In a World Bank report, economist Ivailo Izvorski presented an analysis of the economic challenges faced by countries in Europe and Central Asia. His presentation focused on key issues such as competition, the role of state-owned enterprises, education quality, social mobility, and energy efficiency.
Ivailo Izvorski pointed out that the competitive environment in Europe and Central Asia (ECA) countries (including Albania, Armenia, Bosnia and Herzegovina, Georgia, Kyrgyzstan, North Macedonia, Moldova, Montenegro, Serbia, Turkey, and Turkmenistan) has worsened since 2006, The Caspian Post reports citing foreign media.
In countries like Armenia, Uzbekistan, Turkmenistan, and Pakistan, competition has declined, creating unequal business conditions. Large corporations, including state-owned enterprises, dominate markets, leaving little room for small and medium-sized businesses. This stifles economic growth and innovation.
State-owned enterprises: the legacy of planned economy
The report pays special attention to the role of state-owned enterprises. In ECA countries, the state retains significant influence on the economy through enterprises, in which it holds a stake of more than 10 percent. In Russia, Ukraine and Poland, state-owned enterprises are present in all 77 sectors of the economy.
This is a legacy of the planned economy, which still holds back the development of the private sector and the introduction of new technologies.
Ivailo Izvorski noted that in the ECA region, the share of state-owned enterprise revenues in GDP is significantly higher than in East Asian countries such as China and Vietnam. This, in his opinion, creates additional barriers to economic growth and modernization.
Quality of education and social mobility
One of the most pressing issues addressed in the report is the declining quality of education. According to the study, in ECA countries, PISA test results in mathematics, reading and natural sciences have significantly worsened over the past 10 years. For example, in Kazakhstan, only 40 percent of students demonstrate any qualification in education, while in India the figure is only 15 percent.
Ivailo Izvorski drew attention to the problem of social mobility. It is declining in ECA countries: children have fewer opportunities to improve their situation compared to their parents.
«This creates a ‘middle income trap’ effect at the personal level, when people lose motivation to develop and participate in public life,» he noted.
Energy: challenges and opportunities
The energy sector was another topic of the report. ECA countries consume three times more energy per unit of GDP than the European Union nations.
«This is due to the high share of state-owned enterprises in the energy sector, which often use outdated technologies and receive significant subsidies for fossil fuels,» he noted.
Ivailo Izvorski noted that coal, oil and gas subsidies in the region amount to about 5 percent of GDP, which is one of the highest rates in the world. This not only slows down the transition to green energy, but also creates imbalances in the distribution of resources.
In conclusion of the report, Ivailo Izvorski proposed a number of measures to improve the situation:
- Energy sector reform: Eliminate fossil fuel subsidies, introduce market prices for electricity and modernize energy systems to integrate renewable energy sources.
- Improving quality of education: Raising teaching standards, extending the academic year, and enhancing coordination between educational institutions and industry.
- Supporting competition: Create a level playing field for the private and public sectors, small and large businesses.
- Stimulating social mobility: Developing programs that allow people to improve their economic situation and provide a better future for their children.
Economic growth of Kyrgyzstan: success and challenges
The report was continued by economist Kanat Tilekeyev. He noted that Kyrgyzstan has shown impressive economic growth over the past few years.
He told that in 2022, growth was 7.2 percent, in 2023 - 6.3 percent, recalculated to 9 percent. These are the highest figures in recent years. The services sector played a major role, increasing its share of the economy to 52 percent.
«Kyrgyzstan has also become an important transit hub for the export of goods from China to Russia, which allowed the government to increase budget revenues. These funds were directed to investments in education, healthcare and physical infrastructure, which contributed to improving the quality of life of the population,» he noted.
According to Kanat Tilekeyev, one of the key problems holding back further economic development is the complex tax system. Parallel tax regimes are in place for small and medium-sized enterprises in Kyrgyzstan, which creates additional barriers when businesses move from one category to another. This hinders industrialization and the growth of companies.
The speaker stressed that in order to ensure sustainable economic growth, it is necessary to unify the tax burden for all categories of taxpayers, regardless of their size.
Challenges in education and employment
Research shows that many young people in rural areas face difficulties in finding work. About half of rural youth, especially women, do not have access to the labor market. Most of those who receive higher education do not work in their specialty, except for the education sector.
«Migration from rural areas to cities and beyond the country is likely to increase, as young people do not see prospects in agriculture. Only 25 percent of young people work in the agricultural sector, 75 percent are looking for opportunities in other industries,» he noted.
Energy and sustainable development
Kanat Tilekeyev told that Kyrgyzstan is participating in the OECD project on sustainable infrastructure in the Asia-Pacific region, which includes a component on decarbonization (reducing carbon emissions) in the transport and energy sectors.
However, investments in decarbonization remain unstable and heavily depend on donor support.
The expert noted that without active participation of donors, investments in clean energy could decrease by 70 percent, which highlights the need for a more sustainable approach to financing infrastructure projects.
Economic growth and demographic changes
Kanat Tilekeyev noted that Kyrgyzstan is in the process of demographic transition: population growth is slowing down, but the share of the working-age population is increasing. This puts pressure on the labor market - the country needs to create thousands of new jobs.
«Special attention is paid to the involvement of women in the economy: in the regions, their participation is 40-45 percent, in rural areas - up to 75 percent. However, many of them, especially from remote mountainous areas, migrate abroad in search of opportunities. Already now 40 percent of Kyrgyz labor migrants are women, and this trend is growing,» he said.
The government is trying to stimulate development in hard-to-reach regions through subsidies and preferential programs, but these measures are not enough for balanced growth.
