Business

AMMAN — The government is still studying the possibility of floating auto insurance premiums as insurers struggle with financial losses they blame on "low" fixed prices of compulsory third party liability (TPL). 

A source at the Ministry of Industry and Trade, who preferred to be unnamed, told The Jordan Times on Monday that the ministry will "soon" decide on whether to float prices or keep them fixed.  

The Jordan Insurance Federation (JIF) wants TPL prices linked to inflation rate, a step that is expected to increase TPL prices by 20 per cent, JIF President Othman Bdeir told The Jordan Times. 

The federation has been demanding liberalisation of prices for over three years and it reached an agreement with the government on full liberalisation of the insurance service in 2013, a decision that was supposed to go into effect in 2014, but it did not.

Bdeir said the current fixed price of JD93 has remained unchanged for the past seven years, noting that insurance companies get JD75 of the amount after the deduction of taxations and tariffs.

Insurance compensations have increased due to higher prices of cars' spare parts, according to Bdeir, who also mentioned a rise in the number of staff employed by insurance firms besides higher salaries.

Over the past two years, three insurance firms have quit the market and other three have stopped offering car insurance services due to continuous losses, he said, expecting more companies to follow the same steps if TPL prices do not increase.

"When insurance firms quit the market, they do not pay compensations for their clients, an issue the federation cannot solve," he said on Monday, adding that insurance firms lose around JD10 million annually due to TPL insurance. 

An open market for insurance services will encourage competition and will, on the other hand, limit the "very large" number of insurance companies in Jordan, which now stands at 21, and improve their services.

AMMAN — Capital Bank announced in a press statement on Sunday that in collaboration with the International Monetary Fund (IMF) and the International Finance Corporation (IFC), it organised a roundtable discussion entitled “Future Prospects and Investment Opportunities in the Middle East”. According to the press statement, Ghazi Shbeikat, IMF regional representative in Jordan and Iraq, and Ahmed Ali Atiqa,  IFC regional representative in Jordan and Iraq, attended the discussion besides Ayman Abu Dheim, deputy chairman of the National Bank of Iraq (NBI), and the Iraqi ambassador in Amman. A number of Jordanian and Iraqi businessmen and individuals with a stake in the Jordanian and Iraqi markets attended the discussion. Capital Bank Chairman Basem Khalil Al Salem said the bank has enjoyed an exceptional investment experience in the Middle East, and specifically in the Iraqi market, by virtue of the relationship with  NBI.

AMMAN — Jordan Investment Commission (JIC) President Montaser Okla on Sunday received Italian Ambassador Patrizio Fondi and discussed ways to enhance bilateral cooperation, especially in investment and economic fields. Okla said JIC is currently preparing to represent the Kingdom in the 2015 Milan Exhibition, scheduled to start in May next year, due to its importance. He added that Jordan will participate in a 125-square-metre pavilion in the exhibition that attracts more than 20 million visitors. Fondi commended the bilateral Jordanian-Italian relations, expressing his country’s keenness to develop them to serve the interests of both countries. 

AMMAN — Jordan will soon start discussions with Kenya, Tanzania and Ethiopia to sign free trade agreements with the three East African nations, Industry and Trade Minister Hatem Halawani said Sunday. 

The minister told an African economic delegation, currently visiting the Kingdom, that he contacted his counterparts in those countries in this regard. 

He said Jordan’s drive to develop economic ties with Africa was part of an economic openness policy that the Kingdom has been applying for years, besides commercial partnership based on trade liberalisation through signing several free trade agreements on the bilateral and multilateral levels.

According to a ministry statement sent to The Jordan Times, the minister valued these agreements that positively affected the economy, since the volume of national exports reached JD3.9 billion during the first eight months of 2014, 7 per cent higher than the same period of 2013.

Halawani said the trade volume between Jordan and East African countries reached $102.5 million in the first nine months of 2014 compared to $28.4 in the same period of 2013, according to the statement. 

Expressing the government's keenness to develop economic cooperation with East African countries in all fields, especially the commercial one, and to provide all that is needed to establish ties that serve the interests of both sides, Halawani added that the collaboration will be achieved through both the public and private sectors. 

