Life in Rural Kyrgyzstan
Kyrgyzstan|opinion & analysis|October 24, 2018 / 10:46 AM
Moody's: Trade barriers constrain the growth potential of Central Asian economies

AKIPRESS.COM - The growth potential of the economies of Central Asia is significantly constrained by their low integration into global trade, particularly given their proximity to large and fast-growing markets such as China and India, Moody's Investors Service says.

The constraints come in the form of physical and soft barriers to international trade, while a high reliance on commodity exports, non-commodity trade with Commonwealth of Independent States (CIS) markets, and remittances poses challenges to long-term economic sustainability.

Moody's conclusions are contained in its just-released report, "Sovereigns -- Central Asia: Low global trade integration, legacy economic models constrain growth in Central Asia."

The region includes the economies of Kazakhstan (Baa3 stable); the Kyrgyz Republic (B2 stable); Tajikistan (B3 stable); Turkmenistan; and Uzbekistan.

Over 2008-17, the average annual real GDP growth rate for the Central Asian economies was 3.4 percentage points higher than the global average and 5.4 percentage points above that of Russia (Ba1 positive).

Despite this strong performance, limits to the growth models of Central Asian economies are evident. Given their small domestic markets, they are unlikely to develop specialized industries and experience productivity gains related to economies of scale without increasing their integration into global trade.

Inadequate physical infrastructure connecting the region with non-CIS markets, restrictive border regulations, and challenging geographic conditions increase the costs of extra-regional trade. Global trade costs faced by Central Asian economies are only matched by land-locked nations in Sub-Saharan Africa. To drive down trade costs and achieve greater integration into global trade, Central Asian economies need to address their hard and soft trade barriers.

CIS-focused trade linkages in Central Asia stem largely from legacy supply chains, inherited from the Soviet Union, as well as recent efforts to promote regional integration within the Eurasian Economic Union. Central Asia's trade and remittance linkages with other CIS countries mean that the region's economies tend to have highly synchronized cycles with the broader CIS region, often driven by the effects of the global commodity cycle on hydrocarbon exporters. This synchronicity is reinforced by the presence of oil and gas exporters within the Central Asian region itself.

Moody's says that the ability of the Central Asian region to further integrate into global non-commodity trade depends not only on reduced trade barriers but also on the development of a vibrant private sector that could capitalize on lower costs of trade.

Moody's also notes that the capacity of each economy to respond to these challenges varies. While Kazakhstan is relatively well-positioned to unlock access to global markets because of its ample financial resources, central location in China's Belt and Road initiative, and a more conducive institutional environment, the Kyrgyz Republic and Tajikistan lack significant financial resources and face greater institutional and geographic challenges.

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