2. Recent socio-economic and environmental trends towards sustainable development in EECCA

Since the collapse of the Soviet Union, the countries of Eastern Europe, the Caucasus and Central Asia (EECCA)1 have been undergoing profound changes, while pursuing their transformation towards market economies and democratic societies. Even as they conserved some of their Soviet-period specialisations, most of the region’s economies underwent major structural changes, trade liberalisation and privatisation. For example, the share of the service sector in the economy has dramatically increased in most EECCA countries (Gevorkyan, 2018[1]).

On average, the EECCA region had maintained relatively good economic growth rates over the past two decades (3.4 % on annual average from 2001 to 2021) (World Bank, 2022[2])). However, the macroeconomic situations surrounding the EECCA region have been turbulent over the past decade (Figure 2.1). The global financial crisis in the late 2000s drops in commodity prices and political instability in Armenia, Ukraine and Kyrgyzstan, for example, have all affected economic growth rates in EECCA countries.

The most recent external shocks to EECCA economies are the COVID-19 pandemic and its economic consequences, and Russia’s war against Ukraine launched in February 2022. The impact of COVID-19 pushed down gross domestic product (GDP) growth rates by 5-13 percentage points across all EECCA countries in 2020 (Figure 2.1). While year-on-year GDP growth started to pick up again to more than 3% in the region for 2022 (World Bank, 2022[3]), the war in Ukraine has led to a significant recession. It is forecasted now for almost all EECCA countries and likely to worsen depending on how the war in Ukraine evolves (World Bank, 2022[3]; EBRD, 2022[4]; Kammer et al., 2022[5]). The GDP contraction of -0.2% that is projected for EECCA countries,2 excluding Ukraine, for 2022 could be downgraded further.

The post-COVID-19 recovery and Russia’s war in Ukraine are forcing the EECCA region to make decisions under significant uncertainties associated with a complex combination of challenges. They include increased commodity and energy prices, pressure on energy security, refugee flows, and significantly reduced remittances and tourist inflows. These emerging challenges also compound longer-term development policy agendas, such as eradication of poverty and discrimination, gender equality and provision of social security. At the same time, countries are trying to address climate change, biodiversity loss and other environmental degradation. These emerging and protracted challenges require EECCA countries to re-evaluate how governments run their economies and pursue various development agendas.

Prior to Russia’s large-scale aggression against Ukraine, EECCA countries had already made significant progress on aligning their environmental and climate policies with global efforts to reduce greenhouse gas (GHG) emissions and adapt to the negative impacts of climate change. The countries had also adopted a variety of policy and fiscal instruments to support recovery from the COVID-19 pandemic combined with the goals of building robust, resilient and sustainable economies (OECD, 2021[6]).

The war in Ukraine has caused tens of thousands of casualties, an associated humanitarian crisis, a large number of besieged and displaced people both within Ukraine and abroad, and significant negative economic impacts. The environment, natural resource base and infrastructure have not been spared by the war [See Box 2.1 and OECD (2022[7])].

The war has also created major policy challenges and already led to a geopolitical and economic reconfiguration across most of the EECCA countries. It has already led to sanctions on Russia by OECD countries (and Russian countersanctions), as well as trade disruption and the significant increase in energy and commodity prices (Berlin Economics & OECD, 2022[8]).

Climate and energy policies of EECCA countries, among other policy domains, may face significant alterations due to the impacts of the war through multiple channels. Key results of a recent analysis of the effects of the war in Ukraine on climate and energy policies in the EECCA region are highlighted below (Berlin Economics & OECD, 2022[9]).

  • First, energy price developments severely affect the EECCA countries’ economies. Russia is a major exporter of oil, oil products, natural gas, coal and nuclear fuel. The war led to an increase in global crude oil prices. The price of natural gas and coal has risen even more compared to the oil price.

  • Second, the price increase for food and metals has had a significant negative impact on the economies of the EECCA countries, and the rest of the world; Ukraine and Russia are major producers of a variety of metals and agricultural goods. Transport of products from Ukraine has been facing severe disruptions due to the war and Russia’s blockade of trading routes. The European Union has partially sanctioned Russian steel. Meanwhile, Russia has banned exports of several agricultural commodities. The impact of the shortage of food exports available on the market is particularly affecting low-income countries that depend on imports from Russia or Ukraine.

  • Conversely, many EECCA countries rely on metals and mining for large parts of their GDP and exports (e.g. Armenia, Kyrgyzstan, Tajikistan and Uzbekistan). For them, higher prices might incentivise production increases in the short- to mid-term. This could adversely impact GHG emissions and implementation of climate policies.

  • Third, the global macroeconomic situation for most economies across the world has changed drastically. Prior to the invasion, EECCA countries were already facing supply constraints and inflationary pressures due to compromised supply chains since the start of the COVID-19 pandemic. Since Russia’s aggression, the economic outlook for all EECCA economies except Azerbaijan has been revised downwards due to trade disruptions, high food prices and insecure energy supplies.