Halawani underlined the importance of persuading businessmen to benefit from available opportunities, establishing investment projects and encouraging trade and expertise exchange. 

He acquainted the delegation with the reforms the Kingdom has been implementing, such as formulating economic legislations, issuing a new investment law, establishing developmental areas and providing an investment-attracting environment in order to diversify business opportunities.

Jordan Chamber of Industry President Ayman Hatahet expressed the private sector’s readiness to enhance economic relations between the Kingdom and African countries. 

Jordan Investment Commission President Montaser Okla said the Kingdom enjoys a promising investment environment, with a lot of available characteristics in various fields, stressing the commission’s readiness to provide all needed support to investors in the Kingdom. 

Zarqa Chamber of Industry President Thabet Wer said the meeting will produce important results that would enhance economic relations between Jordan and these countries.

For their part, members of the delegation, representing Tanzania and Ethiopia, expressed their willingness to develop economic cooperation with the Kingdom in various fields, in addition to benefiting from the opportunities available in Jordan.

They also said Jordan is characterised by its attractive investment environment compared to other countries in the region, referring to the positive results the Kingdom has achieved despite the challenges it is facing locally and regionally. 

DUBAI — Standard and Poor's (S&P) has lowered the outlook for the world's top oil exporter Saudi Arabia to stable from positive and its Gulf partner Oman to negative on sliding oil prices.

However, the ratings agency affirmed the strong "AA-/A-1+" long- and short-term foreign and local currency sovereign credit ratings for Riyadh over the "strong external and fiscal positions" it has built up in the past decade when oil prices were too high.

"We base our outlook revision on our view that, although real economic growth remains relatively strong, we think Saudi Arabia is unlikely to achieve sufficient levels of nominal income to raise the ratings over the next two years," S&P said.

It added that low oil prices will place pressure on the kingdom's gross domestic product (GDP) and per capita income which was reduced for the 2014-2017 period to $23,400 from $25,600 in June.

"We view Saudi Arabia's economy as undiversified and vulnerable to a sharp and sustained decline in the oil price, notwithstanding government policy to encourage non-oil private sector growth," S&P indicated late Friday.

Although Riyadh built fiscal reserves of around $750 billion from surpluses from high oil revenues, its public spending rose to record highs that raised the breakeven price for oil to between $85 and $93 a barrel.

Saudi Arabia pumps around 9.7 million barrels per day.

According to S&P, the hydrocarbons sector contributes about 45 per cent of GDP.

The agency said the stable outlook reflects that Saudi Arabia will keep its very strong fiscal balance sheet and net external asset position, while monetary policy flexibility remains limited and dependence on hydrocarbons stays high.

For Oman, which is not a member of the Organisation of Petroleum Exporting Countries (OPEC), S&P said the negative outlook was based on the view that the deterioration in the fiscal or external positions could be sharper than currently expected because of the steeper fall in oil prices.

S&P also affirmed Oman's satisfactory "A/A-1" long- and short-term sovereign ratings on "strong net external and general government asset positions".

"The ratings are constrained by our view that the quality of Oman's public institutions and governance is moderate, that high fiscal, external and economic dependence on volatile hydrocarbons receipts will persist, and that monetary policy flexibility is limited by the [US dollar] pegged exchange rate," it said.

Oil prices have lost more than a third of their value since June over a glut in output, weak demand and a strong dollar.

AMMAN — The private sector in the Middle East and North Africa (MENA) region does not generate enough jobs, a World Bank economist told a discussion group at the University of Jordan on Thursday.

"For each 1,000 persons in the region, less than one new firm is created," said Marc Schiffbauer, co-author of the World Bank's "Jobs or Privileges" report, which studied the demand on jobs in MENA.

He indicated that the sector's "weak" job creation is affected by the political connections of some businesses, which hinders others with no connections from competing.

Schiffbauer explained that policies that provide privileges to firms based on their political connections discourage competition and contribute to a decrease in job creation and private sector growth in the region. 

