Russia and Central Asia, freight-related CO2 emissions are projected to drop by 54% as freight volumes decline, a much larger drop than expected in the rest of the world (Figure 4).(ITF, 2020[22])In fact, Central Asia is one of the only regions surveyed by the International Transport Forum where projected freight-related CO2 reductions exceed projected freight-only reductions. The decline in volumes and emissions points to a number of trade challenges critical to the region's long-term sustainability, including the volatility and environmentally damaging consequences of resource extraction and processing, distance from major global demand centers, and infrastructure Sustainability planning is insufficient.

Figure 4.Projected reduction in trade burden and associated emission reductions

Those ones:(ITF, 2020[22]).

Central Asia's remoteness will only further reduce the region's competitiveness for exporters amid deteriorating external conditions. Infrastructure bottlenecks, political barriers and lack of trade facilitation keep the country remote. Better policies, including better interagency collaboration and automation, can help reduce costs, reduce transit times and support recovery, significantly improving connectivity without costly new investments in physical infrastructure. Indeed, the COVID-19 crisis has shown that Central Asian governments are capable of being flexible in trade policy when conditions call for it, and the improvement over the past six months should show how trade facilitation can help all countries in the region.

For example, when the pandemic first hit Central Asia, Kazakhstan introduced a green corridor for much-needed medical supplies and food, downgraded its risk management level from red to yellow, and implemented a series of tariff and tax deferrals. Its regional neighbors have done the same. In Kyrgyzstan, the government has delayed some trade-related tariff and tax payments. In Uzbekistan, the government opened a call center to help traders with their problems and took the opportunity to expand the digitization of customs and trade procedures. The measures represent a concerted effort by regional policymakers to keep trade flowing. As the region begins to reopen, borders must reopen in a coordinated manner, and policymakers must come together to agree on how best to restore the flow of goods and people to pre-coronavirus conditions. level. If these recent experiences can be extended to a range of new post-crisis activities, increased coordination and cooperation among regional governments in 2020 could herald a recovery for the region.

the way forward

How, then, have recent targeted improvements in trade facilitation helped Central Asia's broader recovery efforts? To some extent, improving interregional connectivity, especially “soft” measures such as harmonizing border procedures, may have significant positive spillover effects on many regional development priorities. Indeed, in a region where countries significantly lag behind the OECD average on OECD trade facilitation indicators, addressing the factors that make Central Asia's borders economically "thick" would be continued improvement in connectivity and thus its competitiveness key to its strength; here the focus is on strengthening cooperation between customs authorities, enhancing enforcement of customs procedures and expanding digitization. Likewise, the crisis has reaffirmed the importance of intraregional cooperation on infrastructure and cargo management to keep vital trade flows flowing - a recent OECD and ITF reportImproving Freight and Connectivity in Central AsiaHighlights, among other things, the potential for establishing a regional logistics observatory, which could provide insight into how regional governments can formalize the cooperative improvements achieved in recent months(OECD and ITF, 2019[23]).

A key example of how better connectivity can have a significant (albeit indirect) impact on the region's recovery is in attracting foreign investment, a goal of all governments in the region. For market-oriented FDI, individual Central Asian economies may be too small to be considered in a depressed world economy, but overall, Central Asian markets are very important, mainly due to lack of internal coherence and connectivity. hindered. This logic also applies to many other sectors where the region as a whole has a comparative advantage and thrives, such as tourism. A positive outcome of a difficult 2020 may be a greater willingness to accept that healthy regional cooperation need not exclude targeted strategic economic cooperation.

context

The COVID-19 pandemic has had a huge negative impact on business activity, exacerbated by shutdowns and hygiene restrictions, resulting in lost sales, store closures, supply chain disruptions, lack of mobility and layoffs. Uncertainty over the trajectory of the pandemic and prospects for economic recovery continues to dampen investment and confidence. According to surveys by local chambers of commerce and business associations, between 60% and 80% of businesses in most of Central Asia and OECD member countries have been severely affected by the crisis. The impact of the crisis on the private sector, especially small and medium-sized enterprises that are less resilient to shocks, requires government support.

During the period of the strictest restrictions, the government formulated a package of support measures for SMEs and entrepreneurs, including fiscal and tax measures, simplified administrative procedures and requirements, suspension of audits and inspections, etc. The political response has focused on emergency financial assistance programs such as, for example, dedicated loan portfolios, loan guarantees and earmarked funds for SMEs and entrepreneurs to the extent budgetary leeway allows. Tax and social security exemptions have been granted and, in some cases, deferrals of utility and rent payments. Support for SMEs and entrepreneurs is provided mainly through SME agencies, including DAMU in Kazakhstan and new SME agencies in Uzbekistan and Mongolia.