  • Public debt has significantly increased since the start of the pandemic. A weaker regional macroeconomic situation could complicate the countries’ effort towards more ambitious national climate policies. Debt aggravates financing of climate-related investments from domestic sources. Yet lower growth may lead to lower GHG emissions in the short term (at the expense of improved economic and social conditions).

  • Fourth, since Russia’s war against Ukraine began, OECD Member countries are aiming to reduce dependence on Russian energy. In the short term, this means oil-producing countries will need to produce more domestic energy or try to diversify energy carrier import partners. In the long term, it means reducing overall fossil-fuel consumption by increasing decarbonisation.

Russia supplies a significant part of the energy mix of most EECCA countries. Parts of their energy infrastructures are even owned by Russia. All countries cover a significant share of their energy supply with oil products, and most countries (except Kyrgyzstan and Tajikistan) have relatively high levels of natural gas in their energy mix. Kazakhstan is heavily reliant on coal, while Kyrgyzstan and Tajikistan rely on a mix of coal and hydropower. Hydropower also plays an important role in Georgia and to a lesser extent in Armenia. In the Central Asian countries, coal is mostly domestically extracted, while Armenia, Georgia and Moldova have almost no domestic fossil-fuel production.

Countries maintaining strong relations with Russia face a somewhat complex set of incentives. These countries may face lower fossil prices, which weakens incentives to reduce fossil consumption. However, remaining price risks and political uncertainty in long-term relations with Russia have already led to the emergence of a new energy security paradigm. This emphasises the risk of depending on fossil imports from a single supplier (Berlin Economics & OECD, 2022[8]).

Energy export industries in Azerbaijan and Kazakhstan have so far had windfall revenues due to high oil and gas prices. This increases the incentive to further expand export volumes. They could do this by increasing production, if faster extraction is possible. They could also conserve energy domestically as the opportunity cost of forgone export revenues has increased. However, export transmission capacity is limited. Consequently, an expansion of production cannot be directly translated into a further increase of exports (Berlin Economics & OECD, 2022[8]).

The emerging energy security concerns – high long-term fossil-fuel prices and increased price uncertainty – are expected to continue driving expansion of renewable energy sources in the medium- to long-term. Many countries in the region are working to strengthen their energy independence. Increasing energy efficiency and domestic energy production, in particular from renewable energy sources, provide an attractive alternative (Berlin Economics & OECD, 2022[8]). This holds especially true for Moldova and Ukraine, as well as Georgia. These countries have applied for EU membership and, therefore, need to implement more stringent EU regulation.

This section provides a snapshot on how the environmental footprint of economic activities in the region has evolved over the past few years. Then, it is followed by Chapter 3, which will highlight a number of policy developments and challenges related to the journey of EECCA countries towards a green economy.

The OECD developed a measurement framework, called “Green Growth Indicators” in 2011, to track the progress towards green economy. The frame work consists of four main areas: productivity; natural asset base; quality of life; and policies. These indicators answer such questions as: Are we becoming more efficient in using natural resources and environmental services? How does greening growth generate economic opportunities? Is the natural asset base of our economies being maintained? Does greening growth generate benefits for people? See OECD (n.d.[12]) for further details of the Green Growth Indicators Framework and related publication and materials.

In the EECCA region the work on Green Growth Indicators started in 2012. Kyrgyzstan was the first country to pilot-test this set, followed by Armenia, Azerbaijan, Moldova and Ukraine since 2013 (see Box 2.2). Two regional reports have been developed. In 2019, Kazakhstan became the second among Central Asian countries, developing the GGIs and integrating the measurement of green growth into the regular reporting and planning system.

The Green Growth Indicators have been used to collect environmental data for the EECCA countries. This, in turn, can help the countries track and communicate progress in greening their economies, inform decisions and demonstrate accountability to national and international stakeholders. It can also raise public awareness about the links between economic growth and environmental protection, and compare progress between countries.

Carbon and energy productivity, resource productivity and multifactor productivity3 capture the efficiency with which economic activities (production and consumption) use energy, other natural resources and environmental services. In many EECCA countries, such as Armenia, Georgia, Kyrgyzstan, Moldova, Ukraine and Turkmenistan, both carbon dioxide (CO2) and energy productivities of the economies have improved substantially over the past five years. This means that economic growth partially decoupled from CO2 emissions and use of energy. Higher CO2 and energy productivity reflect a less polluting, more resource-efficient economy. However, pressure remains as CO2 and energy productivity continue to be much lower than the European average (7.23 USD/kg of CO2 in 2019). Some EECCA countries perform even less well than the world average (3.68 USD/kg of CO2 in 2019) (Figure 2.2 and Figure 2.3).

Indicators on environmental quality of life allow EECCA countries to monitor how environmental conditions and environmental risks interact with the quality of life and well-being of people. These indicators also point out how the amenity services of natural capital support well-being. Further, they can show the extent to which income growth is accompanied (or not) by a rise in overall well-being.

One indicator, for example, tracks fine particulate matter (PM2.5), one of the most serious pollutants globally from a human health perspective. In EECCA countries, exposure of the population to PM2.5 remains high. However, mortality (premature deaths) attributed to PM2.5 exposure has generally decreased in all countries over the past few years (Figure 2.4). Still, this mortality level is significantly higher than the EU average (382.5 per million inhabitants). Armenia and Ukraine have the most attributed deaths relative to population, with about 1 000 per million inhabitants in 2019.

