What IMF Expects for Central Asia’s Economy in 2025

In 2024, Central Asia’s economy outpaced expectations, with regional growth reaching 5.4%, compared to 5% in 2023. Domestic demand remained robust, steady remittance inflows and infrastructure investment contributed significantly. Both oil exporters and importers saw upgrades of around one percentage point from initial projections. Despite this, the IMF forecasts growth will slow to 4.9% in 2025, fall further to 4.3% in 2026 and ease to about 3.8% over the medium term.

Several trends explain the projected deceleration:

• Oil output is levelling off after temporary boosts recorded in previous years.
• Positive spillovers from the Ukraine war, particularly in trade and remittance flows, are expected to fade.
• Global trade tensions have intensified. Tariffs reached century-high levels in 2024, which the IMF notes will weigh on investment and consumption worldwide.
• Fiscal policy support, notably in Kazakhstan, is projected to narrow as monetary conditions tighten and inflationary pressures continue.

IMF urges Uzbekistan to combat inflation and diversify trade

Uzbekistan remained one of the region’s fastest-growing economies in 2024. Growth was supported by higher real wages, expanded credit, and resilient remittance flows, especially from Russia. Real wages rose across key sectors, while private sector credit grew notably year-on-year. These trends lifted consumer spending, which became a major growth driver.

However, fiscal weaknesses emerged. Tax revenues underperformed due to broad tax incentives and weak compliance, especially in services. Value-added tax revenues also fell short. The IMF underscores the need to expand the tax base and improve collection.

Inflation remains high. Energy tariff hikes and fiscal expansion have kept inflation near double digits. The IMF projects inflation to remain elevated through 2025. Uzbekistan’s central bank is expected to maintain its restrictive monetary stance to address price pressures.

On external balances, remittances and controlled imports kept reserves at adequate levels. Still, export growth slowed sharply in 2024 compared to 2022-2023 averages. Trade diversion effects linked to Ukraine-related disruptions are expected to fade. The IMF stresses that diversification of trade partners is crucial for ensuring external stability.

Kazakhstan’s growth vs. inflation

Kazakhstan’s economy grew despite disruptions to oil production resulting from unplanned maintenance. The non-oil sectors, especially construction, services and transport, helped to make up for the losses. Fiscal stimulus also added to growth.

Yet inflationary pressures rose. The central bank raised policy rates by 225 basis points to contain inflation, which remains above target. Inflation is forecast to stay elevated in 2025 as fiscal support and tariff increases continue.

While growth is projected to moderate, it will still be supported by Tengiz oil field developments and infrastructure projects. Public debt, at about 20% of GDP, remains low. Still, inflation control will be critical in future policy decisions.

Reliance on remittances in Kyrgyzstan and Tajikistan

Kyrgyzstan and Tajikistan achieved steady growth in 2024, supported by rising wages, remittance inflows and credit expansion. In Kyrgyzstan, for example, credit to the private sector grew at double-digit rates while remittances remained a key driver of household incomes.

Remittances from Russia were equally important in Tajikistan. Remittance inflows exceeded $2 bn, helping households sustain consumption amid modest domestic job growth.

Inflation eased across both economies due to lower global commodity prices. Nonetheless, both remain vulnerable. Their dependence on remittances and limited export diversification increase exposure to external shocks. To improve resilience, the IMF recommends strengthening fiscal frameworks, improving domestic revenue collection and fostering private sector growth.

Persistent inflation in Turkmenistan without policy changes

Turkmenistan continues to experience inflationary pressures. Wage increases and expansionary fiscal policy pushed inflation to 4.8% in 2024. Without monetary tightening, inflation is projected to stay high.

Key risks facing Central Asia in 2025

Risks remain heavily tilted to the downside. A sharper-than-expected slowdown in Russia could undermine trade, remittances and investment flows, directly affecting Uzbekistan, Kyrgyzstan and Tajikistan, which rely heavily on Russia-linked remittance and trade channels.

A peace settlement in Ukraine could shift transit flows away from Central Asia. This would reduce transit revenues and could bring back migrant workers, putting pressure on local labour markets and consumption.

Countries like Kyrgyzstan and Tajikistan, where migrants account for a large share of the workforce, are particularly vulnerable.

Rising global protectionism, tighter global financial conditions, and possible new US interest rate hikes may increase borrowing costs, push capital outflows, and strain fiscal balances. Economies with limited fiscal buffers or higher public debt, such as Kyrgyzstan and Tajikistan, may encounter significant challenges.

Volatile commodity prices also remain a concern. Price swings could disrupt fiscal planning for oil and gold exporters like Kazakhstan, Uzbekistan and Kyrgyzstan. Higher global prices could undermine external balances and increase inflationary pressures for importers like Tajikistan.

Strengthening resilience through reform

The IMF stresses that Uzbekistan and Kazakhstan should maintain restrictive monetary policy to curb inflation. Broader fiscal reforms are necessary across Central Asia to expand tax bases, improve efficiency and strengthen compliance. Uzbekistan faces urgent challenges in this regard due to low tax revenue mobilisation.

The report highlights that labour market reforms, digitalisation and improved governance will be crucial for unlocking new growth drivers. Reducing dependency on Russia, improving global integration and enhancing institutional quality are seen as essential steps. Uzbekistan is advised to accelerate reforms in these areas to secure long-term growth.