Governments in the region are also taking steps to accelerate the already-undergoing digitization of public services and tax administration, help businesses connect to e-commerce platforms, and create new services such as cash transfers and the issuance of e-city transport permits. .For example, Kyrgyzstan has also implemented digital initiatives, bringing more than 80 government services onlinedistorted; brokenIt is proposed that Mongolia speed up the construction of the e-Mongolia platform, and Uzbekistan speed up online shopping in one place.

the way forward

As the threat and impact of COVID-19 in Central Asia is expected to persist and some countries will be hit by a second wave, governments should continue and refocus their business support plans. To contain the pandemic, restrictions such as social distancing, limited working hours and number of customers, and mandatory sanitation have been maintained. Additionally, companies need ongoing support to reopen and increase activity. Emergency financial aid should be phased out, where it has ended, with a clear timeline to help businesses anticipate and adapt. Continued support for the hardest-hit sectors may be required: for example, tax deferrals and financial programs, especially in transportation, hotels, food services and tourism, could be extended until recovery occurs. Governments can also further support the digitization of businesses by assisting businesses in their transition from brick-and-mortar to online commerce, providing training programs for managers and entrepreneurs, funding digital projects through vouchers and grants, and facilitating relationships between key digital service providers Transformation and other smaller businesses have helped them increase their digital usage.

OECD member countries have broad national programs and packages of measures to support liquidity and business survival that have not been interrupted after the initial shutdown. While some of these measures have been tapered, others have been expanded to help businesses reopen and strengthen their operations, focusing on the worst-affected sectors. France, for example, expanded measures and added new funds to support targeted companies in the recovery phase. entertainmentrecovery planThese include digitization support, additional loan and grant guarantees, export vouchers, new tax breaks and payment deferrals to industrial companies and the hardest-hit sectors. All mechanisms are implemented on a single online business platform and transactions are conducted through the government or Bpifrance, the French public bank for SMEs. Governments in OECD countries such as Italy, Japan and South Korea support digitization with advice and training, free access to the services of major IT companies or subsidies for online companies. In the longer term, better digital connectivity and competition from large retailers will also be needed.

Business associations have played a key role during the COVID-19 outbreak and can continue to help inform and address business needs during the recovery period. They should be included in consultations to help businesses recover. They can provide data through surveys and business roundtables, help identify actions with the greatest impact, and recommend additional actions. They can also encourage government support and increase business awareness and access to existing policies.

In the longer term, Central Asian countries need to implement long-awaited structural economic reforms, improve the legal environment for business, and shift to a more private-sector-oriented growth model. SOE management reforms will help reduce distortions from state intervention(OECD, 2018[24]). Improving the availability of skills relevant to the labor market, especially by improving the access and quality of training programmes, will help to close the skills gap. Key issues facing businesses in the legal environment include simplification of rules for SMEs, taxation, dispute resolution and competition. Above all, the government must close the gap between themin Lawrequire andStrictly speakingImplement and increase anti-corruption efforts(OECD, in preparation [25];OECD, 2020[26]).This requires better legislation, digitization and enforcement skills, as well as sustainable cooperation with companies and international partners.

context

In Central Asia, as in OECD countries, once the first economic effects of the COVID-19 pandemic were felt, governments responded quickly, providing immediate support to businesses and workers (and limiting job losses)(OECD, 2020[19]).Some countries use direct transfers to entrepreneurs and workers, while others have implemented job retention schemes, such as Mongolia’s private employment grant scheme(OECD, 2020[19])In late spring, as COVID-19 numbers showed signs of improving, most Central Asian countries began easing restrictions to ease the pressure on struggling families and employers. Restrictions were reimposed over the summer after cases rose again; these, in turn, affect employment. The support measures have softened the impact on the labor market, but they have not been able to prevent rising unemployment. Unemployment in Kazakhstan rose from 4.8% in 2019 to more than 5% in the summer and could reach 6.1% by the end of the year. In Uzbekistan, the government reported an increase of more than 6 percentage points from pre-crisis levels, reaching 13.2 percent in the summer.

OECD governments seek to help workers in the short term while supporting sustainable jobs to accelerate the reallocation of jobs to high-performing firms and sectors. The government has used a variety of tools during the shutdown, including support for part-time training, wage subsidies and the development of a short-term work scheme (STW), complemented by continued job subsidies and increased monitoring of the correct use of short-time work support (Figure 5) .(OECD, 2020[27];OECD, 2020[28]).At the same time, job retention schemes were largely phased out, reducing coverage and access, and using clear timelines and adjustment criteria to reduce uncertainty. However, they have been extended to specific sectors, and even after the lifting of the strictest prohibitive measures, activities are still restricted by law.

