From cyclical recovery to economic tailspin
The winter crisis and drought of 2008-2009 revealed the fragility of the rapid GDP growth Kyrgyzstan reported during 2007-2008. Sharp reductions in winter electricity and heat supplies for households, schools, health-care institutions, and commercial enterprises led to significant declines in industrial output and growing concerns about access to public services.
When combined with high or rising food and energy prices and falling remittances for vulnerable households (see Table 1 below), these non-traditional threats to household welfare blurred the distinction between development programming and humanitarian/emergency responses, for the government and the international community.
References to “compound” and “slow onset” crisis to describe this situation (in Tajikistan, as well as Kyrgyzstan)—reflecting the linkages between energy, water, and food insecurity, linkages with potential cross-border elements—became increasingly common.[1]
During the first months of 2010, it seemed that Kyrgyzstan had largely put the “compound crisis” behind it. Water levels at the main hydropower stations were approaching seasonal norms, boosting electricity generation and industrial production. 16% GDP growth was reported during the first quarter of 2010; while a 30% increase in remittances buttressed vulnerable household incomes. Kyrgyzstan seemed to be enjoying a strong cyclical recovery from the growth slowdown produced in the 2009 by the global financial crisis; a return to a “normal” developing economy growth trajectory seemed within reach in 2010.
Then came the events of April and June, which (among other things) have reminded us just how fragile such “normalization” can be. To be sure, the April popular uprising against former President Kurmanbek Bakiev created new opportunities for governance reforms—particularly in the energy sector, where attempts to significantly raise tariffs without dealing with the sector’s governance lacunae helped precipitate these events. But if the clouds of the April events may have promised certain silver linings, developments in June were another matter. In addition to the tragic loss of life, the displacement of 400,000 persons, and deep scars left on Kyrgyzstan’s body politic, the June events also appear to have had a devastating effect on the country’s economy.
On 9 July the National Statistical Committee reported that GDP growth for the first half of 2010 had slowed to 5% (compared to the first half of 2009).[2]This suggests that GDP during the second quarter declined by some 5%—and by a massive 13% in June (compared to June 2009). To be sure, 5% GDP growth for the first half of 2010 is not so bad—especially if social peace can be restored and the economic situation turned around in the second half of the year. Unfortunately, according to recently released projections by the Ministry of Economic Regulation and Trade (MERT), GDP is forecast to decline by nearly 9% in 2010 for the year as a whole. This would mean a fall of GDP in the second half of the year by at least 20%. Not surprisingly, MERT expects the bulk of this decline to occur in the southern regions that have been most affected by the ethnic conflict. GDP in Osh city is projected by MERT to fall 48% this year; declines of 38% and 30% are forecast for the Osh and Jalalabad regions, respectively. Sharp contractions in the service sector (reflecting damages to the trade infrastructure, as well as drops in retails sales, transport, and tourism) and in agricultural production, are expected to drive these declines.[3]Large reductions in household incomes and spending are also suggested by the retail sales data, which show a 12% decline in the first half of 2010.
For a country in which about a third of the population lives at or below the poverty line, and which is already suffering from serious socio-political and ethnic tensions, such economic trends could be catastrophic. Are these projections realistic? Less pessimistic prognoses are apparently being developed by the National Bank, and perhaps by other government agencies. Still, no matter how the economics news from Bishkek is parsed, too many arrows are pointing in the wrong direction—downward. Many vulnerable households are clearly facing new threats to their welfare (especially in the south); and government efforts to prepare for the upcoming winter, and to finance payment of social protection, social services, and public sector wages, are likely to face fresh difficulties. In addition to rebuilding houses and ensuring energy supplies for thousands of displaced families, the government must finance the purchases of winter fuels and equipment, as well as repairs to Kyrgyzstan’s debilitated energy and water infrastructure. This could increase the probability of another winter crisis in 2010-2011—despite much higher water levels in the hydropower stations along the Naryn Cascade.
Prospects for an effective response
Much may depend on the timeliness and effectiveness with which policy makers in Kyrgyzstan, and the international community, can respond to the economic dynamics now taking hold. The 27 July donors forum in Bishkek, in which the joint economic assessment (work on which has been led by the World Bank, IMF, and Asian Development Bank) will be presented— and where both emergency humanitarian as well as longer-term development support will be discussed—could be quite important in this respect. In 2009, the international community—led by non-OECD/DAC donors such as the Russian Federation, as well as the IMF, World Bank, UN, and other traditional donors—provided significant budget support and humanitarian assistance for Kyrgyzstan. Thanks to this help, the Kyrgyz economy managed to report moderate GDP growth last year, while the government was able to increase spending on social protection and social services.
Decisions of a similar magnitude may not be taken later this month; the resolution of some questions may have to wait until after the results of the October parliamentary elections. Still, if significant amounts of Kyrgyzstan’s development progress during the past 5 years are not to be lost in 2010, an early, effective response to the economic trends now taking hold will be needed—and the 27 July donors forum could be a good place to start. So is strong support for the $71 million UN flash appeal, which is meant to address Kyrgyzstan’s most immediate emergency needs.[4]But in the medium- and long-term, market and governance reforms may be far more important than money. Much may now depend on whether Kyrgyzstan’s government—buoyed by the approval of the June constitutional referendum endorsing the principles of parliamentary democracy—will be able to present a compelling, positive view of Kyrgyzstan’s future.
“Compounding” compound crisis
However the coming weeks and months unfold, events in Kyrgyzstan remind us that non-traditional threats to the welfare of vulnerable households, in the form of energy, water, and food insecurities, are important not only in and of themselves, and not only because addressing these threats often requires efforts to bridge the gap between development programming and humanitarian responses. These threats are important because they can themselves be symptoms of deeper, more fundamental—and more traditional—political, social, and economic crises. And, they can provide the spark that transforms development shortcomings into humanitarian crises and even situations of armed conflict. While such developments have many roots, the dramatic increases in household electricity and heating tariffs introduced in January—which were part of the response to the energy crises of the past two winters, and which were generally supported by the international community—were one of the causes of the April uprising. The April events served as something of a tipping point that helped set Kyrgyzstan on its present course, characterized by significant but difficult-to-anticipate combinations of development and humanitarian threats. In this respect, the consequences of the compound crisis in Kyrgyzstan may have themselves been “compounded”.
Ben Slay is senior economist for UNDP’s Regional Bureau for Europe and CIS.
Originally published here: http://europeandcis.undp.org/senioreconomist/
[1] See http://europeandcis.undp.org/home/show/60B55B69-F203-1EE9-B99CA6F9ED93A5B8.
[2] See http://www.stat.kg/rus/express.pdf.
[3] See“МЭР КР: Снижение валового регионального продукта в Оше по прогнозным данным 2010 г. составит в 54,3%”; and“МЭР КР:Снижение реального темпа роста ВРП Жалал-Абадской области прогнозируется на уровне 30%”, BusinessAkiPress, 8 July2010.
[4] The latest version of this document is available on http://www.humanitarianappeal.net.
