SDG Scenarios for Central Asia using International Futures Model

In 2021 the database of government and inter-governmental response to COVID-19 was developed. It summarizes COVID response policies, grouped by countries, Response type, and Policy measures. The database provides a preliminary mapping of policies and programs to quantifiable variables that can be modeled in a systems map. Based on qualitative analysis, a set of possible scenarios (or development pathways) has been developed. This set corresponds to various dimensions of sustainable development and reflects possible paths of COVID recovery—(i) Health first: addressing the immediate health crisis caused by COVID-19 as well as strengthening health systems and outcomes more broadly; (ii) Protecting people: addressing the needs of the most vulnerable in the population, providing cash and in-kind assistance; (iii) Economic response and recovery: supporting business recovery, SMEs and the development of a more robust economy; (iv) Macroeconomic response and multilateral collaboration; and (v) Social cohesion and community resilience: improving governance and social equalities.

To promote knowledge sharing and peer learning a webinar was organized on 14 December 2021. The case study of North Macedonia “The European Pathway of The Republic of North Macedonia: Achieving Faster, More Inclusive and Sustainable Growth. North Macedonia 2035: Policy, Institutional and Economic Convergence With the EU” were presented by Aleksandar Stojkov, the lead author. Presentation of case study followed by very productive technical discussion. The webinar concluded with several practical takeaways:

All policy decisions come with trade-offs in resources and capacity. IFs allow us to explore not just the potential results of intervention packages in Central Asia but also their trade-offs and synergies. For example, while some scenarios result in better outcomes for the economy, they may perform less well in terms of human development outcomes like health and education. Governments operate with limited resources – investing heavily in one sector inhibits investment in others. And different policies or approaches benefit different groups. The two most powerful individual scenarios for poverty reduction are the Protecting People scenario, which addresses poverty directly through welfare transfers, and the Economic Response, which reduces poverty through economic growth. But each scenario is more focused on reducing different levels of poverty. While most of the poverty reduction in the Protecting People scenario occurs at the extreme poverty level of $1.90/day, poverty reduction in the Economic Response scenario is concentrated more among higher poverty levels, like the upper-middle income poverty threshold of $5.50/day. In short, the strict Economic Response is a boon for the middle class, but the worst-off groups benefit from targeted approaches, like that in Protecting People. On the other hand, some interventions are complementary. Through taking an integrated approach, the region can harness synergies and reduce many tradeoffs that exist between the individual recovery scenarios. With poverty reduction, it is possible to combine both the Economic Response and Protecting People strategies through an Integrated Recovery to grow the middle class without leaving the poorest behind. By mid-century, the Integrated Recovery scenario reduces the rate of extreme poverty by more than 70 percent, compared to the Current Path, and reduces poverty at the $5.50 level by nearly 40 percent.

Total people living on less than $5.50/day in Central Asia across scenarios. Source: IFs v 7.84

Moreover, combining approaches, when done well, can reduce tradeoffs by expanding the fiscal space. Interventions targeting economic growth alongside improvements in governance result in greater revenue, meaning more money that can be spent across other programs. The Integrated Recovery also leads to significant results in terms of government revenues. The Integrated Recovery scenario combines the rapid acceleration of growth from across scenarios with the improvements in government efficiency and effectiveness in Social Cohesion to generate additional revenue. By 2030, the scenario results in an additional $21 billion in annual government revenue across the region, a figure which grows to $185 billion by 2050. These revenues can have tremendous power if they are turned around and invested in the populations and future of Central Asian populations.

Scenarios

Health First

The Health First scenario is meant to be not only a scenario focused on addressing the immediate health crisis but on strengthening health systems and outcomes more broadly. The scenario assumptions or interventions include an increase in health spending as well as lowering the burdens of communicable and non-communicable diseases by targeting the two sub-categories that make up the greatest burdens within those categories. Through 2030 the Health First scenario results in a cumulative 4.1 million fewer disability-adjusted life years (DALYs), which grows to 20 by 2050. Through lowering the health burdens of both communicable and non-communicable diseases, it prevents the deaths of 2,700 per year on average through mid-century. And it extends the life expectancy of the region on average by more than half a year. Moreover, a focus on long-term improvement of the health system will make the region significantly more resilient to future health crises and pandemics. However, a singular focus only on the health systems has tradeoffs. The increase in health spending crowds out investments in other areas, like education, R&D, and infrastructure. The Health First scenario alone does not result in improvements in GDP and in fact by mid-century leads to a very slightly lower GDP per capita as a result of shifting investments and slight population growth. The benefits of improving the health system are clear, along with the importance of other policy focuses.

Protecting People

Protecting People is a scenario that comprises all of the non-health-system-related interventions meant to protect people’s livelihoods and futures. This includes measures to alleviate poverty and suffering in the short term through cash transfers as well as investments in education and expanding access to safe water. In the immediate term, Protecting People has a significant effect alleviating poverty. Through 2030, compared with a No COVID scenario, it pulls more than 800,000 people in the region out of extreme poverty (1.90 level) and 1.2 million people out of the upper-middle-income poverty threshold ($5.50/day). By 2050, it results in 400,000 fewer people in extreme poverty – a smaller gap than in 2030 due to expected progress along the Current Path and the waning effect of short-term policies alone – and 2.3 million fewer people living on less than $5.50/day. As a region, Central Asia has already achieved universal enrollment at the primary and lower secondary levels. But the Protecting People scenario improves outcomes in countries that are still behind to better the region as a whole. By 2050, the average education of the entire adult population is more than 10 percent greater than along the Current Path. Finally, improving water infrastructure results in 7,000 fewer children suffering from malnutrition by 2030. While these interventions in human development led to real improvements in the lives of people throughout the region, the Protecting People scenario alone still fails to address many important barriers to economic and social growth and does not address the key health system weaknesses revealed by the pandemic. It results in minimal changes to GDP, GDP per capita, as well as government revenue.