Figure 5.As part of the recovery, OECD countries have largely adjusted existing job protection schemes

Those ones:(OECD, 2020[27]).

Self-employed and informal workers carry a heavy burden in Central Asia, where most economies are characterized by a high degree of economic informality – especially informal employment, but in some cases also commercial informality sex(OECD, 2020[19]). The region's initial public support measures expanded a generous social safety net and benefits in kind for the most vulnerable. In the longer term, efforts to address informality could be based on temporarily extending sick leave or unemployment benefits for non-standard workers to strengthen their social protection. Most importantly, they require governments to address structural labor market issues, including barriers to entry for young people. Employment Incentives and Labor Law Compliance(OECD, 2020[29];OECD, 2020[30];OECD, 2017[31]).

the way forward

Active labor market policies (ALMPs) in Central Asia should focus on supporting workers rather than employment. This requires targeting sectors where unemployment has risen the most and providing workers with income (wages or unemployment benefits in case of layoffs), employment (or partial employment) and training to avoid loss of human capital. This will enable workers and families in transition to earn income again while working or studying. This could help accelerate the reallocation of skilled labor to proven or critical sectors as the economic recovery begins.

Moreover, to sustain a longer-term economic recovery, governments must undertake deep reforms to boost employment levels, improve labor productivity, and make labor markets more inclusive. Strengthening active employment policies would include better job matching, improved public employment services, more training opportunities, more effective safety nets and income support, and improved employment incentives, especially for youth and women. More flexible labor laws can help improve employment opportunities for young, female and older workers, for example by promoting unfair dismissal legislation, industry restrictions and retirement, combined with adequate income support and active employment policies, and by enacting fixed-term contract legislation. Especially in economies with relatively high levels of informality, overly restrictive labor regulations can perpetuate labor market dualism, favoring "insiders" whose contracts are tightly protected, while leaving others vulnerable . A more flexible framework - cheaper for employers but more consistently applied - could help encourage more formal job creation. Better compliance with labor laws can also lead to better social protection and formal employment. Kazakhstan, for example, amended its labor law and introduced an employment plan that provides for increased ALMPS(OECD, 2017[28]).

context

Before the pandemic, debt levels in Central Asian economies were considered largely adequate and sustainable. However, the crisis has required a costly fiscal response, and the region's public finances have been hit particularly hard on the revenue front due to sharp declines in commodity prices and remittances. Currency weighed on heightened expectations of further downside risks(OECD, 2020[19]). While weaker exchange rates can provide some relief and increase the domestic value of export earnings, they can also increase debt burdens and reduce an economy's overall purchasing power. Debt ratios in the region have risen in 2020, and the overall cost to public finances has not yet been fully reflected in the latest figures (Figures 6 and 7).

Public debt is projected to increase further in subsequent years, reducing fiscal space and raising the risk of debt crises in some countries. The surge reflects new borrowing to finance the recovery, contracting GDP and currency depreciation - although the current low global interest rate environment makes borrowing costs less vulnerable to rising debt(EBWE, 2020[32];OECD, 2020[29])Tajikistan, and Kyrgyzstan in particular, face a significant risk of a debt crisis as both countries meet the terms of a G20 "debt repayment moratorium" on all official bilateral creditors until the end of 2020, agreed on April 15.(OECD, 2020[33]).Tajikistan and Kyrgyzstan have specifically demanded such write-offs from China, the largest single creditor(Eurasian Network, 2020[34]).

Figure 6.Debt Levels (% of GDP) and Total Debt in Central Asia

Note: Data for Turkmenistan are not available. Informally, bondholders are commercial banks and other private companies.

Those ones:(World Bank, 2020[3]).

However, debt sustainability in Central Asia should also be viewed as a matter of government revenue management and exposure to limited creditors. The crisis has drastically reduced government revenues across the region. While tax revenue and GDP trends move in tandem, tax revenue tends to fall faster than GDP when growth is constrained or negative(Belinga, 2014[36]).In particular, value-added tax (VAT), which accounts for an average of 33.6% of household income in Central Asia (compared to 21.2% in OECD countries), has a disproportionately large impact on government revenues, mainly due to exports reducing remittances for domestic consumption income(OECD, 2020[19]).Furthermore, persistently low/volatile oil and commodity prices will continue to have a significant impact on the incomes of Central Asian economies. This pushed the general government balance of payments across the region into negative territory (Chart 8).(World Bank, 2020[3]).

