By Masood Ahmed

The IMF has just finished its Annual Meetings in Istanbul, the traditional start of the old silk road and the gateway to Central Asia. 

Strategically located between East Asia and Europe, and South Asia and Russia, Central Asia is rich in resources and faces tremendous opportunities—yet to be made the most of. Since the outset of their transition to a market economy, the countries of the region have made visible progress toward decentralizing their economies, creating market institutions, expanding international links, and intensifying efforts to diversify and increase production and trade. 

As a result—and owing also to sound macroeconomic management, high commodity prices, and strong foreign inflows—this landlocked region, the size of the European Union and home to 60 million people, enjoyed near double-digit growth on average during 2001–07. 

Oil wells in Baku, Azerbaijan: With global energy demand increasing again, Central Asia's energy exporters should see growth rates increase in 2010 (photo: David Mdzinarishvili /Reuters)

Oil wells in Baku, Azerbaijan: With global energy demand increasing again, Central Asia’s energy exporters should see growth rates increase in 2010 (photo: David Mdzinarishvili /Reuters)

But, as elsewhere in the world, the global economic crisis has taken a toll on Central Asia, with average growth for the region as a whole sinking from 5.7 percent in 2008 to 1.2 percent in 2009. Nevertheless, this average masks important differences across countries. 

Two of the region’s three energy exporters—Turkmenistan and Uzbekistan—have weathered the global downturn reasonably well, thanks to fairly limited linkages to international markets, long-term energy contracts, and supportive government policies. These countries are projected to register robust growth in 2009, supported mainly by public spending made possible by ample public savings accumulated during previous boom years. Kazakhstan, however, will be held back by the lingering effects of its banking crisis and is likely to see negative growth of around 2 percent in 2009. 

With global energy demand increasing again, the energy exporters should see growth rates increase in 2010. In contrast, for the two energy importers—the Kyrgyz Republic and Tajikistan—facing deteriorating living standards largely as a result of a sharp drop in remittances from, and trade with, Russia; recovery in 2010 is projected to be slow and gradual.

Remarkable opportunities

The IMF’s latest outlook for Central Asia examines how, beyond short-term stabilization measures, the region has still to tap into remarkable opportunities. The area is richly endowed with natural resources (oil, gas, copper, gold, uranium, and hydropower) and a young and educated labor force. This economic potential can be developed more quickly with a strong and vibrant private sector operating in an effectively and transparently regulated business environment. To this end, governments in the region must continue to improve the business environment by reducing excessive bureaucracy, improving governance, developing infrastructure, and strengthening economic institutions.

Moreover, to exploit this potential, Central Asian countries will need to cooperate regionally, as both markets and infrastructure projects often span frontiers. Addressing their political differences, particularly in the water and energy sectors, will be key to enhanced regional cooperation. Significant scope also remains for reaping the benefits of trade by liberalizing trade regimes.