Download Central Asia Macroeconomic Overview, 21 February

Macroeconomic research
21 February 2017
Central Asia Macroeconomic Report
Striving for the Future
Tengri Capital research team made the first approach to review macroeconomic statistics
of the Central Asia economies and projected the future development of the region.
Dmitriy Sheikin, Leila Kulbayeva
Tengri Capital |Central Asia Macroeconomic Report
Sector Report
Contents
Dmitriy Sheikin
[email protected]
+7 (727) 311 05 06
Tengri Capital MB, JSC
Leila Kulbayeva
[email protected]
+7 (727) 311 05 06
Tengri Capital MB, JSC
February 21, 2017
CENTRAL ASIA ECONOMIC DEVELOPMENT RATIONALE
3
Supranational factors
3
External trade partners
3
Kazakhstan
4
Uzbekistan
6
Turkmenistan
7
The Kyrgyz Republic
9
Tajikistan
11
Central Asia GDP summary data
13
INFLATION IN THE CA REGION RATIONALE
14
Kazakhstan
14
Uzbekistan
16
Turkmenistan
17
The Kyrgyz Republic
18
Tajikistan
19
Central Asia CPI summary data
20
EXTERNAL TRADE SECTOR OF CENTRAL ASIA ECONOMIES
21
Kazakhstan
21
Uzbekistan
22
Turkmenistan
24
The Kyrgyz Republic
26
Tajikistan
27
Central Asia current account and trade summary data
28
CENTRAL ASIA REGION FX RATE RATIONALE
29
Central Asia Region FX rate specification
30
Central Asia Region FX rate Outlook and Assumptions
30
Kazakhstan (KZT)
31
Uzbekistan (UZS)
32
Turkmenistan (TMT)
32
The Kyrgyz Republic (KGS)
32
Tajikistan (TJS)
33
APPENDIX I: ABBREVIATIONS AND ACRONYMS
34
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Central Asia Economic Development
Rationale
Tengri Capital research team have analyzed the Central Asia economies and made
several conclusions and assumptions on its development over next five years. The
team applied two level approach. We observed the region at large to identify the
principle trends (supranational level) and made a step down to single economies
(national economy level) to monitor the immediate impact of the macro-trends in
Central Asia region and in the world upon the individual economies.
Supranational factors
Three major supranational factors would determine the economic
development in the CA region in 2017-2021, in our view.
The first factor is the Central Asia Regional Economic Cooperation
(CAREC) program initiated by ADB. The regional program facilitates the regional
economic development by cooperation and integration through the
development programs in sphere of transport, trade facilitation and trade
policy, and energy sector.
The second is the participation in the framework of Silk Road Economic
Belt (SREB) initiative that focuses on connectivity and cooperation of the
Peoples’ Republic of China and Eurasia though the CA regional countries. The
initiative would amount to circa US$4-8tr upon completion. North part of the
economic belt goes through Central Asia and the Russian Federation to Europe.
Asian Infrastructure Investment Bank (AIIB) and Silk Road Fund are two
institutions that would implement the initiative in the period.
The third is the EAEU framework that unites two countries of the region
as its members (Kazakhstan and the Kyrgyz Republic). Tajikistan is the potential
member for accession. Free movement of labor, capital and special trade
regime as well as coordination of the members’ economies would continue in
the region under this framework. The trade policies, tax policies, labor codes
and price leveling would continue to undergo unification within the Union that
would certainly produce the economic effects on the member countries.
External trade partners
Economic development
of the external trade
partners would
determine the demand
for commodities of the
local economies
Economic development of the largest economies in Eurasia would exert
economic effect on the CA economies who are the mutual foreign trading
partners. Thus, economic development of the Russian Federation, the People’s
Republic of China, Italy, France Germany and Turkey would determine the
external demand for commodities of the local economies.
The WB forecasts the Russian economy would grow 1.5 and 1.7 percent
in the nearest two years. Considering that the CA economies receive up to
US$12.9bn
February 21, 2017
remittances
from
the
Russian
Federation,
the
expected
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improvement of the Russian economy would increase annual capital inflow in
the CA economies to circa US$9-10bn. Along with capital inflow, the CA
economies would benefit on the production level as for the most regional
economies the Russian Federation is the principal importer of its exports.
According to the WB outlook, the People’s Republic of China would
demonstrate 6.5 percent growth in 2017. Slowing down of the Chinese
China expected to slow
down from 6.5 percent
growth in 2017 to 5.8
percent in 2021
economy would continue. In 2018-2019, the growth rate would plateau at 6.3
percent. The IMF’s outlook is less optimistic at 6 percent in 2018-2019, with the
further decline to 5.8 percent by 2021. The slowing down of the Chinese
economy might affect Turkmenistan, the major Chinese energy exporter, as
well as Tajikistan and Uzbekistan.
However, we believe that the People’s
Republic of China would increase the presence in the region by pumping
investments in developing road and trade infrastructure and in the major
commodity priority sectors of the CA (esp. metals).
According to the IMF’s WEO from October 2016, France, Germany and
Italy would demonstrate growth in 2018 whilst in 2017 the principal trading
partners of CA region in Europe would equal the growth of 2016 (France), show
marginal increase (Italy) or decline 3 percent (Germany).
We expect growth for
the Central Asia region
in 2017-2019 on
recovering commodity
prices
We believe that the CA economies would grow in 2017-2018 on slowly
recovering commodity prices as well as on the regional integration through
trade and transportation logistics. The national imports substitution,
industrialization and modernization initiatives of Kazakhstan and Turkmenistan
as well as imminent emergence of new economic course of economic
development in Uzbekistan would spur the economic growth in the region.
Tajikistan might follow the suit of the Kyrgyz Republic and accede the EAEU in
the future to benefit on lower prices for energy for the members of the Union
as well as unrestricted labor inflow in the Russian Federation.
External investments in the CA economies would originate from the
Peoples’ Republic of China whilst the state programs of development,
modernization and innovation would be the principal source of the internal
investments. The largest investments and projects of 2017-2019 would be the
major drivers at the national economies levels and be accounted in improving
macroeconomic indicators.
Kazakhstan
Kazakhstan is the largest petroleum producing and trading country in
the CA region. Implementation of the largest energy projects would dominate
As petroleum remains
the major economy
input, the Government
is pursuing
diversification via
implementation of
state programs
February 21, 2017
over the rest of the economy in the period. Kazakhstan strives to diversify the
economy though number of governmental economy development projects.
Adverse energy prices with slackening demand seriously reverse the economy.
The largest economy of the CA region pursues the economic policy that
has been evolving since Kazakhstan adopted and implemented the first
program for accelerated industrial-innovative development of Kazakhstan for
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2010 – 2014. In the succession of the first program there was initiated the State
Program for Innovative and Industrial Development of the Republic of
Kazakhstan for 2015 – 2019 (SPIID 2015-2019). Since the SPIID 2015-2019 is
valid and covers the part of the period of our forecast we would consider the
state investments in 2017-2019 as a support of the economic development.
Thus, allocations for the period amounts to US$587m (KZT205.1bn). The
Business road map 2020 is the second major program that extends the strategic
economic development until 2020. The post-crisis management of the economy
is a major priority of the program and includes multifarious support and
stimulation of the entrepreneurship in the country. The budget allocations
under the program for 2017-2019 amount to US$355m (KZT124.0bn).
The state program “Nurly Zhol” 2015-2019 aimed to improve country’s
infrastructure, paves the future long-term economic development of the
country. The amount of international co-finance in 2017 would amount to
US$3bn. Indicative volume of co-finance from international financial institutes
would amount to US$8.97bn. (WB, EBRD, IDB etc.) In 2017-2019, Kazakhstan
would finance the program at the amount of circa US$428.6m.
Figure 1.
Nominal and Real GDP growth of Kazakhstan in 2010-2021
80,000
70,000
8.0%
7.5%
7.3%
7.0%
6.0%
60,000
6.0%
5.0%
50,000
5.0%
4.3%
40,000
30,000
2.4%
20,000
1.2%
3.0%
2.8%
3.2%
3.7%
3.0%
2.0%
1.0%
10,000
0
4.0%
1.0%
21,816
28,243
31,015
35,999
39,676
40,884
43,839
48,350
53,211
58,451
64,094
70,167
2010
2011
2012
2013
2014
2015
2016E
2017F
2018F
2019F
2020F
2021F
NGDP, KZT bn, LHS
0.0%
RGDP, percent,RHS
Source: Committee on Statistics, IMF, Tengri Capital
_
Kazakhstan and ADB have mutually developed business plan for
investments under the framework of the Bank’s country partnership strategy
(CPS). Under the CPS, the Bank circularizes the following economic objections:
economic
development
and
diversification
through
infrastructure
modernization that is consistent with the State project “Nurly Zhol”; finance
sector development, including improved access to finance for small and
medium-sized enterprises (SMEs) that goes in line with the State SMEs support
program (the Business road map 2020). The CPS for Kazakhstan reflects the
CAREC initiative since modernization of road infrastructure and trade finance
are the parts of the ADB investments, loans and technical assistance (TA). The
total proposed allocations amount to US$1.5bn by 2018.Kazakhstan would
implement the major Chinese investment projects in the period of 2017-2019.
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According to the Kaznex Invest JSC (National Export and Investment Agency),
the total amount of US$24bn would be invested in the period and circa 50
projects would be realized.
Expected investments
in Kazakhstan would
total US$28-30bn or 1819 percent of the
average 2017-2019 GDP
Therefore, the amount of expected investments in the economy of
Kazakhstan from the mentioned sources and programs would total circa
US$28-30bn in the period of 2017-2019 or circa 18-19 percent of the average
GDP in the period. We believe that slow and protracted recovery of petroleum
prices as well as the prospected investments would stimulate the economy to
perform at 3 percent on average in the period of 2017-2021. The recently
announced technological modernization of the economy is not accounted in
our forecast since it is still to be developed by the Ministry of National Economy.
We also expect moderate fiscal expansion through adjustments of
expenditures for increase within the current government economic programs.