The risk of a debt crisis in Kyrgyzstan and Tajikistan is high due to increasing reliance on short-term, expensive, and partially financed credit. Much of this secured debt is off-budget, increasing the risk of unsustainability and debt problems as such instruments are more difficult to restructure and adversely affect the ability to service future debt and obtain concessional financing.(OECD, 2020[19];OECD, 2020[29];Mihari, 2020[38];Imam, 2019[39]). In addition, the debt of Tajikistan and Kyrgyzstan is particularly exposed to China. Faced with increasingly difficult repayments on loans to finance infrastructure projects, China may decide to use resource liens, as it has done in sub-Saharan Africa. In fact, although China is a signatory of the G20 agreement, it has not yet agreed to the debt relief requirements proposed by various countries. In addition, the exact amount and terms of China's debt, including official bilateral loans and alternative loans through state-owned enterprises, remain unclear. If China does not forgive the debt of Tajikistan and Kyrgyzstan, the tax revenue and ability of the two countries to repay other outstanding loans will be further weakened(OECD, 2020[33];Eurasian Network, 2020[34];Center for Global Development, 2018[40]).

Figure 7.Government budget balances in Central Asia

Note: No information is available for Turkmenistan.

Those ones:(World Bank, 2020[37]).

the way forward

Looking ahead, the current response to the crisis should lead to long-term debt and growth sustainability and require new approaches to resource mobilization and management, with a focus on taxation and public financial management. This requires creating fiscal space, reducing the risks of debt sustainability, corruption and illicit financial flows, and further diversifying the economy. The quality and governance of PFM also need to be improved in areas such as results orientation, multi-annual budgeting and budget transparency.(OECD, 2018[41]).

In addition to the necessary diversification of external financing, broadening the tax base, improving tax compliance, addressing inefficient tax breaks, shifting tax structures to policy areas that are least harmful to growth, and digitizing tax administration should be the focus of current tax reform . Broadening the tax base, especially for Personal Income Tax (PIT), Social Security Contributions (SSO) and VAT, can help meet financial needs and enhance their sustainability by moving away from volatile revenue streams. A better understanding of key taxes and tax incentives can help improve their design and implementation, emphasizing consistency and thus improving tax efficiency. The first measures in Central Asia are likely to include the introduction of uniform year-end tax returns across all countries, further simplification and digitization of the SME tax regime, and reform of the social security system to support social security, protecting systems that have come under particular stress in the crisis(OECD, 2020[42];OECD, in preparation [25]). Most countries have tax deferrals, which have proven useful in the context of COVID-19 and need to be reassessed and phased out in the medium term. Furthermore, the region should join international tax cooperation efforts to promote the use of international standards and tools, such as the OECD/G20 Base Erosion and Profit Shifting Framework, to effectively tax cross-border activities and offshore assets(OECD, 2020[43];OECD, 2020[19]).

context

The lack of quality jobs in much of Central Asia continues to drive massive labor migration, especially to Russia and Kazakhstan. Immigration eases the pressure on labor markets from the rapid expansion of labor in countries of origin, and migrant remittances are an important source of income for governments and households. In previous crises, large numbers of migrant workers served as an economic and social buffer for Central Asian economies, notably Kyrgyzstan and Tajikistan.

This year, however, the combination of supply and demand barriers to labor migration created by COVID-19 has reversed this historical pattern, at the expense of migrants, their families and society, and posed many challenges for governments. In the early stages of the crisis, border closures and disruptions to economic activity prevented migrants from going abroad to work, reducing opportunities in foreign markets that many had already entered, and stifling employment opportunities for those who remained in their countries of origin. For those who remain in Russia, the social and economic impact is severe, underscoring the particularly high vulnerability of migrants compared with formally employed residents. A survey of Central Asian immigrants in Russia found that 40% of respondents had lost their jobs and 75% had been placed on unpaid leave, compared with 23% and 48% of the local population, respectively.(Gurevich and Kolesnikov, 2020[44]).At the same time, poor living conditions, reduced access to health care and high levels of informality expose those who remain abroad to greater health risks and economic insecurity, as more than 90% of immigrants are estimated to work in informal jobs(Rocheva 和 Varshaver, 2017[45]).

For migrants trying to return home, the detention measures present some additional challenges. In a survey of Tajik immigrants in Russia, some 46 percent said they would not be able to return to Tajikistan, while 80 percent remained in Tajikistan but were prevented from returning to Russia. Border closures have created a host of social and organizational challenges as thousands of migrants are stranded at border crossings, mostly in makeshift camps(Gershkovich, 2020[46])Every day more and more migrants arrive in makeshift camps, although their return overland to Tajikistan, Kyrgyzstan and Uzbekistan depends on the occasional transit permit issued by Kazakhstan. The situation also creates difficulties for their families, who remain at home and continue to depend on transfers from migrants who remain or lose their jobs.