Associated welfare costs of premature deaths due to PM2.5 pollution represented in the EECCA region are also significant, despite the general trend of a decreasing rate over the past few years (Figure 2.5). In particular, welfare costs from premature deaths in Armenia, Ukraine and Uzbekistan are 10-12% of GDP equivalent. This is three to four times higher than the EU average of 3%, and double the worldwide rate (5.8%).

The economic opportunities and policy responses indicators presented in this section aim at capturing the economic opportunities associated with green growth. They can help assess the effectiveness of policy to promote green technology and innovation, environmental goods and services, investment and financing, prices, taxes and transfers. In the EECCA countries, more economic opportunities associated with green growth can be unlocked. This includes investment in environmental protection, development of environmentally friendly technologies and removal of fossil-fuel subsidies that can reduce fiscal deficits, make renewable energy more competitive, and lower carbon and air pollution.

In this context, the recent inclusion of the Eastern Europe and Caucasus countries in the OECD-IEA database on fossil-fuel subsidies is an important milestone in transparency (OECD, 2021[13]). It also recognises the efforts of the governments of the Eastern Europe and Caucasus countries to disclose information on the size of their support to the energy sector. Further discussion and data can be found in Chapter 5.


[8] Berlin Economics & OECD (2022), “Effects of the Russian invasion of Ukraine on climate and energy policies in the European Union’s Eastern Partnership and Central Asian countries”, Discussion Paper, GREEN Action Task Force, OECD, Paris, https://www.oecd.org/environment/outreach/ENV-EPOC-EAP(2022)6.pdf.

[9] Berlin Economics & OECD (2022), Effects of the Russian invasion of Ukraine on climate and energy policies in theEuropean Union’s Eastern Partnership and Central Asian countries, Prepared for the 2022 GREEN Action Task Force Annual Meeting, https://www.oecd.org/environment/outreach/ENV-EPOC-EAP(2022)6.pdf.

[4] EBRD (2022), “Regional Economic Prospects”, webpage, https://www.ebrd.com/what-we-do/economic-research-and-data/rep.html (accessed on 9 September 2022).

[1] Gevorkyan, A. (2018), Transition Economies, Routledge, London, https://doi.org/10.4324/9781315736747.

[5] Kammer, A. et al. (2022), How war in Ukraine Is reverberating across world’s regions, IMF blog (15 March 2022), https://blogs.imf.org/2022/03/15/how-war-in-ukraine-is-reverberating-across-worlds-regions/ (accessed on 20 August 2022).

[11] Kyiv School of Economics (2022), “Direct damage caused to Ukraine’s infrastructure during the war has reached over USD 105.5 billion”, News, Kyiv School of Economics, https://kse.ua/about-the-school/news/direct-damage-caused-to-ukraine-s-infrastructure-during-thewar-has-reached-over-105-5.

[10] OECD (2022), “OECD-Ukraine Memorandum of Understanding”, webpage, https://www.oecd.org/eurasia/countries/ukraine/oecd-ukrainememorandumofunderstanding.htm (accessed on 9 September 2022).

[7] OECD (2022), “War in Ukraine: Tackling the Policy Challenges”, webpage, https://www.oecd.org/ukraine-hub/en/ (accessed on 9 September 2022).

[6] OECD (2021), Aligning short-term recovery measures with longer-term climate and environmental objectives in Eastern Europe, Caucasus and Central Asia, GREEN Action Task Force, OECD, Paris, https://www.oecd.org/environment/outreach/ENVEPOCEAP(2021)4-GreenRecoveryEECCA.pdf.

[13] OECD (2021), Fossil-Fuel Subsidies in the EU’s Eastern Partner Countries: Estimates and Recent Policy Developments, Green Finance and Investment, OECD Publishing, Paris, https://doi.org/10.1787/38d3a4b5-en.

[12] OECD (n.d.), Green Growth Indicators, OECD, https://www.oecd.org/greengrowth/green-growth-indicators/ (accessed on 18 August 2022).

[3] World Bank (2022), Europe and Central Asia Economic Update: War in the Region, World Bank, Washington, DC, https://www.worldbank.org/en/region/eca/publication/europe-and-central-asia-economic-update.

[2] World Bank (2022), World Development Indicators, https://datatopics.worldbank.org/world-development-indicators/ (accessed on 5 September 2022).


← 1. EECCA countries include Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyz Republic, Republic of Moldova, Tajikistan, Turkmenistan, Ukraine and Uzbekistan.

← 2. Calculated based on individual country GDP growth forecasts for nine EECCA countries. Turkmenistan is excluded due to lack of data.

← 3. OECD Green Growth Studies, Green Growth Indicators 2017.

Metadata, Legal and Rights

This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. Extracts from publications may be subject to additional disclaimers, which are set out in the complete version of the publication, available at the link provided.

© OECD 2022

The use of this work, whether digital or print, is governed by the Terms and Conditions to be found at https://www.oecd.org/termsandconditions.