Privatization of state-owned property until 2020 (Privatization 2020) would back
up the expected fiscal expansion whilst the redistributed funds would exert
additional stimulus in the manufacturing industry and services. The projected
fiscal expansion would not affect the budget deficit that we expect to be less of
2 percent in the forecast period. The internal consumption of households has
been on a decline since 2013 (YoY volume index decreased from 110.6 percent
to 101.1 percent in 2014 whilst in 2015 the index amounted to 101.8 percent.
9M2016 statistics evidences 101.0 percent of volume index) and would remain
on slow recovery. Thus, external and internal investments, growth of
government expenditures and growing trade balance surplus would stimulate
the industrial production and services on the aggregate demand side.
Uzbekistan
Uzbekistan is the second largest economy in the CA region striving for
the new course of development. The economic policy of the country is
multilateral and supposed not to develop neither economic nor political
dependencies. The new President of the country made a call for the new
regional cooperation by improving relations with Tajikistan, the Kyrgyz Republic
and Kazakhstan. Ever since independence, macroeconomic statistics about
Uzbekistan’s economy is limited and contradictory.
A new development
strategy for 2017-2021
is introduced in
Uzbekistan
Quite recently, the government promulgated the strategy of
development for 2017-2021. The strategy includes 5 aspects of development of
Uzbekistan that include reforming of state management, liberation of the
economy, reforms in social sphere and judicial system and the principles of
external relations. Besides the development strategy, Uzbekistan develops the
project of delimitation of its boarders with the neighboring countries. The
government has revised the program for development of free economic zones
in the country (currently three, other four would be opened in the nearest
future). Part of the program would be one window framework for investors.
The state government would realize 649 investment projects at the
amount of US$40bn in 2017-2020. The industrial production in the next five
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years would increase at 1.5 times and the share of industrial production would
grow up from 33.6 percent to 36 percent while the share of the processing
industry would grow up to 85 percent of the GDP. Uzbekistan develops the
Strategy of cooperation with the IBD, WB and ABD for 2017-2021 to attract circa
US$7.7bn.
Figure 2.
Nominal and Real GDP growth of Uzbekistan in 2010-2021
350,000
8.5%
10.0%
8.3%
300,000
8.2%
8.0%
8.1%
8.0%
7.8%
9.0%
7.6%
7.5%
7.4%
7.2%
7.0%
8.0%
7.0%
250,000
6.0%
200,000
5.0%
4.0%
150,000
3.0%
2.0%
100,000
62,388
50,000
2010
78,764
97,929
2011
2012
120,862 145,846 171,369 197,420 221,434 241,890 261,277 290,063 315,662
2013
2014
2015
2016E
NGDP, UZS bn, LHS
2017F
2018F
2019F
2020F
1.0%
0.0%
2021F
RGDP, %, RHS
Source: State Committee of the Republic of Uzbekistan on Statistics, IMF, Tengri Capital
We do not incorporate the following plans in our forecasts since the
economic and political initiatives require the managers and experts for its
realization whilst the current state management is also to be reformed.
Thereby, implementation of the programs might skid by mismanagement or
would take more time than expected.
Our real GDP forecast would average 7.3 percent whilst the nominal
GDP would average 10.7 percent in the period of 2017-2021. The state budget
would stimulate the growth of economy since the state authorities have chosen
the course of economy liberalization. The growing remittances would stimulate
slackened internal consumption of households whilst trade balance surplus on
growing commodity prices would provide the country with the funds necessary
for implementing the extensive economy and state management reforms.
Turkmenistan
Turkmenistan adheres to the policy of neutrality and develops
multilateral relationship with regional and global economies. The economy
prospered on high-energy prices and developed dependence on trading natural
gas and oil. It is the third largest economy in the Central Asia. Most industrial
assets are state-owned and the economy is not market oriented.
The basic principles of economic policy of Turkmenistan are
industrialization, renovation and rational utilization of the natural resources as
well as import substitution program.
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Under the framework of CAREC program and its own programs,
Turkmenistan improves competitiveness of its exports by renovation of natural
gas and petrochemical complex of the country by building gas, oil refinery
facilities, and reconstructs the current facilities. Westport Trading Europe
Limited (USA) made reconstruction of Seydi oil refinery to increase the output
of road bitumen to annual capacity of 37,200 tons as well as to produce highoctane gasoline with the output to one million tons.
ADB facilitated
TurkmenistanAfghanistan-PakistanIndia (TAPI) natural gas
pipeline project
expansion, which is
worth US$10bn
In 2017, Turkmenneftegazstroy would finish the construction of the
domestic 150 km. East-West gas pipeline. Building of the regional
Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline project is
an example of implementation of the state initiative. ADB facilitated the
expansion of export potential of energy complex of Turkmenistan by
establishing TAPI Pipeline Company Limited (TPCL) consortium. The project
would exceed US$10bn on completion.
In 2018, the building oil refinery Ahal Region in Ovandep city is expected
to be finished. The refinery would process 1.8bn cubic meters of natural gas,
the diesel output would be 12 thousand tons, 115 thousand tons of liquefied
gas and 600 thousand tons of gasoline Euro-5. In Balkan Velayat of
Turkmenistan, there is the project on the polyethylene and polypropylene
production gas chemical complex implemented by Turkmenistan with the
consortium of companies TOYO Engineering (Japan), LG International
Corporation and Hyundai Engineering Corp. Ltd (the Republic of Korea). On the
project completion by 2018, the complex would process five billion cubic meters
of natural gas and with the annual output of 386,000 tons of polyethylene and
81,000 tons of polypropylene.
As a part of renovating electric power system, Turkmenistan installs the
four gas and two steam turbines (GE) at Mary Hydropower Plant to double its
capacity. The Ministry of Energy of Turkmenistan implements the complex
renovation of the old facilities, builds the new power stations and power lines
in Ashgabat, Balkanabat Ahal, Dashoguz and Avaza National tourist zone.
In 2017-2020, Turkmenistan would renovate the agricultural equipment
and machinery stock in the country. The Ministry of agriculture and water would
purchase in large quantities the agricultural equipment, machinery and
combines from «Umax Trade GmbH» and «John Deere International GmbH».
Turkmenistan diversifies its agriculture by financing cattle breeding, poultry,
apiculture, viniculture etc.
In the framework of renovation of the transport system under ADB
CAREC program, Turkmenistan would build high-speed highway AshgabatTurkmenbashi international seaport, Ashgabat-Mary-Turkmenabat-Farab and
Ashgabat-Karakums-Dashoguz.
The
built
railroad
China-Kazakhstan-
Turkmenistan-Iran became the shortest way from the Peoples’ Republic of
China to the countries of the Persian Gulf. The transition of the railroad through
the territory of Turkmenistan in Iran would extend trade in the region as well as
would provide transition dues for the country.
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Figure 3.
Sector Report
Nominal and Real GDP growth of Turkmenistan in 2010-2021
160,000
16.0%
14.7%
140,000
14.0%
11.1%
120,000
100,000
10.2%
12.0%
10.3%
9.2%
10.0%
80,000
6.5%
6.2%
6.6%
6.8%
6.8%
6.8%
6.7%
8.0%
60,000
6.0%
40,000
4.0%
20,000
0
2.0%
63,122
2010
83,314 100,217 118,480 131,733 125,493 128,006 132,341 138,791 145,111 151,303 158,852
2011
2012
2013
2014
2015
NGDP, TMT m, LHS
2016E
2017F
2018F
2019F
2020F
0.0%
2021F
RGDP, percent, RHS
Source: IMF, Tengri Capital, State Committee of Turkmenistan on Statistics
The building of Turkmenbashi international seaport since 2013
(US$2bn.) would be continued for the furtherance of making it the pivotal joint
of logistics system, connecting the route Europe-Caucasus-Asia (TRACELATransport Corridor Europe-Caucasus-Asia). The construction of the new port
infrastructure was a part of the second component of SREB initiative - Maritime
Silk Road (MSR).
We expect Turkmen
economy to grow 6.7
percent on average in
2017-2021
Turkmenistan would pursue expansionary fiscal policy in the forecasted
period that would stimulate the economy through implementation of
governmental programs of industrialization of the regions, increasing the local
production of import substituting goods and by encouraging the private sector
of economy. Turkmenistan would continue the state property privatization,
though we do not expect sizeable returns from it as the state-owned nonproductive assets are not likely to be in demand. Growing energy prices would
boost the fiscal expansion keeping the budget deficit circa 1-1.5 percent of the
GDP. The expected growth of remittances would increase the internal
consumption of households in the country impaired by recession in the Russian
economy. In 2017-2021, we think, Turkmenistan would run decreasing trade
balance deficit due to the growth of imports that would impede GDP growth.
The listed projects, recovery in remittances inflow, improving trade
balance and moderate fiscal expansion would spur the real rate of Turkmen
economy to perform 6.7 percent on average in 2017-2021.
The Kyrgyz Republic
The Kyrgyz republic pursue the multilateral economic policy.
The
economy of the Kyrgyz republic is undiversified and liable to adverse declines.
Absence of refinery facilities makes economy dependent on fluctuations of
energy prices. Remittances from the Russian Federation supports internal
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consumption of households. Gold mining companies decline production since
the gold field reserves depleted of high-grade ore.
Mining industry, hydropower electricity generation, cotton growing and
textile industries are the major assets of the economy. Agriculture (circa 14
percent) and tourism (circa 4 percent) are the other two sectors that generate
the income of the Kyrgyz economy. The structure of the largest investments
evidence that the investors view the Kyrgyz Republic as transition territory
(investments in road infrastructure), as hydropower regional suppler
(renovation of current assets) or the source of mineral resources.
Figure 4.
Nominal and Real GDP growth of the Kyrgyz Republic in 2010-2021
700,000
12.0%
10.9%
600,000
10.0%
500,000
8.0%
6.0%
400,000
4.0%
300,000
3.5%
3.5%
4.0%
4.3%
4.6%
5.0%
5.4%
4.0%
200,000
-0.5%
100,000
6.0%
2.0%
-0.9%
0.0%
220,369 273,108 310,471 355,295 400,694 423,636 458,027 476,033 514,107 552,163 590,306 628,619
0
2010
2011
2012
2013
2014
2015
2016E
2017F
2018F
2019F
2020F
2021F
NGDP, KGS m, LHS
-2.0%
RGDP, percent, RHS
Source: National Statistical Committee of the Kyrgyz Republic, IMF, Tengri Capital
China remains one of
the key foreign
investors in the Kyrgyz
Republic
The Kyrgyz Republic plans to realize the projects under three large
bilateral agreements with China in the nearest future. The first is the
construction of the ring road around Issyk-Kul Lake. The second is the
construction of China–Kyrgyzstan railway road (project is pending) and the third
project is land apportioning for relocation of the excessive industrial production
capacity of the Peoples’ Republic of China on the territory of the Kyrgyz
Republic.
The Kyrgyz Republic together with ADB in the framework of Country
Partnership Strategy until 2017 develops the inclusive economic growth in the
country by reducing key constraints to economic growth, improving the
investment climate, and reducing disparities in access to economic
opportunities.
To enhance regional trade for the Kyrgyz Republic, ADB helped to
rehabilitate 831 kilometers of major transport corridors. ADB approved
financing of US$3m as an advance for the Central Asia Regional Economic
Cooperation (CAREC) Corridors 1 and 3 Connector Road Project, with a further
US$1m approved for preparatory technical assistance. The government has
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made the country’s energy security a top priority, adopting an action plan to
reform the sector. The Power Sector Rehabilitation Project commenced in 2013
with a total investment of more than US$274m. Under the project would be the
full rehabilitation of the Toktogul Hydroelectric Power Plant. The other
proposed largest projects in the country are the reconstruction of “Isyk-kul”
hotel at US$65m, construction of Chok Suu river hydropower station US$31m
and construction Karakul hydropower station US$24.5m.
We believe the
dependence on the
largest gold producers,
such as Kumtor, TaldyBulak and Makhmal
would remain
However, we believe the dependence on Kumtor, Taldy-Bulak and
Makhmal gold fields would remain. The positive trend in gold prices would favor
the expansion of production that would be hurdled by the growing depletion of
the current goldfields. Thus, Kyrgyzaltin JSC dropped gold production on
Makhmal goldfield as is almost depleted of high-grade ore.
The EAEU integration, increase in personal remittances from labor
migrants, improvement of competitiveness of the domestic products,
implementation of energy projects (gas and hydropower) as well as targeted
support of tourism and agriculture would support the economy in the period.
We do not expect accelerated economy growth through the budget expansion
since it is sustainable so far to serve the external debt (circa 60 percent of GDP).
Annual GDP growth in real terms would average 4.7 percent whilst nominally
GDP would average 6.5 percent in the period of 2017-2021.
Tajikistan
The Tajik economy has a narrow commodity nomenclature of industrial
production that is regionally uncompetitive. Tajikistan is an agrarian–industrial
country with the largest part of services within GDP. Absence of consumer
industry and petroleum energy resources makes it heavily dependent on
imports. Hydropower system is decrepit and require investments for
renovation.
The major sectors of national industry are the mining industry,
hydropower sector and cotton-growing sector. Currently the state government
realizes large-scale programs to renovate and modernize the hydropower
generating facilities. It is planned to increase hydropower generation capacity
of the country by building Sangtuda-2, Zerafshan (will be built by Chinese stateowned construction company Sinohydro) and Rogun power plants. Aluminum
production (TALCO state owned company) is another industrial sector that
represents the largest part of industrial production in the country. There are
the gold extracting and processing industry that is gaining ground in Tajikistan
(Tajik-British enterprise Zarafshon and Davroz). Cotton growing industry
represents circa 50 percent of the agriculture in the country.
In the recent years, we observe an expansion of Chinese presence in
the country. China Exim Bank and China Global (New Technology Export &
Import) Company are the largest investors in the Tajik industry. The
infrastructural projects are implemented in the framework of Private Public
Partnership together with international development institutes – WB, IFC, ADB
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and IDB. Thus, ADB plans to support economic growth in Tajikistan in 2017-2018
by investing US$241m by project financing of transport and energy
infrastructure, improving water resources management, fund structural
reforms and improving investment climate of the country.
Figure 5.
Nominal and real GDP growth of Tajikistan in 2010-2021
90,000
7.4%
80,000
7.5%
8.0%
7.4%
7.5%
70,000
60,000
7.0%
6.7%
6.5%
6.3%
6.0%
50,000
6.1%
6.0%
6.5%
5.9%
40,000
5.7%
5.6%
5.5%
30,000
5.0%
20,000
10,000
0
6.0%
4.5%
24,707
30,017
36,163
40,526
45,605
48,409
50,591
57,492
63,139
68,788
74,462
80,177
2010
2011
2012
2013
2014
2015
2016E
2017F
2018F
2019F
2020F
2021F
NGDP, TJS m, LHS
4.0%
RGDP, percent, RHS
Source: Statistical Agency under President of the Republic of Tajikistan IMF, Tengri Capital
Currently Tajikistan in cooperation with the Peoples’ Republic of China
builds concentration and processing zinc and copper plant in Sogdiyskaya
Oblast. There are plans to build five industrial combines in the oblast as a part
of Tajik-Chinese industrial zone. The current price of the project is US$200m
China Global Company built the first zinc and copper processing plant in the
oblast. The development of metal industry in Tajikistan through the Chinese
investments is a part of China’s priority in capacity cooperation in steel
manufacturing. As a part of China Silk Road Economic Belt (SREB) initiative and
under the framework of the CAREC program, the Peoples’ Republic of China
built and renovated the road and tunnel infrastructure in the country.
Exim Bank of China invested circa US$88m built three TALCO chemical
plants on the south of Tajikistan. In the future, circa US$6bn would be invested
in Tajikistan for building Tajik part Central Asia –China gas pipeline. Along with
gas pipeline D there will be realized the Central Asia –South Asia power project
(CASA-1000) US$1.16bn worth that would direct surplus of hydroelectricity from
Tajikistan and the Kyrgyz Republic to Pakistan and Afghanistan. The project
would be completed by the end of 2018. Expected that Tajikistan would export
circa 1.000MW of hydroelectricity on its completion.
The participation in regional programs of development institutes under
the (CAREC) program as well as realization of projects under bilateral
agreements with the Peoples’ Republic of China would produce a positive effect
on growth of the. Recovering remittances would expand internal consumption
of households, though the GDP growth would be limited by trade balance deficit
that would pick up in the period. According to our production side regressive
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analysis, the nominal growth of GDP expressed in the national currency would
average to 9.1 percent whilst growth in real terms would average 5.9 percent in
the period of 2017-2021. We do not expect fiscal expansion since 2017 и 2018
scheduled as the years of the largest public debt repayment (circa 35.6 percent
of GDP). Thus, we believe that the budget would service the due repayments
rather than to expand to stimulate economy in the period.
Central Asia GDP summary data
The table below represents the overview of factual GDP data for the five
CA republics as well as our forecasts over next five years.
_Table 2. Central Asia GDP growth statistics, US$ m
2010
2011
2012
2013
2014
2015
2016E
2017F
2018F
2019F
2020F
2021F
Kazakhstan
NGDP, KZT bn.
NGDP, US$ bn.
RGDP, percent
21,816
148.0
7.3%
28,243
200.4
7.5%
31,015
215.9
5.0%
NGDP, UZS bn.
NGDP, US$ bn.
RGDP, percent
62,388
39.0
8.5%
78,764
45.4
8.3%
97,929
51.2
8.2%
NGDP, TMT m.
NGDP, US$ bn.
RGDP, percent
63,122
22.1
9.2%
83,314
29.2
14.7%
35,999
243.8
6.0%
39,676
227.4
4.3%
40,884
184.4
1.2%
43,839
125.2
1.0%
48,350
141.3
2.4%
53,211
151.3
2.8%
58,451
164.4
3.0%
64,094
177.9
3.2%
70,167
191.5
3.7%
Uzbekistan
120,862 145,846 171,369 197,420 221,434 241,890 261,277 290,063 315,662
57.2
63.2
65.5
66.8
69.0
70.6
71.6
74.6
76.2
8.0%
8.1%
8.0%
7.8%
7.6%
7.5%
7.4%
7.2%
7.0%
Turkmenistan
100,217 118,480 131,733 125,493 128,006 132,341 138,791 145,111 151,303 158,852
35.2
41.6
46.2
35.9
36.6
39.7
42.4
44.7
46.5
48.7
11.1%
10.2%
10.3%
6.5%
6.2%
6.6%
6.8%
6.8%
6.8%
6.7%
Kyrgyz Republic
NGDP, KGS m.
NGDP, US$ bn.
RGDP, percent
220,369 273,108 310,471 355,295 400,694 423,636 458,027 476,033 514,107 552,163 590,306 628,619
4.8
6.2
6.6
7.3
7.5
6.7
5.8
6.7
7.0
7.4
7.8
8.1
-0.5%
6.0%
-0.9%
10.9%
4.0%
3.5%
3.5%
4.0%
4.3%
4.6%
5.0%
5.4%
Tajikistan
NGDP, TJS m.
NGDP, US$ bn.
RGDP, percent
24,707
5.6
6.5%
30,017
6.5
7.4%
36,163
7.6
7.5%
40,526
8.5
7.4%
45,605
9.2
6.7%
48,409
7.8
6.0%
50,591
6.7
6.3%
57,492
6.9
6.1%
63,139
7.1
6.0%
68,788
7.5
5.9%
74,462
7.8
5.7%
80,177
8.2
5.6%
Source: Tengri Capital, IMF, National Agencies and Committees on Statistics
_
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Inflation in the CA Region Rationale
Decline in commodity prices urged the CA countries to offset current accounts and
trade balances deficits by FX rate adjustments. Heavy adjustments of FX rate
translated its effect on the inflation of prices evidencing FX pass-through effect.
We witness regulators
switching to the
inflation targeting
under monetary
policies
Adherence to free float regime and dwindling foreign reserves that
supported managed free float conditioned the Regulators to switch to the
inflation targeting under the monetary policy. Through upward adjusted
interest rates, Regulators curbed inflation transmitted on the economies
through the monetary channels.
Reduced trade turnover between the Russian Federation and the CA
economies limited imported inflation and spurred up the trade partners’ FX
leveling. Thus, imported inflation to the local economies through the trade
channel was limited.
While food comprises
the majority of CA
CPIs, the prices of
major food items
declined in 2015-2016
according to OECD
According to the OECD‑FAO Agricultural Outlook 2016‑2025, the prices
for major food items declined in 2015-2016, thus minimizing the upward
pressure of consumer prices. The outlook of the FAO for food prices within the
period of our forecast is positive, i.e. the food prices would grow but the
previous shocks would not intervene in the period. Therefore, the food prices
would not contribute to the consumer inflation in the period.
The decline in household consumption that was subdued by decline in
remittances for the Russian Federation kept transactional inflation low. We
believe the moderate recovery of the economy of the Russian Federation would
not boost the consumption in CA countries keeping transactional inflation low
in the forecasted period.
The expected price levelling under the EAEU would continue in the
member-countries and that, in our view, would be the only channel that might
contribute to consumer inflation in Kazakhstan and the Kyrgyz Republic.
We do not expect
heavy depreciation of
FX rates in the CA in
the short term
We do not expect heavy depreciation of FX rates in the CA region in the
short term (except of Uzbekistan due to uncertainty of liberalization effect on
the economy), thus pass-through effect on the consumer inflation through this
channel would also be limited.
Kazakhstan
FX rate adjustments in 2015-2016 surged up two-digit inflation in the
Republic and forced the Regulator to switch to inflation targeting regime.
Introduction of the base rate at 17 percent curbed the picking up inflation in the
country. Two-digit inflation dropped from 16-17 percent to 8.5 percent
evidencing efficiency of the approach.
Since August 2015, the National Bank of the Republic of Kazakhstan
adopted the new inflation-targeting framework of monetary policy. Under the
new framework, the Bank strives to provide stability of prices and to keep CPI
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within 6-8 percent targeted range. Thus, in the period of 2020-2021, the
Regulator plans to lower inflation to 3-4 percent. The base rate is the principal
Kazakh regulator
plans to lower
inflation from current
6-8 percent corridor to
3-4 percent level in
2020-2021
tool of managing inflation. The spike in inflation in the beginning of 2016
increased the base rate from initial 12 percent to 17 percent. Currently the rate
is 11 percent. The rate proved an efficient tool since CPI that reached 17.7
percent subsided to 8.5 percent (YoY) in the end of the year (period end CPI).
The spike in CPI resulted from FX market fluctuations in the beginning of the
2016 (KZT327.7-383.9 per US$) that were transmitted at the level of prices in
the middle of the year. Previously the Bank used refinance rate that amounted
5.5 percent. Refinance rate used to be the base for calculating the price of funds
at the money market (interbank market). Currently TONIA is the rate that
incorporates the base rate and defines the cost of money (overnight repos).
Hicks-Hansen concept reflects the regulating mechanism of the base rate tool.
The major objectives for the period of 2017-2020 the Bank would strive
to reach under the monetary policy include the following - convergence of
refinance rate and the base rate, monitoring of inflation expectations,
specifying of the target rate for the money market.
Figure 6. CPI in Kazakhstan 2010-2021
14%
18%
12.0%
16%
12%
14.7%
14%
12%
10%
10%
7.4%
7.4%
6.0%
8%
6%
8.5%
8%
6.8%
5.7%
4.8%
8.3%
4%
7.3%
5.1%
5.8%
6.7%
7.8%
6.5%
7.2%
6.7%
5.5%
5.9%
2%
0%
2011
2012
2013
2014
2015
2016
Annual average CPI,LHS
2017F
2018F
2019F
2020F
5.0%6%
4%
5.2%
2%
0%
2021F
Period end CPI, RHS
Source: National Bank of the Republic of Kazakhstan, IMF, Tengri Capital
We believe that in the period of 2017-2021 we would witness the
gradual leveling of energy prices within the EAEU and that would produce
upward pressure on the consumer inflation. The shift from price regulation
framework to antimonopoly regulation would add to the upward pressure.
Household consumption that would not be supported by exports revenues due
to the moderate recovery of energy prices would not stimulate the rate of
transactional inflation thus balancing it down. The current base rate translated
at the money market would stimulate the economic agents’ marginal
propensity to save rather than consume. The National Bank statistics of
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deposits per period within the banking system reflects the tendency.
Devaluation turbulence of 2015 conditioned withdrawal of deposits from the
banking system and massive migration in US dollars whilst the high rates in
2016 and subsequent stabilization and appreciation of KZT increased deposits
at 148% in the national currency.
We forecast the moderate devaluation of the national currency to
We expect a moderate
depreciation of
Kazakh tenge to
stimulate the external
trade
stimulate the external trade. Under this economic assumption, we do not
expect any pass-through effect at the consumer inflation in the period of 20172021. The subdued lending by the commercial banks, the forecasted negative
growth of real wage planned by the Ministry of the National Economic would
press the consumer inflation down making the inflation targets of the Bank
attainable.
Uzbekistan
The inflation data in the country differs from source to source or is
absent completely. Liberalization if initiated would send inflation to the spin
doubling our forecasts. With the current economic stance and monetary policy,
we are comfortable with 8.2 percent on average in the period of 2017-2021.
We believe that consumer inflation in Uzbekistan would average 8.2 percent in the period of
2017-2021. Recovery of remittances from the Russian Federation and Kazakhstan would support
12.4%
13%
16%
the customer’s inflation
at such a level. Since the recovery of the Russian economy and the
11.9% rate11.7%
economy
12%
12.3% of Kazakhstan would average 1.5 percent and 3 percent in the period, we do not expect
14%
a considerable growth of internal consumption to accelerate the prices growth. Current forecast
11%
13.6% possible devaluation of the national currency that might occur in the country.
does not include
12%
If liberalization
of the foreign currency regulation occurs, the consumer inflation would spike
11.9%
10%
considerably.Figure 7. CPI in Uzbekistan
8.5%2010-2021
10%
9%
10.8%
8.4%
10.8%
8.2%
8.1%
8.2%
8.1%
8.1%
8.0%
8.1%
8.1%
8.0%
8.0%
6%
8%
7%
7.3%
8.4%
7.6%
7.0%
6%
6.8%
5%
4%
2010
8%
8.0%
4%
5.6%
2011
2012
2013
Annual average CPI, LHS
2015
2016
2017F
2018F
Annual average CPI official data, LHS
2019F
2020F
2%
2021F
Period end CPI,RHS
Source: IMF, Tangri Capital, State Committee of the Republic of Uzbekistan on Statistics
The WB has no statistical data on consumer inflation in Uzbekistan. In
2015, the CIA in the World Factbook estimated the average inflation in
Uzbekistan at 10 percent and in 2016 at 11.5 percent. We used the IMF
consumer inflation data for our forecast since the official data at least 3-5
percent closer to the IMF.
We do not expect pass-through of inflation through import operations
since the inflation in the countries of trading partners is lower than in
Uzbekistan.
We have not found the monetary policy for 2017-2021 at the official site
of the Central Bank of Uzbekistan. In our future updates, we analyze the
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At current refinance
rate of 9 percent,
Uzbek regulator
considers CPI rate
manageable
Sector Report
framework of the monetary policy upon its availability. Current refinance rate
at 9 percent seems to indicate that the Central Bank of Uzbekistan considers
the current consumer inflation rate manageable and acceptable for the
economic development of the country.
Turkmenistan
Turkmenistan
demonstrates
quite
high
rate
of
GDP
growth
accompanied by consumer inflation. The data on inflation is either absent or
inconsistent. Monetary and command admiration of inflation would keep it
within the range of 6-7 percent in the period.
The State Committee on Statistics of Turkmenistan publishes only
period end inflation data on its official site that coincides with the data in the
IMF database. Information about period average inflation is not published;
therefore, we use the IMF historical data as the source for this indicator. The
experts from the CIA in yearly World Factbook estimate double-digit inflation in
Turkmenistan. Thus, the annual inflation rate in 2015 was 16 percent whilst in
2016 it lowered to 11 percent. In our forecast analysis, we use the IMF data since
the official data of Turkmenistan is partly consistent with the IMF data. The WB
database we found no information about the inflation in Turkmenistan.
Figure 8. CPI in Turkmenistan 2010-2021
8%
9%
7.8%
7%
6.8%
6.0%
6%
5.3%
3%
6.2%
6.5%
6.4%
6.0%
5.8%
5.0%
4.8%
5.8%
5.5%
6.3%
6.70%
4%
3%
1%
0%
2010
6%
5%
4.0%
2%
8%
7%
6.8%
5.6%
6.90%
5.5%
5.3%
5% 4.4%
4%
6.4%
6.7%
2%
1%
2011
2012
2013
2014
2015
2016E
Annual average CPI, LHS
2017F
2018F
2019F
2020F
2021F
Period end CPI, RHS
Source: IMF, Tengri Capital
As known, the local authorities concurrently with the Regulator
administer inflation in Turkmenistan. The law of the Central Bank states the
universally applied instruments to manage inflation but the aspects and current
implementation of the monetary policy remains unclear to us, at least for the
time being. The monetary policy is unavailable on the official site of the Central
Bank of Turkmenistan.
We believe that Turkmenistan would run 6.2 percent to 6.9 percent
annual average consumer inflation due to the recovery of remittances from the
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Russian Federation that would boost internal consumption accompanied with
circa 6.8 percent of real economy growth on average in the period.
The Kyrgyz Republic
Deflation in the Kyrgyz Republic resulted from the decline in household
consumption, stable prices for food as well as low prices for energy. Restoration
of remittances inflow would fuel consumption whilst growing energy prices
would speed inflation up. The consumer inflation in the Kyrgyz Republic is
sensitive to external factors – remittances inflows and imported inflation from
the trade partners.
The National Bank of the Kyrgyz republic sets the inflation target for
2017 at 5-7 percent range. The Bank applies inflation targeting to regulate the
inflation. According to the Forecast of Social Development of the Kyrgyz
Republic for 2017-2019, CPI projections for the period ranges from 5.6 percent
to 6.5 percent. In 2019, the Ministry of Economy of the Kyrgyz Republic forecasts
CPI to equal 5.7 percent. The current rate of the National Bank is 5 percent.
Figure 9. CPI in the Kyrgyz Republic 2010-2021
24%
18%
16% 18.9%
19%
14%
12%
10%
7.8%
8%
14%
10.5%
7.5%
6%
4%
2.8%
6.6%
7.5%
4.0%
3.4%
3.4%
1.0%
2%
0%
2010
6.7%
6.5%
4.6%
4.5%
4.9%
2013
2014
2015
2016E
Annual average CPI,LHS
9%
5.4%
6.0%
7.3%
7.7%
2020F
2021F
0.4%
2012
7.7%
4%
-1%
2017F
2018F
2019F
Period end CPI, RHS
Source: National Statistical Committee of the Kyrgyz Republic, IMF, Tengri Capital
In 2016, the Kyrgyz Republic ran the lowest consumer inflation among
the rest of the CA economies. In the end of 2016, there was registered deflation.
The cause for the deflation was decline in internal consumption resulted from
decrease in remittances as well as low food prices (imported wheat) and
relatively low imported energy prices.
We expect Kyrgyz CPI
to average 5.4 percent
in 2017-2021
We expect that consumer inflation in the Kyrgyz Republic would
increase to 3.4 percent whilst the period end inflation would reach 4.6 percent
in 2017. The average consumer inflation in the period of 2017-2021 would equal
5.4 percent. The picking up inflation rate would result from increased
remittance from the Russian Federation and Kazakhstan as well as upward
correction of energy prices among the EAEU member-countries.
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Tajikistan
Remittance inflows from the Russian Federation as well as import of
inflation from the trade partners largely governs consumer inflation in
Tajikistan. Growing economy and improving household consumption would
condition pick-up in inflation in Tajikistan in the forecasted period.
The major reason why annual inflation in Tajikistan would remain less
than 7 percent is low consumption level that in 2016 was impaired by recession
in the Russian economy that, in its turn, decrease the inflow of remittances in
the country. Devaluation of the Russian ruble to US dollar affected the volume
of remittances. The regulation of the National bank to accept and convert
remittances by the Bank’s FX rate produced further discount upon the
dwindling inflows.
Figure 10. СPI in Tajikistan 2010-2021
12.4%
13%
12%
12%
9.8%
10%
11%
10%
9.3%
7.4%
6.4%
9%
6.3%
6.5%
6.7%
6.7%
6.9%
5.1%
8%
6%
7%
4%
3.7%
6%
6.5%
6.1%
5.8%
5%
5.8%
6.3%
6.5%
6.6%
6.6%
6.8%
2016
2017F
2018F
2019F
2020F
5.0%
4%
2010
6.9%8%
2011
2012
2013
2014
2015
Annual average CPI,LHS
6.9%
2%
0%
2021F
Period end CPI, RHS
Source: IMF, Tengri Capital
The National Bank of Tajikistan under the monetary policy sets the
objective to keep inflation rate within 7 percent range. Targeting of the reserve
money would serve for the purpose. Current reserve requirement rate in TJS is
1.5 percent whilst in foreign currency it amounts to 7 percent.
Growth of the economy would determine money supply (MS). The
annual growth of reserve money would average 20% in the middle term period.
The Bank would minimize the inflationary pressure on the economy by selling
government bonds. Refinance rate of the National Bank of Tajikistan in 2016
amounted 6 percent until July and grew up to 11 percent. In the beginning of
2017, the rate went up to 12.5 percent. Current overnight interest rate is 16.5
percent.
We do not expect inflation pass-through effect via the import
operations with the largest trading partners since the inflation in the Russian
Federation and Kazakhstan would decrease and be forecasted within 5-7
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Tengri Capital |Central Asia Macroeconomic Report
Sector Report
percent in 2017-2021. Since commodity prices tend to grow slightly within the
period, we do not expect the pass-through effect on inflation through
devaluation.
Central Asia CPI summary data
The table below represents the overview of factual inflation data for the
five CA republics as well as our forecasts over next five years.
Table 3. Central Asia Inflation Statistics
2010
2011
2012
2013
7.1%
7.8%
8.3%
7.4%
5.1%
6.0%
5.8%
4.8%
Annual average CPI 12.3%
Period end CPI
11.9%
12.4%
13.6%
11.9%
10.8%
11.7%
10.8%
4.4%
4.8%
5.3%
5.6%
5.3%
7.8%
6.8%
4.0%
Annual average CPI 7.8%
Period end CPI
18.9%
16.6%
5.7%
2.8%
7.5%
6.6%
4.0%
Annual average CPI
Period end CPI
12.4%
9.3%
5.8%
6.4%
5.0%
3.7%
2014
2015
2016
2017F
2018F
2019F
2020F
2021F
14.7%
8.5%
7.8%
7.3%
7.2%
6.8%
6.7%
5.7%
5.9%
5.5%
5.2%
5.0%
8.4%
8.0%
8.2%
8.0%
8.1%
8.1%
8.2%
8.1%
8.1%
8.0%
8.1%
8.0%
5.5%
5.0%
6.2%
5.8%
6.4%
5.5%
6.5%
5.8%
6.7%
6.3%
6.9%
6.7%
0.4%
1.0%
3.4%
4.6%
4.5%
4.9%
5.4%
6.0%
6.7%
7.3%
7.7%
7.7%
6.3%
6.3%
6.5%
6.5%
6.6%
6.7%
6.6%
6.7%
6.8%
6.9%
6.9%
6.9%
Kazakhstan
Annual average CPI
Period end CPI
6.7%
7.4%
6.5%
12.0%
Uzbekistan
9.1%
9.2%
8.5%
8.4%
Turkmenistan
Annual average CPI
Period end CPI
6.0%
6.8%
6.4%
6.0%
Kyrgyz Republic
7.5%
10.5%
6.5%
3.4%
Tajikistan
6.5%
9.8%
6.1%
7.4%
5.8%
5.1%
Source: Tengri Capital, IMF, National Agencies and Committees on Statistics
_
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Sector Report
External Trade Sector of Central Asia
Economies
Current account structure of the CA economies differs according to the extent of
openness of the each economy as well as to a resource type that is the principal item
of its exports. Thus, energy-exporting countries in CA region, as a rule, have trade
balance surplus (Kazakhstan and Uzbekistan, Turkmenistan) whilst energyimporting countries have trade balance deficit (the Kyrgyz Republic and Tajikistan).
Energy and metal commodities are the major export items throughout CA region.
The industrialization, modernization, large investment projects in the
region (Kazakhstan and Turkmenistan) would urge to import complicated
technological appliances, machinery and equipment thereby exerting an
additional pressure on trade balances of the countries. Dependence upon
imports of energy in the Kyrgyz Republic and Tajikistan would persist hence
exerting additional pressure on trade balances of the countries and
consequently widening current account deficits. Uzbekistan is at the cross roads
of complex liberalization of the economy. If the country remains on its current
course, the current account and trade balance would remain at surplus.
Kazakhstan
Kazakhstan’s exports are limited to voluminous mineral and metal
commodities. Adverse changes in commodity prices affects external trade of
the country by narrowing trade balance surplus. Since trade balance is the
major balancing item of current account of Kazakhstan, the state authorities
effectively
observe
trade
balance
surplus.
The
further
economy
industrialization and modernization would require technologically advanced
and complex appliances, machinery and equipment that would exert extra
pressure on trade balance.
Kazakh export of
hydrocarbons and
minerals totaled 82-93
percent of all exports
from the country in
2013-2016
Exports nomenclature in Kazakhstan consists mostly of mineral
products and metals. Mineral exports gradually decreased from 80 percent in
2013 to 65 percent in 2016. Non-precious metals in exports ranges from 13.117.9 percent. In 2016, metals amounted to 16.9 percent of exports. In total,
those two items range from 82 percent to 93 percent. Contrary to the efforts of
the state government to diminish mineral commodities in the exports by
increasing the volume of manufactured products, the amount of two items
remains high and makes the value of the exports susceptible to adverse decline
in commodity prices. Exports go mostly to the EU and amount to 50 percent
(half of exports goes to Italy and France). Exports to the Peoples’ Republic of
China and the Russian Federation ranged 20-22 percent in the recent years.
Exports to GDP ratio averaged 34.8 percent in the period of 2010-2016. After
Turkmenistan, it is the second largest ratio in the CA region.
According to the latest statistical data of the Committee on Statistics of
the Republic of Kazakhstan, imports in Kazakhstan consist of machines and
appliances, transport vehicles at 37.4 percent. Chemicals and chemical
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Tengri Capital |Central Asia Macroeconomic Report
Sector Report
products amount to 16.2 percent. Food and consumer products amount to 12
percent; metal products make 12.8 percent of the import nomenclature. The
total of the listed imports amounts 78.4 percent. Imports from the Peoples’
Republic of China and the Russian Federation amount circa 50 percent whilst
imports from the EU amount circa 23 percent of the total in the recent years.
Imports to GDP ratio averaged 19.1 percent in the period of 2010-2016. The
ratio is the best indicator in the CA region evidencing lesser dependence of
Kazakhstan on imported goods and products.
_
_
Figure 11.
External Trade of Kazakhstan, US$ bn
Source: Committee on Statistics of the Republic of Kazakhstan, IMF, Tengri Capital
_
_
Current account of Kazakhstan would remain negative in the forecasted
period though account deficit would narrow since economy would generate
more exports revenue at higher commodity prices. Successful realization of oil
projects would increase re-investment of returns by investors in the economy
thus reducing current account deficit. Moderate devaluation of KZT would
stimulate exports adding price competitiveness to energy commodities as well
as to manufactured products. In 2017, current account deficit would narrow to
US$2.7bn. In 2020, current account deficit would decrease to its minimum
USD763m. The current account deficit would average circa -1.0 percent of GDP
in the forecasted period.
Uzbekistan
The country trades in rare metals, gold, cotton and mineral oils as well
as oil distilled products. Adverse price movements for the commodities have
not impaired the trade balance. Annual inflow of personal remittances keep the
balance of the current account at surplus. Unless the new industrial projects
that might be initiated in the future, trade as well as current account balance
would be at surplus. Half of Uzbek exports go to Switzerland and the Peoples’
Republic of China.
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The State Statistics Committee of Uzbekistan gives no information
about the structure of exports or imports except of the value of external trade
operations. Therefore, we use the statistical data from Trade map statistical
database to specify the structure and nomenclature.
Metals (precious, semiprecious, copper, rare
earth) comprised 36
percent of total Uzbek
export in 2016
Exports nomenclature includes precious/semi-precious stones, metals
circa 21 percent (in 2015 - 31 percent), cotton circa 14.5 percent, mineral fuels,
oils and products - 16 percent, copper - 9 percent, precious metals and rareearth metals - 6 percent, edible fruit and nuts, peel of citrus fruit or melons - 5
percent on average in the period of 2012-2015. The largest part of the Uzbek
exports goes to Switzerland (31 percent) and to the Peoples’ Republic of China
(21 percent). Circa 12 percent of exports go to Kazakhstan and 9 percent - to
the Russian Federation. The list of export items average 71 percent of the total.
Exports to GDP ratio amounted to 24.9 percent on average in the period of
2010-2016.
The largest items in the nomenclature of Uzbek imports are machinery
and mechanical appliances - 18 percent, vehicles other than railway or tramway
rolling stock - 13 percent, electrical machinery and equipment - 7 percent,
pharmaceutical products - 5 percent, mineral fuels, oils and products - 6
percent, iron and steel - 6 percent and wood and wood articles - 5 percent.
_
_
Figure 12.
External Trade of Uzbekistan, US$ bn
Source: State Statistics Committee of Uzbekistan, IMF, Tengri Capital
Those items made 60 percent of the total imports on average in 20122015. The Russian Federation and the Peoples’ Republic of China are the largest
importers of goods in Uzbekistan. Each country imports circa 22 percent. South
Korea imports 13 percent. Kazakhstan follows with 9 percent. Germany and
Turkeys import 5 percent each. Imports ratio to GDP averaged 21.8 percent in
the period of 2010-2016.
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Uzbekistan would not accede the EAEU in the nearest future as the
Minister Deputy of External trade and International Relations of Uzbekistan
announced recently. The accession does not meet the interests of the country.
Uzbekistan declared that it would continue to develop the external bilateral
trade relations with the Peoples’ Republic of China under the framework of the
SREB.
Uzbek current account
has never been in
deficit since 2005 and
we expect it to remain
in surplus in 2017-2021
The current account has never been at deficit since 2005 and would
remain at surplus in the forecasted period. In 2017, the current account surplus
would amount US$81m and would continue to pick up to US$384m in 2021. The
growing prices of gold, cotton, metals and energy would favor the current
account balance provided the country would not take extensive liberalization of
the economy at a quick pace. Current account balance would range from 0.1
percent to 0.5 percent of GDP of the country in the period of 2017-2021.
Turkmenistan
Energy concentrated nomenclature of exports is liable to considerable
value decline on adverse change in energy prices. Large technological projects
would require imports of technologically advanced machinery and equipment
thus affecting trade balance and current account. Returns from the
infrastructure and energy transportation projects would narrow current
account deficit in 2018-2019. High concentration of exports by country (the
Peoples’ Republic of China).
The State Committee on Statistics of Turkmenistan publishes only the
information of the amount of exports and imports in the period of 2007-2015.
The IMF and the WB give inconsistent statistical data for the country. The
Central Bank of Turkmenistan has no data available.
In Turkmen exports,
energy products
prevail (91 percent in
the 2015 structure)
According to the Trade map database, the export nomenclature is
largely limited to energy products (mineral fuels, mineral oils and products of
their distillation) that average circa 91 percent in the structure in 2012-2015.
Another 5 percent of the exports is cotton. Two major items make 96 percent
of exports. Turkmenistan increases its export potential by building gas pipeline
Turkmenistan–Afghanistan–Pakistan–India Pipeline (TAPI) that is to be
completed in 2019. Transportation capacity of 33bn cubic meters of gas
promises to increase the export revenues of the country. The major part of the
exports goes to the Peoples’ Republic of China (79 percent), 6 percent to
Pakistan and 6 percent to Turkey. Export to GDP ratio averaged 44.2 percent
and is the largest in the CA region.
Turkmenistan develops the bilateral relationship with the Peoples’
Republic of China under the SREB framework. Turkmenistan reconstructs and
builds new road infrastructure, builds multimodal transport system to integrate
in the SREB. It would increase the transition potential of the country as well as
facilitate the local exports of the country.
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Tengri Capital |Central Asia Macroeconomic Report
Figure 13.
Sector Report
External Trade of Turkmenistan, US$ bn
Source: State Committee on statistics of Turkmenistan, IMF, Tengri Capital
The structure of Turkmenistan imports in 2012-2015 comprises
machinery and mechanical appliances at circa 18.6%. Articles of iron and steel
stand for 14 percent of the structure, electrical machines and appliances
constitute to another 14 percent of imports. Iron and steel add another 5
percent. Railway vehicles and tramway rolling stock amount to 7 percent.
Complex appliances and machinery, steel and iron comprises circa 58-60
percent of the imports in Turkmenistan. Turkey imports circa 33 percent, the
Russian Federation circa 15 percent whilst the Peoples’ Republic of China
imports circa 14 percent of the total. Circa 6 percent of goods comes from
Germany. Kazakhstan imports 2 percent. Thus, five countries form 70 percent
of country’s import. Imports to GDP ratio amounted to 38.2% on average and is
the largest in the CA region.
Current account balance of Turkmenistan, according to the IMF
statistics, has demonstrated a decline since 2012 to US$3.70bn. According to
the IMF estimation, in 2016 the current account deficit struck US$6.78bn. (no
We expect Turkmen
current account
balance to be negative
in the forecasted
period and range from
-14.6 to -7.1 percent of
GDP
other source of current account of the country is available about the country).
According to our forecast, current account deficit would improve in 2017 on
growing natural gas and oil prices to US$5.8bn. In the period of 2018-2021,
current account deficit would continue to improve and in 2021, it would reach
US$3.47bn. We do not expect localization of the production of complicated and
technologically advanced machinery in the country, therefore the pressure on
trade balance would continue. However, uptrend of commodity prices would
make it possible to pick up in exports revenues to pay the imports. Current
account balance would be negative in the forecasted period and range from
-14.6 percent to -7.1 percent of GDP.
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The Kyrgyz Republic
Low competitiveness of the Kyrgyz exports and price dependent
imports adversely affect current account of the country. Personal remittances
and inflows at financial accounts of the BoP balance current account and trade
balance deficit. Exports are very concentrated by country and by product.
Current account deficit would persist and widen by 2021. The republic reexports Chinese imports in the CIS countries.
Exports nomenclature of the country comprises food products and life
stock circa 9 percent, circa 37-38 percent of gold and circa 5 percent clothes and
textile products. Cotton fibers amount to circa 1.5-2 percent of the total. The
listed items constitute to 53-55 percent of exports. The Kyrgyz exports are
seasonally variable.
Figure 14.
External Trade of the Kyrgyz Republic, US$m
Source: National Statistical Committee of the Kyrgyz Republic, IMF, Tengri Capital
Food products and life stock support the Kyrgyz exports in the summer
and in the autumn whilst in other seasons it is on a decline. Low
competitiveness
of
the
Kyrgyz
exports
and
relatively
undiversified
nomenclature are the major weakness of the external trade of the country.
Switzerland receives circa 34 percent of the Kyrgyz exports; Kazakhstan 21
percent of exports, 9 percent of exports goes to the Russian Federation and
circa 2 percent to the Peoples’ Republic of China. Export to GDP ratio averaged
29.4 percent in the period.
Imports of the country comprise circa 20 percent of mineral fuels, oil
and oil products, circa 15 percent are food, beverages, tobacco and natural oils
and 26 percent are machines and transport equipment. Those items amount to
61 percent of imports. Imports from the Russian Federation amounted to circa
32 percent, 26 percent of all imports come from the Peoples’ Republic of China,
another 14 percent from Kazakhstan. Imports to GDP ratio amounted to 72.2
percent on the average and is the largest ratio in the CA region.
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Accession of the Kyrgyz Republic in the EAEU improved current account
deficit from US$1.3bn to US$721m. In 2017, current account deficit would widen
to US$772m. Subsequently, current account deficit would increase to US$862m
in 2018 and to US$1.1bn in 2021. Current account deficit would average circa 12.7 percent of GDP of the country in the forecast period.
Tajikistan
Tajikistan has a limited export nomenclature. Personal remittances,
investments and grants balance current account deficit. Tajikistan’s aluminum
and cotton exports cannot compete with such regional and global aluminum
and cotton exporters as the Russian Federation, Kazakhstan and Uzbekistan.
Current account deficit would plateau at 5.5 percent of GDP in the future. The
republic re-exports Chinese imports in the CIS.
Metals (aluminum
various ores, precious
and semi-precious)
contributed almost 60
to the total Tajik
export in 2012-2015
According to Trade Map international statistics, the largest items of the
Tajik exports were aluminum (36.1 percent), ores, slag and ash (13.9 percent),
cotton (10 percent) and precious or semi-precious stones, metals (9.6 percent)
in the period of 2012-2015. The listed items averaged 70 percent of the total in
the period. Among the CA economies it the smallest indicator of openness of
the economy. The major export trade partners of Tajikistan are Kazakhstan (18
percent), Turkey (22 percent), Switzerland (15 percent), Afghanistan (10
percent), the Peoples’ Republic of China (6 percent) and the Russian Federation
(5 percent). The listed countries receive 77 percent of the Tajik exports.
Exports to GDP ratio averaged 15.5 percent in the period of 2010-2016.
Figure 15. External Trade of Tajikistan, US$ m
Source: Statistical Agency under President of the Republic of Tajikistan, IMF, Tengri Capital
The nomenclature of the Tajik imports consisted of mineral fuels and
products circa 11.7 percent, articles of apparel and clothing accessories circa
12.9 percent, machinery and mechanical appliances circa 7.1 percent, electrical
equipment circa 5.3 percent, vehicles other than railway or tramway rolling
stock circa 5.8 percent and cereals - 4.6 percent. Iron and steel amounted to 4.1
percent. Thus, the total of the major import items averaged 51.4 percent in the
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Half of Tajik imports
comes from China,
another 21 percentfrom Russia and 12
percent- from
Kazakhstan
Sector Report
period of 2012-2015. Half of imports (circa 50 percent) in Tajikistan comes from
the Peoples’ Republic of China, 21 percent from the Russian Federation and 12
percent from Kazakhstan. Imports to GDP ratio averaged 47.7 percent in the
period of 2010-2016 and the ratio is the second largest in the CA region after
the Kyrgyz Republic.
Tajikistan is not a member of the EAEU and the price for oil products
from the Russian Federation is higher than for the Kyrgyz Republic. Increase in
oil prices, decrease in price of gold and decrease of remittances widens the
countries trade deficit.
Current account deficit of Tajikistan ranged from US$261m to US$699m
in the period of 2010-2016. According to our calculations, deficit would persist
until the end of the forecasted period. Current account deficit would reach
US$276 -275m in 2017-2018 period and would continue to pick up to US$404m
in 2021. Current account deficit would equal circa 5-5.5 percent of GDP in the
period of 2016-2021.
Central Asia current account and trade summary data
The table below represents the overview of factual current account and
trade data for the five CA republics as well as our forecasts over next five years.
Table 4. Central Asia External Trade Statistics, US$m
2010
2011
2012
2013
EXP
IMP
TRB
CAB
CAB/GDP
60,271
31,127
29,144
-4.121
-2.8%
84,336
36,906
47,430
1.385
0.7%
86,449
46,358
40,090
10.199
4.7%
84,700
48,806
35,895
1.058
0.4%
EXP
IMP
TRB
CAB
CAB/GDP
13,023
9,176
3,848
2.397
6.2%
13,356
9,256
4,100
2.612
5.8%
13,600
12,817
783
0.921
1.8%
14,323
13,947
376
1.631
2.9%
EXP
IMP
TRB
CAB
CAB/GDP
9,679
8,204
1,476
-2.349
-13.5%
16,751
11,361
5,390
0.582
-8.0%
19,987
14,138
5,848
0.015
1.7%
18,854
16,090
2,764
-2.983
0.0%
EXP
IMP
TRB
CAB
CAB/GDP
1,756
3,223
-1,467
-448
-9.3%
2,242
4,261
-2,019
-477
-8.1%
1,928
5,576
-3,649
-1,025
-15.5%
2,007
5,987
-3,980
-1,009
-13.8%
EXP
IMP
TRB
CAB
CAB/GDP
1,195
2,657
-1,462
-0.540
-9.6%
1,257
3,206
-1,949
-0.476
-7.3%
1,360
3,778
-2,419
-0.699
-9.2%
1,162
4,151
-2,989
-0.659
-7.7%
2014
2015
Kazakhstan
79,460
41,296
38,164
0.858
0.4%
45,956
30,568
15,388
5.994
3.3%
2016E
2017F
2018F
2019F
2020F
2021F
35,768
26,513
9,255
-5.464
-3.9%
42,257
27,627
14,629
-2.681
-1.9%
46,521
29,708
16,813
-1.563
-1.0%
48,519
31,177
17,342
-1.748
-1.1%
51,917
33,188
18,729
-1.401
-0.8%
56,045
35,218
20,828
-0.763
-0.4%
12,055
11,172
883
0.047
0.1%
13,576
13,109
467
0.081
0.1%
14,192
13,565
627
0.180
0.3%
14,516
13,751
765
0.221
0.3%
15,460
14,332
1,128
0.365
0.5%
15,814
14,738
1,076
0.384
0.5%
10,868
13,784
-2,915
-6.780
-10.1%
13,048
14,866
-1,818
-5.795
-14.6%
14,490
15,826
-1,336
-5.008
-11.8%
15,301
16,588
-1,286
-4.379
-9.8%
16,229
17,225
-996
-3.876
-8.3%
17,369
17,988
-619
-3.474
-7.1%
1,565
3,953
-2,388
-867
-13.4%
1,679
3,899
-2,222
-772
-11.6%
1,705
4,302
-2,598
-862
-12.5%
1,789
4,688
-2,898
-959
-13.2%
1,841
5,027
-3,184
-1,037
-13.4%
1,935
5,183
-3,243
-1,058
-12.9%
924
3,246
-2,322
-0.331
-4.7%
972
3,419
-2,446
-0.276
-4.8%
1,006
3,601
-2,595
-0.275
-5.0%
1,017
3,755
-2,738
-0.303
-5.1%
1,101
3,929
-2,828
-0.371
-6.0%
1,125
4,119
-2,994
-0.404
-5.5%
Uzbekistan
13,546
13,984
-439
0.454
0.7%
12,139
12,417
-278
0.093
0.1%
Turkmenistan
19,782
16,638
3,144
-3.475
-6.5%
12,164
14,051
-1,887
-3.695
-9.7%
Kyrgyz Republic
1,884
5,735
-3,851
-1,301
-17.4%
1,676
4,070
-2,393
-721
-11.0%
Tajikistan
977
4,297
-3,320
-0.261
-2.8%
891
3,436
-2,545
-0.472
-6.0%
Source: Tengri Capital, IMF, National Agencies and Committees on Statistics
_
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Central Asia Region FX rate Rationale
Commodity prices and
remain the major
factor to impact FX
rates, mainly for
Kazakhstan
The CA countries are under a combination of several factors that
adjustments of the FX rates (foreign currency exchange rate) of the respective
countries to the economic challenges of the global and regional character. The larger
the openness and GDP of the country, the more essential are FX rate fluctuations.
Some countries of the CA region are the mono exporters of commodities; some have
several staple products in the structure of its exports. The fluctuations in prices of
commodities at the international exchanges inevitably change the value of exports
and urge the FX rate adjustments as well.
The global price movements not the only factor to trigger FX rate
As Russia is the largest
trade partner of
Central Asia, the
changes in the FX rate
in Russia translates
into FX adjustments
locally
adjustments. Neighboring trade of the CA economies conditions the further FX
adjustments to level the misalignments with the local trade partners. The
largest trade partner of the CA countries is the Russian Federation. The changes
in FX rate of the Russian Federation is immediately translated to FX rate
adjustments of the local countries even though the uptrend prices of
commodities favor the FX rate by strengthening it. It is evident that countries
with free-floating regime have already developed pass-through effect on its FX
rate adjustments. Thus, appreciation of RUB to USD resulted in depreciation of
the national currencies of relatively small economies - the Kyrgyz Republic (KGS)
and Tajikistan (TJS). The pass-through effect differs depending on the openness
as well as of the amount of GDP economy generates. Thus, correlation between
RUB FX rate changes produce a pass-through effect upon KGS FX rate amounts
(19) percent in the period of August 2016 – February 2017, whilst the reverse
correlation with TJS is strong and amounts 72 percent.
Currently FX rate movement of the Russian Federation translates at the
FX rate of the largest economy of the CA, Kazakhstan. KZT and RUB are the free
floaters with limited FX rate management. Inflation targeting priority in
monetary policy of both countries and oil export profile as well as openness of
the economies find reflection in unison movements of FX rates. RUB passthrough effect on FX rate of KZT evidence positive correlation at 80 percent.
The rest economies are less susceptible to changes FX rate movements
of the Russian Federation, as the economies are less open to each other
through trade or FX alignments have a lag in time.
Personal remittances
is another FX rate
adjustment factor for
Kyrgyz Republic,
Tajikistan and
Turkmenistan
Personal remittances is another FX rate adjustment factor has an
essential effect over the national currencies. Thus, personal remittances in the
Kyrgyz republic averaged 28.6 percent of GDP, in Tajikistan – 38.1 percent,
Turkmenistan -14 percent and Uzbekistan -2.9 percent in the period of 20102015. Annual inflow of 1.7 - 4.7bn. US dollars in the country requires regular
alignment of FX rates of the respective countries.
Therefore, USD/RUB FX rate fluctuations produce the same effect upon
the CA regional currencies as USD fluctuations produce upon the major global
currencies.
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Central Asia Region FX rate specification
Most of the FX rate regimes of the CA countries are free floating with
different anchoring (Kazakhstan, Tajikistan, and the Kyrgyz Republic). The
monetary policy of the mentioned economies prioritize inflation targeting
whilst market regulates exchange rate with limited participation of the
Regulators.
Turkmenistan’s FX rate is a conventional peg anchored to US dollar with
rare adjustments. In Turkmenistan, the Regulator (CBT- the Central Bank of
Turkmenistan) arrange TMT FX rate by law, however, the President of the
country is a principle decision maker. Thus, TMT FX rate is not under the market
mechanisms of FX rate formation.
Uzbekistan FX rate is a crawl peg arrangement and unlike other
exchange rates of the CA region has limitations. The Regulator (CBRU – the
Central Bank of the Republic of Uzbekistan) acts as a seller and a buyer of the
foreign currency to meet demands of the economy. UZS FX rate has the limited
effect of market price formation.
Central Asia Region FX rate Outlook and Assumptions
In the FX rate forecast analysis, we input commodity prices as the
independent variables conditioning the FX rate adjustments. Country-tocountry FX rate analysis evidences strong correlation between the changes of
prices of corresponding commodity that is the principal item of exports of the
respective economy.
Commodities promise moderate uptrend
We base our FX forecast that the prices for energy commodities (Brent
and NG), gold, metals and cotton would show a moderate uptrend dynamics. In
2017, we use forward quarter contract prices for Brent as a forecast following
the market sentiment. Subsequently we incorporate the Bloomberg consensus
forecast prices for the major commodities in our FX forecast module.
Evidently, the Brent as well as NG uptrend prices would favor
Kazakhstan, Uzbekistan and Turkmenistan, the major energy exporters of the
CA region. Energy dependent countries, such as Tajikistan and partly the Kyrgyz
Republic would suffer adverse effect from such an up-movement. The metal
pries seems to follow the energy prices and it would produce a positive effect
on value of exports of all CA economies, as almost all of them are the metal
exporters. Turkmenistan, Tajikistan and Uzbekistan would benefit on growing
cotton prices in 2017-2021 as well.
Current picking up in gold prices is due to weakening of global USD FX
rate on political uncertainties of the President Trump’s administration. This year
it might evidence the best pick-up in prices as a hedge tool against global
uncertainties but in the long term, it would grow up gradually and more or less
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Sector Report
stable. Gold price up movement would favor the Kyrgyz Republic, Uzbekistan
and Tajikistan as well known as the major gold exporters in the CA region.
Federal Reserve tightening of monetary policy
The expected increase
in the Federal Reserve
rates is would make
the US dollar strong
CA region FX rate adjustments would be conditioned by expected the
FRS increase of discount rate up to 1.50 -1.75 percent this year. The expected
change in the FRS discount rates is not the only driver that technically would
make the US dollar strong. Mr. Trump promised in his election campaign to
restore Glass Steagall Banking Act, which prohibited commercial banks to
participate in the investment banking. Bill Clinton repealed the Act in 1999.
Besides, Mr. Trump promised to dismantle Dodd-Frank Act (2008) to make the
banking system more viable. Overall, it might make commodity markets more
predictable and driven fundamentally by economy and not by speculation. The
Wall Street and banking policy changes as well as tight money policy of the FRS
would make USD globally strong and that, in its turn, will urge adjustments of
FX rates of the regional currencies. If Mr. Trump’s election promises are to be
implemented the speculative capital would search for the new markets.
Russian economy recovery accompanied by lifting sanctions becomes
attractive for capital inflows
We believe, Russian
economy is attractive
for foreign investors at
this stage, which may
cause capital inflows
and RUB strengthening
We believe that the Russian Federation would experience the inflow of
investments in 2017. The capital inflow accompanied with growing commodities
might produce the expressive strengthening of the Russian ruble. We believe
the partial lifting of the sanctions from the Russian Federation are possible to
occur by 1H2017. The sovereign debt of the Russian Federation would became
attractive for the investors and ruble denominated assets would be on a
demand in the middle of the year. High key rate of the Central Bank of the
Russian Federation would make the fund instruments attractive for investors
as well as for market speculators. Inflow of hot money at the stock exchange
would appreciate RUB FX rate urging regional currencies to align.
The afore-mentioned factors would determine so far the changes in FX rates of
the regional economies.
Kazakhstan (KZT)
KZT FX rate would
depreciate to 342.1
KZT per dollar
Kazakhstan FX rate would be under several diametrically opposed
influences. The forecasted level of oil prices would support the FX rate from
depreciating whilst the FRS restrictive monetary policy would urge depreciation.
If our lifting sanctions scenario finds place, appreciating Russian ruble would
strengthen KZT. In two years’ time, we expect investment inflows into
Kazakhstan, especially in oil and gas sector as well as into agricultural sector.
Capital inflow in those sectors would appreciate KZT FX rate. Such a tug of
warring influences would level the FX rate at 342.1-342.6 KZT per USD in 2017.
Slight depreciation in Kazakhstan in the subsequent years would technically
stimulate exports under the moderately growing prices for energy commodities
hence keeping the expanding imports balanced to meet the industrialization
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and modernization plans of the state. KZT FX rate for 2018-2021 would range
from 351.7 to 366.4 KZT per US dollar on average.
Uzbekistan (UZS)
UZS FX rate limitations imposed by the Regulator in 2013 on free
exchange conversion gave growth of non-formal exchange market where UZS
FX rate anchored to USD is double higher of the official one. Crawling
depreciation of UZS is half behind of the real alignment with the currencies of
neighboring countries. The FX liberalization of the new President of Uzbekistan
proposes a new framework for exchange regulation including free conversion
of foreign currency, purchase of foreign currency by exporters and importers in
the country, opening of the accounts in the local banks by non-residents etc.
The initiative is to liberalize foreign trade and improve investment climate in the
country. The new exchange regulation would be prepared in 1H2017.
UZS FX rate would
continue crawling
depreciation to 4,145
by 2021
We believe that such exchange regulations would result in temporary
misalignments with major currencies. Our current FX model does not
incorporate the effect from the offered initiative since it is only a project and its
implementation might be gradual or postponed. The model, based on the
historical and current inputs, shows depreciation of the UZS anchored to USD
in the forecasted period. If the project of the President comes in effect as the
law on exchange regulations, UZS FX rate gradually would approximate the
black exchange market rate or the level of FX rate used for EXIM operations
(8000.00 UZS per US dollar) and would increase 2.5 times our FX forecast for
the country. In 2017, UZS FX rate would be 3,211 per US dollar on average whilst
in 2018 it would average 3,423 and by 2021 would reach 4,145 UZS per US
dollar.
Turkmenistan (TMT)
We do not expect neither depreciation nor appreciation of TMT FX rate
TMT FX rate would be
pegged in the period
at 3.50 TMT per dollar
to US dollar in 2017. TMT FX rate would plateau at 3.50 TMT per US dollar. We
base our assumption on stable or moderately positive outlook for commodity
prices that would favor and support the current peg of TMT to USD. Energy
prices would support TMT at the same level in the period. The CBT (Central Bank
of Turkmenistan) temporally imposed a ban of free conversion of foreign
currencies for legal entities. Free currency conversion is allowed only under the
state projects. We believe it would raise the black market for illegal conversion
of foreign currency in the country and would impair the external trade. Parallel
co-existence of two markets would create an additional pressure on the
national currency urging its further depreciation in the future.
The Kyrgyz Republic (KGS)
KGS FX rate has relatively weak correlation between the Russian ruble
and Kazakh tenge, nevertheless the external trade with both countries would
require adjusting the FX rate by slightly depreciating it. Slowly growing prices
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Tengri Capital |Central Asia Macroeconomic Report
KGS FX rate would be
70.9 KGS per UA dollar
Sector Report
for gold in the period would slightly appreciate KGS FX rate. We do not expect
appreciation of KGS FX rate through investments channel as excepted
infrastructure projects of the government investments would be limited. The
Russian economy would demonstrate growth in 2017 and that would boost up
the money transfers into the republic effecting appreciation of KGS FX rate.
Tourism is a seasonable factor that also supports the Kyrgyz national currency
by appreciating it. Adjustments of KGS FX rate would occur several times in 2017
reflecting appreciation of US dollar to the global currencies and regional
alignments to it. In 2017, the average KGS FX rate would be 70.90 per US dollar.
In the period of 2018-2021, KGS FX rate would range from 73.26 to 77.80 per US
dollar.
Tajikistan (TJS)
TJS FX rate would
depreciate to 9.7351
by 2021
Tajikistan’s FX rate has multi-dependence on prices of energy resources,
metals esp. aluminum, gold and cotton prices. The growing prices would
appreciate TJS but concurrent uptrend of energy prices (Brent has strong
negative correlation at 78.5% since 2010) would depreciate the currency. Unlike
the Kyrgyz Republic, Tajikistan is not a member of the EAEU, thus has to buy oil
products on special terms lower than the market price but higher than it goes
to the Kyrgyz Republic. However, the principal TJS FX rate mover is the
remittances from the Tajik labor migrants. The National Bank of Tajikistan
minimizes TJS FX rate fluctuations by converting all remittances into TJS
according to the official exchange rate set by the Bank. The Peoples’ Republic of
China is the principal foreign investor in the country with circa 50-53 percent of
total FDIs would extend its presence in the economy. Inflows of foreign currency
and growing remittances would produce appreciating effect on TJS; however,
growing energy prices would push the value of imports up and urging exports
to expand through adjusting TJS FX rate down (depreciating).
TJS FX rate would keep aligned with RUB and KZT as it is another passthrough channel influencing TJS. TJS FX rate manifested a strong negative
correlation ratio at 72 percent to RUB and 67 percent to KZT. In 2017, the TJS
FX rate to US dollar would average 8.88 whilst in 2018-2021 we expect it to
depreciate from 8.8831 to 9.74 TJS per US dollar.
Table 5 Central Asia FX Rate Statistics ( year average)
USD/KZT
USD/UZS
USD/TMT
USD/KGS
USD/TJS
2010
2011
2012
2013
2014
2015
2016
2017F
2018F
2019F
2020F
2021F
147.4
1588
2.85
45.96
4.37
146.6
1716
2.85
46.15
4.49
149.7
1890
2.85
46.99
4.76
152.1
2096
2.85
48.43
4.76
179.2.
2315
2.85
53.65
4.85
221.7
2573
3.50
64.45
5.79
342.2
2969
3.50
69.91
7.77
342.1
3211
3.50
70.90
8.19
351.7
3425
3.50
73.26
8.88
355.5
3651
3.50
74.89
9.21
360.3
3891
3.50
76.09
9.51
366.4
4145
3.50
77.80
9.74
Source: Tengri Capital, National and Central Banks, National Agencies and Committees on Statistics
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Appendix I: Abbreviations and Acronyms
CA – Central Asia
NGDP – Nominal GDP
RGDP – Real GDP
EXP – Exports
IMP – Imports
TRB – Trade Balance
CA- Current account
CAB – Current account balance
ADB - Asian Development Bank
WB – World Bank
IBD – Islamic Development Bank
CAREC - Central Asia Regional Economic Cooperation
EAEU – Eurasian Economic Union
SME – Small and Medium Size Enterprises
TAPI – Turkmenistan –Afghanistan- Pakistan-India gas pipeline
NG - natural gas
GE – General Electric
CPS - country partnership strategy
SREB - Silk Road Economic Belt
TRACELA- Transport Corridor Europe-Caucasus-Asia
OECD ‑ Organization for Economic Co-operation and Development
FAO – Food and Agriculture Organization
SPIID - State Program for Innovative and Industrial Development
TALCO - Tajik Aluminum Company
IFC – International Finance Corporation
FX – Foreign Exchange
CIA – Central Intelligence Agency
BoP – Balance of Payment
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ANALYST CERTIFICATION: The research analyst(s) responsible for authoring this report hereby certifies or certify that (i) the views
expressed in this report accurately reflect the personal views of the author(s), while not necessarily representing the viewsof their
employer and (ii) no part of this report was influenced by commercial considerations of their employer.
IMPORTANT DISCLAIMER: The information provided in this report is for informational purposes only. No warranty or representation
is made as to the correctness, completeness and accuracy of either the information provided or the conclusions drawn. Opinions
reflected in this document may change without notice. Opinions expressed may be different or inconsistent with views reflected in
other reports produced by Tengri Capital, and Tengri Capital assumes no obligation to bring such other reports and opinions to the
attention of any recipient of this present report.
© Copyright 2016. Tengri Capital, JSC, Nurly Tau 4B, 17 Al-Farabi, Almaty 050059, Kazakhstan. All rights reserved. When quoting
please cite “Tengri Capital Research”.
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