One of the most immediate consequences of labor migration has been a sharp decline in remittances. For governments and households, remittance income, especially from Russia, has been key to sustaining consumption, with remittances flowing into Central Asia accounting for about 15% of the region’s GDP in 2019 and almost 10% of the GDP of Kyrgyzstan and Tajikistan. one third. Kyrgyzstan, the only Central Asian country to release monthly data for 2020, showed in its first figures that remittances to Kyrgyzstan fell sharply after Russia’s initial shutdown, with an annual drop of as much as 60% in April alone (Figure 9). Although remittance inflows recovered in the third quarter as Russia reopened, data from the Russian Central Bank showed that remittance inflows remained well below 2019 levels, with similar average remittance inflows. In a region where household savings are low, this has the potential to have significant immediate impacts on many of Central Asia's most vulnerable populations. The World Bank estimates that out of a combined 2.6 million vulnerable people in Europe and Central Asia, an additional 1.4 million could be impoverished in Central Asia (at $3.20 a day and purchasing power parity).

Figure 8.Remittance inflows recover from lowest levels at start of quarantine

(Video) Crisis: The view from Asia on global reactions to Covid 19

Source: Quarterly data of the Central Bank of the Russian Federation, National Bank of Kyrgyzstan.

Difficult labor markets and limited fiscal space for direct public support to families mean that the situation is equally complex for migrants who may return or remain in their countries of origin, voluntarily or involuntarily. So far, migrant workers have received little economic and social support upon their return, and stigma and lack of skills have prevented their reintegration into the local formal labor market. Early projections predict a 10-20% increase in the active labor force in Central Asia if international migration flows are disrupted. The fact that only 32 percent of former Tajik immigrants were able to find work in their home country this year shows the challenges facing this vulnerable group. Returning migrants are also adding pressure to already overwhelmed local health systems. Migrant workers are unevenly distributed across regions of their countries of origin, as they tend to come from poorer and more remote areas. For example, it was estimated that some 66 percent of labor migration from Kyrgyzstan to Russia in 2014 came from the Osh, Baktyn and Zalalabad regions, which account for only 41 percent of the country’s population. In Tajikistan, more than 45,000 people moved inland for economic reasons in 2018, but nearly half of them were in the Khatlon region alone. It points to local strains, the importance of which will only become clear in the coming months, especially in places struggling with underfunded health and social infrastructure.

the way forward

Governments in the region need to find ways to support migrant workers, both abroad and returning. Many immigrants need immediate income support, as well as access to health care and housing. Governments in countries where migrants are temporarily detained can reduce stress and hardship by promoting legal stay for migrants and calling for regional dialogue, as well as reducing the risk of migrants taking informal and high-risk jobs. For example, Russia has extended the validity of all work permits until December 2020. This is an important step, but the region's response will require coordination and shared responsibility. Also simplifies the complex and expensive immigration patent process in the long run(Rocheva 和 Varshaver, 2017[45])

The COVID-19 pandemic has also demonstrated the resilience of remittances and migration, requiring long-term responses to the problems and opportunities presented by seasonal migration flows. Governments also need to consider how best to use these volatile remittance flows to create domestic jobs and private sector growth. The OECD Principles for Financial Literacy can be used to build robust national financial literacy strategies for current and potential migrants and their families, helping them to use remittances effectively and use formal financial channels. Despite reservations about the fiscal sustainability of universal social assistance, the experience of many Latin American countries has shown that this approach is indeed a less costly and more efficient way of supporting informal workers. Policymakers in Central Asia could benefit from observing these experiences and assessing their applicability to the local context(Arnold, Garda i González-Pandiella, 2020[47])Governments should also provide returning migrants with education and training programmes, especially entrepreneurship programmes, to increase local job opportunities, as has been done in Moldova.

Afghanistan

Economic Effects.Since July 2020, Afghanistan has slowly but surely advanced the process of lifting the blockade, reopening schools, borders, and domestic and international traffic. However, the quarantine process and falling supply and demand have put the Afghan economy in a bind. GDP is expected to decline by between 5% and 7.4% in 2020 due to lower industrial and service sector production and a sharp drop in domestic income. The budget deficit is expected to rise to 4 percent of GDP, with development partners pledging to cover half of the deficit. The Afghan Chamber of Commerce reported a 65% year-on-year drop in exports between April and July, noting that the private sector is struggling to stay afloat as the impact of COVID-19 coincides with the deteriorating security situation. A World Bank survey found that 30% of small businesses have closed, and 88% of small businesses reported a drop in sales. The country faced a decline in the Human Development Index (HDI) for the first time since 1990. Government estimates show that 90 percent of the population lives below the poverty line, which is linked to falling incomes, high unemployment (about 53 percent) and rising food prices. Nearly one-third of the country's population has been infected with COVID-19, research by the Ministry of Health has found. Additionally, an estimated 350,000 returning migrants and ongoing armed conflict continue to displace people across the country, making compliance with COVID-19 precautions difficult.

Economic support measuresDuring the quarantine, the government focused on supporting the country's growing vulnerable population with a bread distribution program that reportedly reached as much as 90% of the population. With the easing of restrictions and ongoing peace talks with the Taliban, the government has shifted its priorities to stabilizing the economy. The president proposed a foundation, a mechanism to exempt corporations from tax penalties, and a ban on leasing state property. So far, government support for businesses has been limited and a stimulus package for businesses is being discussed. Government support includes short-term employment schemes and additional storage capacity to allow those unable to export to store their goods. To offset limited government support, development partners including the European Union and the World Bank have stepped in with targeted commercial support.

Kazakhstan

Economic Effects.The crisis caused by COVID-19 has hit Kazakhstan both on the consumption side due to national and global quarantines and on the income side due to the sharp drop in oil prices. Overall, between January and August 2020, GDP is expected to contract by 3%, investment by 5.2%, and inflation higher due to supply disruptions and currency debasement. The unemployment rate rose 0.2% to 5% in July and is expected to rise above 6% by the end of 2020, according to official statistics. If a modest recovery in growth is expected in 2021, Kazakhstan's economy remains vulnerable to further deterioration in the health situation, which would severely affect business activity and employment(World Bank, 2020[3];OECD, 2020[19]).

Economysupport measures.The Kazakh government quickly responded to the pandemic with a $10 billion (4.4 trillion tenge, about 9% of GDP) anti-crisis package to strengthen social safety nets and businesses, especially SMEs support(OECD, 2020[19]). Kazakhstan began easing lockdown restrictions in May and introduced new support and recovery measures. The joint government-SNB action plan includes a package of additional support measures, including taxation, digitization, public-private partnerships (PPPs) and investment regulatory environment reforms. In the summer, the "Comprehensive Economic Growth Recovery Plan" was drafted, which envisages expanded business financing and concessional loans, and expanded employment roadmap. With a second wave threatening the country, a new medium-term growth agenda was put forward, and the creation of a Supreme Reform Council and Strategic Planning and Reform Agency led by the President was announced in September. The country is now introducing a series of new containment measures at the regional level, including quarantines and restrictions on movement.

According to official statistics, the previous support projects have led to the employment of more than 750,000 people, and directly supported about 4.6 million people with income. Since September, banks have provided 160 billion tenge ($386 million) in concessional loans to SMEs, and more than 1.6 million people and 11,000 SMEs have received loan deferrals (approximately 360 billion tenge or $870 million). More than 270,000 companies and self-employed people benefit from tax incentives(World Bank, 2020[48]).During the COVID-19 crisis, the DAMU Fund alone has supported more than 7,000 entrepreneurial projects with a total value of 566 billion tenge ($1.3 billion).

Kyrgyzstan

economic effect.COVID-19 had an immediate and severe impact on the economy, with GDP contracting by 5.9% year-on-year between January and July, the sharpest decline in Central Asia over the same period(World Bank, 2020[3])Economic activity remains subdued despite the easing of restrictions, with workplace activity down 30% so far this year and retail activity down 20%. The smaller trade deficit masks the deterioration in Kyrgyzstan's external position. In addition to a slight increase in gold exports, trade fell sharply, with foreign trade down 22% in the first half, while exports to China fell 33%. Tourism in Kyrgyzstan has all but disappeared (down 90%) during the pandemic. Meanwhile, imports in the first seven months fell by more than 50% to just $825 million compared with the same period in 2019. Domestic tax and duty revenues have fallen sharply due to lower trade and commodity prices, lower domestic consumption, and the impact of movement restrictions imposed to limit the spread of the virus. By mid-May, the Treasury forecast a 20% drop in revenue this year, which, combined with higher spending on health and social assistance, pushed the budget deficit to 7.4% of GDP from 0.3% in the first half of 2020. While the drop in remittances was less dramatic than initially feared, inflows were down 13% year-on-year, which will affect household finances and increase the risk of many falling into poverty. The return of migrant workers and a drop in domestic workers have led to a rise in unemployment, which is expected to rise by 21% in a worst-case scenario. The World Bank predicts that the poverty rate will rise by 5.8 percentage points in 2020. The country's path to recovery also depends on political stability. Street protests in early October led to the cancellation of the October 4 general election, a change of government and the resignation of the president. The prospect of a new parliament and presidential elections adds to the uncertainty.

support measures.after adoptionNew Economic Freedom ActIn April, the government set up an anti-crisis fund, which included measures to improve the business environment, among other things. It provides tax incentives for export-oriented SMEs and temporary tax and debt relief for all companies. The poor and disadvantaged groups in society depend to a large extent on monthly payments from social funds. In response to price increases affecting particularly vulnerable households, the Government intends to regulate coal prices. Bank Negara, which has remained sensitive during the crisis, is now facilitating adjustments in the financial system by selling foreign exchange reserves and buying locally produced gold. The government has also mobilized foreign aid to prop up the country's deteriorating fiscal position and restructure debt repayments. For example, the World Bank provides emergency financing to as many as 65,000 small and medium-sized enterprises. Other development partners have provided support, but an uneven shift in power in October has also strained relations with donors, adding to economic pressure and uncertainty about debt relief and budget support.