Economic Response

An underdeveloped private sector has been identified as an important limitation to Central Asia’s future growth. As discussed previously, the pandemic set back economic growth and, even with expected recovery, the region is not expected to catch up with its previous No COVID trajectory. The Economic Response scenario addresses this shortfall through measures aimed at traditional economic development. Interventions include increased exports and FDI, heightened investment in R&D, expanded internet access, lowered unemployment, and improved quality of employment through lowering informality. These interventions lead to real improvements in economic growth. The Economic Response scenario results in a cumulative $80 billion in regional GDP by 2030, leading to a cumulative $2.4 trillion in GDP gains by mid-century. In terms of GDP per capita, it surpasses the No COVID trajectory by 2044. This growth results in reductions in poverty as well. By 2030, Economic Response pulls more than 500,000 people out of extreme poverty ($1.90/day) and 2.5 million people out of the upper-middle-income threshold ($5.50). While the Economic Response is powerful for those living at higher poverty thresholds, compared with the Protecting People scenario it is relatively less effective at pulling people out of extreme poverty, leaving hundreds of thousands of the most vulnerable behind. A purely traditional focus on economic development results in real economic growth and fully makes up for the damage done by the pandemic. Absent further interventions, the benefits of that growth, in terms of poverty as well as human development, are not equally shared.

Social Cohesion

Good governance is crucial throughout all aspects of development. The Social Cohesion scenario is aimed at improving governance through improving transparency, government capacity, and effectiveness. All Central Asian countries rank in the bottom half of countries globally for transparency (measured using Transparency International’s Corruptions Perception Index). Four of the five countries rank in the bottom half for government effectiveness (using World Bank’s World Governance Indicators), with Kazakhstan ranking 81 out of 186 countries. The Social Cohesion scenario shows how powerful improvements in governance are for the region in the long run. By 2030, the Social Cohesion scenario results in a cumulative $50 billion in GDP gains. By mid-century, the Social Cohesion scenario is nearly as powerful as the pure Economic Response in generating growth, with a cumulative $2.1 trillion in GDP gains. Overall, the Social Cohesion scenario leads to some improvements by 2030, but really accelerates growth and poverty alleviation through mid-century. Good governance can be thought of as a key accelerator to support other policies. But these results show that a Social Cohesion and governance focus is incredibly powerful on its own – resulting in nearly as much economic gain as an Economic Response and lifting nearly as many people out of extreme poverty as a strategy focused on Protecting People.

Integrated Recovery

While the above scenarios all attempt to address a concentrated set of issues, they are not meant to be mutually exclusive. Just as the SDGs are “integrated and indivisible”, the pursuit of sustainable development requires a comprehensive effort that addresses multiple issue areas simultaneously. This is of course a challenging task. To better understand the challenges and benefits, we create an Integrated Recovery scenario, which comprises all of the interventions from the Health First, Protecting People, Economic Response, and Social Cohesion scenarios. The Integrated Recovery leads to significantly accelerated growth. See Figure 2. While even the most rapid individual recovery scenarios only surpass the No COVID scenario by the 2043, the Integrated Recovery scenario surpasses it a full decade early, in 2033. By mid-century, it results in a cumulative total of $4.5 trillion in gains above the Current Path.

GDP at market exchange rates for Central Asia across scenarios. Source: IFs v 7.84.

The effect of this accelerated growth in production is felt throughout the economy, lifting nearly 1.3 million people out of extreme poverty ($1.90/day) through 2030. Other outcomes also benefit from an integrated approach. By 2050 life expectancy grows by more than 1.3 years relative to the Current Path. This improvement is more than twice that seen in the Health First scenario alone, due to additional overall improvements in welfare and service provision.

Review of country policies for Building scenarios

Within this research it was also examined how country governments were responding in real time to the pandemic. Through a review of databases and reports on policy responses to COVID-19 (ADB & UNDP, 2020; EBRD, 2020; ESCAP, 2020; IMF, 2021; KPMG, 2020a, 2020b, 2020c; Kurpayanidi et al., 2020; Kuznetsova et al., 2020; OECD, 2022), a database of over 100 broad policy responses from Central Asian governments was compiled. This database included health response measures, like increased investments in healthcare, virus suppression and mitigation measures, like school closures and travel restrictions, and economic responses, including unemployment benefits, support for small businesses, and tax deferrals. Creation of the COVID-19 recovery scenarios was based on reviewing the policy response database and combined interventions from the socio-economic response plans put together by Central Asian country teams for a core scenario framework. The core scenario framework was generally maintained, but the key interventions applicable to the Macroeconomic Response and Multilateral Communication stream – increases in international trade and investment – were incorporated into the Economic Response scenario. Because country challenges and starting points do differ significantly, at times the parameterization of interventions was adjusted to maintain appropriateness of the magnitude of interventions. Interventions were further refined through a series of webinars and consultative workshop sessions held remotely with UN teams from Central Asian country offices (Kazakhstan, Kyrzgyzstan, Tajikistan, Turkmenistan, and Uzbekistan) as well as national partners from universities and think tanks. The interventions from the recovery scenarios are listed in Table below

List of interventions by scenario

Results of modelling: