Central Asia's Rapid Growth to Continue in 2006-2007, Says ADB

News Release | 6 April 2006

HONG KONG, CHINA - Central Asia will maintain its rapid economic expansion with GDP growth in the region projected at 10.3% in 2006 and 9.8% in 2007, according to a major ADB report released today. The region grew 10.9% in 2005.

Regional inflation is expected to rise slightly to about 7.9% in 2006, but the current account is now expected to post a strong surplus due to high oil prices.

"Many Central Asian economies are benefiting from a range of reform measures under way. But the overall picture masks a large gap between growth in the oil-producing nations and the rest," said ADB Chief Economist Ifzal Ali in launching the 2006 edition of ADB's flagship annual economic publication, Asian Development Outlook (ADO).

"As a region, Central Asia would benefit most from an aggressive campaign to remove barriers to trade and foster closer economic cooperation," he said.

ADO 2006 forecasts overall growth for the 43 countries of developing Asia of 7.2% in 2006 and 7% in 2007.

In Armenia, rapidly rising incomes and falling poverty rates abetted by well-sequenced economic reforms are the country's current hallmarks. GDP growth is forecast between 6% and 7% in 2006-2007 as inflation is expected to be well contained, and the current account deficit is expected to narrow further. The medium-term outlook is favorable although prospects would brighten if an agreement to resolve the conflict over Nagorno-Karabakh was concluded and the country's borders were fully open to trade.

Azerbaijan experienced unprecedented GDP growth of 26.4% in 2005. This momentum is set to build further to 30.5% in 2006 and nearly that rate in 2007, driven by oil and gas production and exports as recent large investments come fully online. The 2006 budget calls for a very large increase in spending and the Government will need to carefully manage expenditure to avoid stoking inflation, which started to pick up last year. Key challenges are controlling inflation, preventing excessive appreciation of the Azerbaijani manat, and diversifying the economic base.

Ambitious structural changes, foreign investment, high prices for hydrocarbons, and political stability have spurred Kazakhstan's economy and improved living standards in recent years. GDP growth is projected to average 8.5% in 2006-2007 as high investment continues in this oil-driven economy. The challenge ahead is to maintain past successes and ensure broad-based development and employment by expanding non-oil manufacturing, raising productivity in agriculture, and extending the reach of small and medium-sized enterprises.

In the Kyrgyz Republic the "Tulip Revolution" and the fall in gold production at the country's major mine adversely affected the economy in 2005. The outlook is for recovery and GDP growth is projected at 5% in 2006 and 5.5% in 2007 based on implementation of an economic program supported by the Poverty Reduction and Growth facility of the IMF. The new Government has declared its commitment to addressing the three main challenges facing the country: low living standards, unemployment, and widespread corruption.

GDP growth in Tajikistan slowed to 6.7% in 2005 due mainly to falling cotton production and deterioration in the terms of trade. The outlook is for a recovery in activity with GDP growth projected at 8% in 2006 and then moderating to 6% in 2007. Progress has been made in implementing a poverty reduction and growth strategy in recent years, despite the legacy of weak institutional capacity and a limited resource base. Medium-term economic prospects are promising in view of the start of major foreign-invested projects and intensified efforts to advance structural reforms.

The outlook for growth in Turkmenistan is subject to considerable uncertainty because of the economy's heavy reliance on exports of a handful of energy and agricultural products. If prices for exports of natural gas rise in 2006 this will provide a short-term stimulus to the economy and GDP should grow 5%-7% a year in 2006-2007.

Uzbekistan has posted strong growth over the past two years with significant contributions from agriculture and robust performance on external trade. This growth momentum is expected to continue in 2006-2007 with GDP projected to expand about 6% annually, aided by greater foreign direct investment in the hydrocarbon sector. Medium-term prospects are bright; however, a sustained, broad-based high-growth track would require undertaking the critical mass of reforms needed for private sector-led growth.