Mongolia

economic effect.GDP is expected to contract by about 2.4% this year, in stark contrast to the pre-COVID growth forecast of 5.4%. Mongolia remains heavily dependent on commodity exports, and COVID-19 has further reduced commodity prices and foreign demand, which had fallen before the outbreak. In the first half of the year, mining exports to China, Mongolia's main export destination, fell by about one-third year-on-year, although China's recovery is clearly good news for Mongolia. Strict containment measures have effectively limited the number of cases to around 300, but at the cost of business, liquidity and business waste, especially for local businesses. According to the Mongolian Chamber of Commerce and Industry, more than two-thirds of businesses have been affected by the outbreak. Falling incomes and the scale of the policy response contributed to a further deterioration in public and external debt, which were already 72% and 220% of GDP, respectively, before the pandemic. Although external debt is mostly denominated in foreign currencies, most of it is long-term. However, the need for external financing is substantial.

support measures.The government's political response to COVID-19 has been swift and steady, closing borders and imposing strict lockdown and hygiene measures. A national package of seven key measures, ranging from job-boosting schemes to tax exemptions, has been implemented at an early stage. It was subsequently supplemented by other socio-economic and sectoral policies and laws. Health capacity has been increased, including through the establishment of field hospitals. In September, the government drafted aNational Action Plan 2020-21Support economic recovery and medium-term development. Electronic Mongolia digital programming has also been accelerated. The Bank of Mongolia also played a key role, cutting interest rates from 11% to 9% and supporting liquidity and lending to businesses. While most restrictions are gradually being lifted, the country remains on high alert and takes action before the end of the yearadvertise ad hoc, has opted for containment measures, such as closing two border crossings with Russia at the end of October.

Tajikistan

economic effect.The global health crisis has severely affected some of Tajikistan's main economic engines. Real GDP growth is expected to slow to 1.6% in 2020 from just under 7% in 2019. The main impact on the country's economy has been a disruption to trade, a reduction in migrant remittances and a consequent drop in domestic consumption, as well as lower commodity prices for many of the country's main exports. One of the immediate consequences of the economic slowdown is that much of the progress made in reducing the national poverty rate, which fell to 26.3 percent in 2019, may be reversed. In 2020, the World Food Program estimates that some 47 percent of Tajiks live on less than $1.33 a day, and a third of the population is undernourished. The pandemic's disruptive impact on supply chains and businesses has sent food prices soaring, creating dire conditions for many families in what is already the region's poorest country per capita.

The impact on the country's labor market is also significant. A large informal sector (only 13% of the workforce was formally employed in the private sector in 2017) and large numbers of migrant workers working abroad add to the challenges of managing support to those most in need, while increasing pressure on local labor markets . Given the high rate of informality, it is disappointing, if not even surprising, that the World Bank calculates that only 5% of households received government support in August 2020.(World Bank, 2020[49])Remittance inflows generated by the estimated 500,000 Tajik migrants working in Russia in 2019 accounted for about a third of GDP; inflows in March 2020 were 50% lower than in March 2019.

A sharp reduction in remittance payments would not only lead to lower levels of consumption and growth, but could also have serious implications for the country's current account balance. Even more worrying is the fact that the decline could put a strain on the most vulnerable at a time when they are most at risk -- two in five households restricted themselves during the peak of the pandemic, according to the World Bank. their food consumption. The deteriorating economic situation could have a significant impact on public finances. Public debt is projected to increase from 45.2 percent of GDP in 2019 to 51 percent in 2020, with the budget deficit widening to 2.3 percent of GDP. Despite these constraints, the government has pushed ahead with promises of increases in public sector wages and pensions, although a projected 10% inflation rate in 2020 is likely to more than offset those increases.

