In its newly released Global Economic Prospects report, the World Bank predicts slower growth for the economies of Central Asia and the South Caucasus in 2025 and 2026. While these predictions are likely to be indicative of the region’s economic trends for the next two years, notable trends in long-term economic dynamism remain.
Generally, the World Bank expects geopolitical tensions and increased military spending across Eurasia to negatively impact economic development. The World Bank also highlighted that the market accelerations caused by crisis will subside as those crises ease. Weak growth in Russia will also negatively impact remittance inflows, still a major source of growth for Central Asia and the South Caucasus.
South Caucasus
Georgia’s economy is expected to grow 5% by 2026, down from 9% in 2024. The country’s low tax rates and lax regulations remain attractive for entrepreneurs and companies, but limited funding for small & medium enterprises, along with weak productivity, persist as challenges for the country’s economy. Additionally, the influx of Russian citizens fleeing mobilization and repression at home since 2022 likely spurred growth. Georgian banks saw an increase of $445 million in deposits while the number of newly registered Russian companies grew by 9,500. This growth, however, is most likely short-term as many of these Russians are now leaving Georgia.
Protests in Georgia over the government’s decision to postpone the country’s application to the European Union have created short-term economic shocks. The Georgian lari lost 5% of its value since the October 26 elections, with fears that the country will plunge into stagnation and international isolation. Both the United States and European Union halted nearly all assistance funds to Georgia’s government in 2024, worth over $100 million annually.
Georgia’s government has sought other sources of investment, awarding a 49% stake to a Chinese-Singaporean consortium to develop the Anaklia deep-sea port, part of the “Middle Corridor.” Prime Minister Irakli Kobakhidze has also welcomed investments from the United Arab Emirates for the development of the Tblisi Dry Port project, set to open this year.
Azerbaijan’s economy grew by 4% in 2024 and is expected to grow by 2.4% by 2026. In 2024, Europe’s growing demand for gas prompted Baku to shift focus away from oil production. If this trend continues, it will likely cut into the country’s revenues because the European market for gas has proven to be volatile in recent years.
Gas remains a potential growth sector for Azerbaijan. Baku has signed several gas supply agreements with European countries, including an agreement to increase the capacity of the Southern Gas Corridor. The expansion hopes to increase Europe’s overall gas imports from 12 billion cubic meters to 20 billion bcm by 2027. If Baku manages to improve its current gas export capacity, capitalizing on the closing off of Russian gas to Europe, it might be able to cushion its decline in economic growth.
Armenia’s economy grew by 5.5% last year and is set to slow down to 4.6% by 2026. Yerevan has made overtures to strengthen its ties with the West and has attempted to distance itself from Russia by insisting it has withdrawn from the CSTO. Yet, the country still hosts two Russian military bases. Since the war in Ukraine, Armenia has become a transit hub for re-exporting sanctioned goods and technology to Russia Trade-turnover between Moscow and Yerevan reached almost $16 billion in 2024, 66 percent of Armenia’s GDP in 2023.
Central Asia
Expected growth figures in Central Asia are varied. Kazakhstan’s economy, which grew by 4% in 2024, is projected to grow by 4.7% this year but lowering to 3.5% in 2026. Uzbekistan grew 6% in 2024 and is expected to remain almost static at 5.9% by 2026. Kazakhstan and Uzbekistan are Central Asia’s largest economies, sizing up to a nominal GDP of $262.6 and $101.6 billion respectively.
Both Kazakhstan and Uzbekistan have benefited from the rise in demand for natural gas and critical minerals. In 2024, Kazakhstan’s trade surplus surpassed $20.1 billion, a 33.4% year-on-year increase from 2023. Although raw materials make up 80% of Kazakhstan’s exports, the country’s government has made efforts to develop its manufacturing capabilities to reduce dependence on the commodities market, including a recent $200 million Chinese investment in high-tech manufacturing. Additionally, Chevron recently announced a $48 billion expansion of the Tengiz oilfield.
Uzbekistan likewise has a promising economic outlook. The country has demonstrated its commitment to liberalizing the economy through efforts such as unifying the exchange rate and decreasing the country’s value-added tax (VAT) rate from 20% to 12%. With 60% of the country’s population under age 30, Uzbekistan is set to benefit from a sophisticated workforce, if it continues to invest in its human capital. Tashkent’s plans remain ambitious, aiming to attract up to $250 billion worth of investment by 2030.
Of the Central Asian countries, Kyrgyzstan and Tajikistan face steeper declines in economic growth that might be difficult to overcome. Kyrgyzstan is expected to grow 4.5% by 2026, just half of the 9% it experienced in 2022. Tajikistan’s economy is projected to grow 5% by 2026, compared to the 8% it saw in 2024.
A major structural issue for these countries is that remittances still make up a significant amount of Kyrgyzstan’s and Tajikistan’s GDP, 30% and 40% respectively. For both countries, the risk has been the dependence on remittances from Russia while the ruble faces increasing inflationary pressures since Moscow’s invasion of Ukraine.
While the World Bank report states that Kyrgyzstan’s economy grew by 5.8% last year, Kyrgyz authorities claim that it grew by 9%. As such, it has kept its central bank interest rate at 9%. Growth last year was attributed to an increase in real incomes, a rise in remittances, and the expansion in consumer lending.
Tajikistan remains Central Asia’s most impoverished country. Heavily underdeveloped and dependent on foreign remittances, opportunities for growth remain limited with the World Bank warning that state-controlled companies played too great a role in the country’s economy. China’s volume of infrastructure investments in Tajikistan continues to grow, although at a much smaller scale than in Uzbekistan or Kazakhstan.
No data on Turkmenistan was provided in the report. Ashgabat intends to play a greater role in the European gas market by making attempting progress on the Trans-Caspian Gas Pipeline, although this remains unlikely. It is worth noting that Turkmenistan has already outearned Russia in its gas exports to China.
Slow but moving
The World Bank’s latest report might expect slower growth within the Caspian region, but other notable trends provide strong indications of long-term growth opportunities. While the countries of region are on varying paths of development, the convergence of Sino-Russian activity, growing Western interest in the region, and the presence of strategic minerals is enough reason to keep watch on what is to come.
