Rebuilding An Empire
December 3, 2020
By: Issac Vinu
The regions of Central Asia and the Middle East are considered some of the most economically diverse parts of the world. The dependence of the Central Asian economy on oil, tourism, and various other resources has led to an economic crisis fueled by the isolation presented by the pandemic. The International Monetary fund recently reported that many Central Asian and Middle Eastern regions are facing an unprecedented economic downturn. This report also brings to light their heavy dependence on tourism and oil.
The challenge that COVID-19 brings stretches far beyond public healthcare. The pandemic travels beyond boundaries and does not forget to stir up socio-economic crises in the regions it affects. The Central Asian political landscape is on the verge of turmoil. With escalating tensions between countries in the Middle East and ever-changing foreign policies, this economic crisis might just be the wake-up call they have been waiting for.
The oil economy has been on a highly destructive journey since 2016. Today, regions with high economic dependence on oil are trapped in an almost never-ending spiral of debt. With countries like Saudi Arabia stepping up their debt insurance, we stand witness to a time where an industry that was once perceived to be indestructible is now being destroyed by a global economic crisis. In the current environment of 2020, oil prices are not looking much better. According to the IMF, most Gulf Economies are expected to move into budget deficits this year.
On the southeastern coast of the Arabian Peninsula lies a small country called Oman. Despite its size, the sultanate has witnessed some of the largest amounts of Foreign Direct Investments or FDIs in its economy. The economy was at an all-time high until the birth of the oil price crisis. Once praised for its neutrality, Oman is now being dragged into regional power struggles due to the economic downward spiral powered by the pandemic. With countries like Oman and Saudi Arabia affected, the global community needs to theorize and implement an effective solution to this problem.
Oil prices still remain a major player in economic reconstruction. Even though we are seeing increasing oil prices after the historic crash that came in March this year, we are still yet to see an improvement in global trade prices. With the oil economy under such pressure, the foundation of the Middle Eastern economy still lays under threat. We are already seeing its adverse effects on countries such as Saudi Arabia, Iraq, Iran, UAE, Bahrain, and Kuwait. This brings to light the immense and almost unhealthy dependence of the Central Asian economy on crude oil, which further proves the need for global economic diversification.
"I think what is important for the region going forward is we have now a situation where it's clear that diversifying the economy is the best way to get out of this crisis"
~ Jihad Azour, Director IMF Middle East and Central Asia Department
Before addressing the economic downturn, the humanitarian crisis created by COVID-19 needs to be addressed. This crisis brings to light the need for effective healthcare reforms and strong inclusion policies. At a time where public health is being held together at the mercy of a developing vaccine, effective budget and resource allocations need to be directed towards public healthcare and sanitation. Furthermore, ensuring that every worker has access to the healthcare system is essential in rebuilding the foundation of a fallen economy. The IMF has submitted a comprehensive report on the technicalities of this solution to the countries that have been affected. Their report also mentions the need for effective resource management to ensure that every single part of their economy can be reconstructed in a completely airtight manner.
When rebuilding an empire that once recklessly sacrificed sustainability and the environment, one stops to think about how we can take such destructive economies and paint it green. Being at the forefront of the global oil trade also means being one of the most efficient causes of global warming. The climate change crisis adds to the long list of problems the Central and Middle Asian communities need to focus on. When too much focus is put on developing effective economies, we often forget about developing sustainable economies. Global warming remains the greatest existential crisis we have ever faced. With the promotion of Green Infrastructure and major investments in sustainable energy, the Middle East just might be able to claim back its title of being the world’s energy hub.
Theoretically, Central Asian countries face the same challenges as their global counterparts, but the unique challenges introduced by its diverse geographical and cultural scale remains unmatched to those beyond the region. If we look at the numbers, we can see that almost all Central Asian governments had initially taken effective steps to contain the pandemic, but the real problems started to surface very quickly with the economic wildfire that came afterward.
One other major fuel to this economic crisis was the region’s dependence on migrant workforces and export earnings. Countries like Kyrgyzstan and Tajikistan are dependent on massive numbers of foreign-employed migrant workforces. This not only escalates the social landscape in the region, but it also means we will see an influx of unemployed individuals across Central Asian borders. Poverty is a major issue in Central Asia, with an estimate of over 1.4 million more people at risk of moving below the $3.20 poverty line in 2020. The mass unemployment that this crisis will bring might demolish the labor structure in upper-middle-income countries such as Kazakhstan.
For the coming months, Central Asia’s top priorities are to reduce losses and effectively eradicate the pandemic. Calculated decisions need to be made within the region itself to address the existing vulnerabilities in the economic system. Gradually building up investments without inviting risks into the country stays the most efficient way of economic reconstruction. Even after doing this, the region needs to effectively rebuild debt-ridden industries and ensure equally spread out tax burdens once the recovery moves in full swing.
The basic first step to economic reconstruction should always be investing in the people by evolving labor workforces and improving their standard of living. Today, both Central Asia and the Middle East have a second chance in doing this. With what is at stake here, they need to take this chance and push their potential to the maximum. We have seen some of the world’s greatest legends in the field of the economy come from the Central Asian region. With the right investments and support, the Central Asian economy stands a chance at being the backbone of the global economy.
Having covered almost all possible bases at economic resurrection, we still must address the lack of adequate international financial aid, which remains a major concern. With piling accounts of debt and a never-ending list of problems, the economic stability of these regions is not looking too great. Even though hopes of financial aid had vanished, the IMF came in with an investment of $17 billion as a jump start to get these economies up and running. With inflationary currencies and the aftermath of a global recession in the air, the future might seem dull for these countries, but this might not turn out to be the case. These regions are now given both the opportunity and means to rebuild their economies in an effective and sustainable manner. They will be able to meticulously plan and place the building blocks of their economic landscape with help from the IMF. Countries such as Tajikistan and Georgia can be given the opportunity to diversify their economies and move onto more expansive and rewarding investment portfolios.
In coming years, we might bear witness to events that will go down in history as illustrious. We are going to observe humanity outlive a pandemic and the construction of a green sustainable economy in the Middle East and Central Asia. Despite socio-economic struggles and a global healthcare crisis, effective management of resources and sustainable development planning might just get us through.
"We will undoubtedly look back on 2020 as a year of suffering for far too many. But let us also remember it as a time when our region recommitted itself to building a stronger, greener, and more inclusive future"
~ Joyce Wong, International Monetary Fund