Moody's Explores Fallout Of US Tariffs On Central Asia And S. Caucasus Economies

(MENAFN- Trend News Agency) BAKU, Azerbaijan, April 21. The direct economic impact of US tariffs on countries in the Central Asia and South Caucasus region will be limited, Trend reports, via the report of the Moody's rating agency.

"On 9 April, the US (Aaa negative) postponed imposing higher additional tariffs on imports from several countries, including (Baa1 stable). Initially, Kazakhstan faced a 27 percent tariff on its exports to the US, well above the baseline 10 percent tariff effective 5 April for Central Asia and the Caucasus region, including Kyrgyzstan, Tajikistan, Azerbaijan, and Georgia.

The tariffs' direct economic impact on countries in the region will be limited. Along with the tariffs being moderate, the US accounts for only a small fraction of the country's total exports, most of which will avoid the new tariffs. For instance, according to Kazakhstan's Trade Ministry, more than 90 percent of the country's exports to the US comprise crude oil, uranium, silver, and other raw materials, which are exempt from tariffs," the agency said.

Meanwhile, according to Moody's, economies and certain sectors in Central Asia and the Caucasus would be indirectly affected by the US tariff policy if it leads to slower economic growth globally, especially for the region's key trade partners, such as Russia, China, and the EU.

"Lower commodity prices would affect the main exports of many Central Asia and Caucasus countries, while an overall decline in economic and investment activity would lead to reduced demand for their exports. Conversely, the shift in global trade flows could create regional opportunities, such as more favourable pricing on local markets for some goods, such as various equipment, metals, and building materials, that may be redirected from the US market. A global trade war ignited by the sweeping US import tariffs could also push affected countries to seek new trading partners, potentially increasing interest in the resource-rich Central Asia and Caucasus region.

The region also has significant transport and logistics potential, as a link between north and south, and east and west. In particular, the cargo rail sectors in Kazakhstan and Azerbaijan could get a boost from rail transit operations between Asia and Europe. The boost could drive up investment and the need for new bank lending in attractive and rapidly growing sectors. However, risks remain high amid the heightened economic uncertainty and volatility," said the report.

Moody's analysts emphasized that in recent years, the largest regional economies – Kazakhstan, Azerbaijan, and Uzbekistan – have made major strides in diversifying their economies and enhancing their economic resilience.

"Most regional banking systems have also built substantial buffers to help them withstand moderate shocks, while a tightening of regulations following the pandemic and 2014-15 currency crisis in many developing countries has resulted in declines in dollarization at banks, making them less vulnerable to external shocks," the report added.

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