A level of support.Although the government was belatedly aware of the threat the pandemic posed to the country's economy, it has now introduced several measures to support the private sector and households. The government continued to implement an action plan to reduce the impact of external risks on the economy. So far, funding programs have focused on ensuring food security and price stability of basic commodities, as well as ensuring timely delivery of social assistance and support to vulnerable groups. At the same time, the government provided a number of non-monetary support measures to the private sector and households, including a series of tax breaks for small and medium-sized enterprises, deferring non-tax audits of companies, and attracting international financial support to financial institutions. The government has also delayed some planned changes, including higher utility tariffs, while ordering commercial banks to restructure loans and waive penalties for non-payment.

Turkmenistan

Economic Effects.The government has reported no cases of COVID-19 in the country. However, a heavy reliance on trade combined with Turkmenistan's small private sector and consequently small domestic tax base mean that the economy is extremely vulnerable to deterioration in external conditions. The sharp fall in demand and the value of the country’s main export, natural gas, has had a profound effect: real GDP growth will slow to 1.8% in 2020 from 6.3% in 2019, according to official figures. A large government presence in the economy could lead to misallocation of increasingly scarce resources, which could pose particular risks to the private sector's contribution to recovery, growth, and employment.(EBWE, 2019[50]).With natural gas accounting for more than 90% of exports and China accounting for 80% of trade, any decline in Chinese demand would have immediate and severe impacts on public finances and weaken the government's ability to engage and implement necessary long-term policies. Long-term market-adjusted export-oriented investment. Preliminary data from China showed natural gas imports from Turkmenistan fell 27% in the first eight months of 2020, marking a sharp drop in the government's trade revenue. While China's apparent recovery is clearly good news for Turkmenistan, the road to recovery will remain difficult and pose significant downside risks.

political answer.Despite the government's claim that there are no cases of COVID-19 in the country, many containment measures restricting the movement of people and goods were implemented in early summer and have been in effect since October 2020. All land transport between these areas has been halted as the conditions for lifting such restrictions are unclear to the government. While all international travel to Turkmenistan remains banned except for return flights, domestic air services continue to operate, albeit at reduced capacity. As air travel is now the only way to travel domestically across regions, airfares have reportedly increased 15-fold.

The government has taken several measures to mitigate the economic impact of COVID-19. However, many of these measures will add to persistent concerns about currency controls and convertibility at a time when the international investment climate is becoming increasingly important to the long-term recovery. All companies are required to sell 100 percent of their foreign exchange earnings to a stabilization fund, first set up in 2008 and held by the central bank. By presidential decree, all foreign profits must be repatriated to companies at the overvalued official exchange rate, which means real profits are substantially reduced. On May 8, the President delivered a speech saying that the current crisis of public finances may be worse than those of 2008 and 2014-15, and that the state budget and state-owned enterprise budgets are being revised.(Turkmenistan Portal, 2020[51]). He directed all deputy prime ministers to draw up austerity plans. Early signs of pay cuts for workers at many state-owned enterprises suggest these budget revisions will be implemented immediately and the cost of the crisis will be passed on to workers. These shortcomings will negatively impact the government's ability to deal with the immediate impact of COVID-19 and its ability to address the long-term structural problems of the Turkmen economy.

Uzbekistan

Economic EffectsGrowth in early 2020 slipped to near zero for the first time in more than 20 years as investment fell 12.8% in the first half and poverty rose. The unemployment rate rose from 9.4% to 15% in the first two quarters of 2020. Still, higher production and gold prices, as well as a resilient agricultural sector, tempered the decline in industry and services. Meanwhile, new lockdowns since the summer have slowed the recovery in employment and business activity, reducing prospects for a quick recovery in 2021.(World Bank, 2020[3];OECD, 2020[19])In early September, the government revised its 2020 growth forecast to 2.2% from 5.5%, although the IMF and World Bank remained underwhelming, predicting growth of 0.7% and 0.6%, respectively.

support measures. The government responded quickly and appropriately to the shock to the economy. A EUR 10 trillion (EUR 950 million or 1.5% of GDP) anti-crisis fund was established to meet immediate social needs and support business and employment. Overall, about 2.5% of GDP has been spent since February, implying a cumulative 17% increase in social benefits and a cumulative 10% increase in the minimum wage.(OECD, 2020[19])Uzbekistan has reimposed quarantine measures and health restrictions following an early shutdown in May and a resurgence of the pandemic. Additional support measures were enacted over the summer, in particular the expansion of the measures developed under the first package and the expansion of the unconditional household income support measures. The economic sector received 2.3 trillion euros in tax stimulus as of July and $6.1 billion was spent by the end of August, mainly through anti-crisis funds to support the economy and people's income, official data showed. In early September, the government adopted a comprehensive post-crisis plan for 2020-21 focused on restoring investment and economic activity and creating the conditions for further economic reforms. The plan will be implemented in two phases, focusing on stabilization and recovery by the end of 2020, before starting structural reforms in 2021.(Vlada Uzbekistan, 2020[52]).