"The lack of competition leads to a lack in firm creation, which leads to a lack in productivity," added Schiffbauer, who is an economist at the World Bank's Poverty Reduction and Economic Management unit.

The report states that the entry of new businesses into politically connected sectors is about 28 per cent lower than into non-connected firms.

Also, businesses in politically connected industries are up to 14 per cent more likely to have acquired land from the government, and are less likely to undergo inspections of municipalities.

"An additional firm with a politically connected chief executive officer reduces the average waiting time for a construction permit in an industry for 51 days", the recently published report pointed out. 

In Jordan, around 50 per cent of firms face major obstacles in regulatory policies, while around 30 per cent face moderate obstacles and 20 per cent face minor obstacles, according to 2011 data compiled in the report.

Meanwhile, startups as well as micro and small businesses are the main job generators.

"Between 42-72 per cent of all jobs in the region are in firms with less than 10 employees," Schiffbauer indicated, noting that Jordan and the region do not have enough startups.

Employment in micro-firms with less than five employees dominates the private sector in the West Bank, Gaza and Egypt, reaching up to 60 per cent, while it drops to around 40 per cent in Jordan and Tunisia, the report showed.

At 36 and 33 per cent, Tunisia and Jordan respectively have the highest concentration of workers in large enterprises, while Turkey has the highest share of workers in medium-sized enterprises.

In Lebanon, micro-startups generated some 66,000 jobs between 2005 and 2010 forming 177 per cent of net job creation for that period, while around 580,000 jobs were created in Tunisia between 1996 and 2010, forming 92 per cent of all net job creation.

However, micro and small enterprises rarely grow.

"Micro-firms with fewer than 10 employees almost never enter large size categories," the report states, noting that medium-sized establishments are less likely to become large enterprises in the MENA region.

In 2006, only 2.2 per cent of small enterprises, with less than 10 employees, operating in Jordan have achieved growth and hired more than 10 workers after five years. 

Around 30 per cent of jobs created in Jordan between 2006 and 2011 were in the fields of real estate, finance, chemicals, pharmaceuticals and food production. 

Commenting on the report, Planning Minister Ibrahim Saif said the report included detailed analysis of the region's policies that obstruct competitiveness. 

"The report is timely as the current focus is on creating job opportunities in the region", he added, noting that the report discusses factors that contribute to delays in the job creation process.

He continued that the report recommends reforming policies to encourage competitiveness and allow equal opportunities to those willing to start enterprises.

Schiffbauer explained that policies that provide privileges to firms based on their political connections discourage competition and contribute to a decrease in job creation and private sector growth in the region, experts said. 

LONDON — A slide in the price of crude oil is not being matched in Europe by a fall at the pump, and as political pressure for cheaper petrol mounts, retailers and consumer groups differ over what causes the lag.

Retail petrol taxes and the strength of the dollar mean that drivers in Europe cannot expect to see the full benefit of the more than 40 per cent drop in crude prices since June.

Even accounting for these factors, however, the gap is still wide.

European Commission figures show that price reductions for consumers in many of the largest economies amount to less than half the fall in wholesale refined fuel prices, even when taxes and exchange rate moves are taken into account.

In Britain, for example, petrol prices at filling stations fell just 6.1 per cent between June and the start of December, and 14.1 per cent when tax is taken out of the equation. That's less than half the 35.5 per cent tumble in the spot wholesale price at the Amsterdam-Rotterdam-Antwerp hub after taking currency fluctuations into account.

Britain's Finance Minister George Osborne has warned oil companies that the government will be watching carefully whether the fall in prices is passed on to consumers.

Margins hidden

Drivers' consumer group AA said, meanwhile, that the lack of public information on wholesale fuel prices keeps the margins of retailers and middlemen hidden and makes it difficult for buyers to demand price changes.

"It all hinges on what retailers decide to do. They do pass along their reductions, but they take their time," said AA spokesman Luke Bosdet. On the other hand, when crude prices rise, retailers quickly start raising prices, he remarked.

The retailer may or may not be the one to benefit from widening margins as crude falls, given that the distribution chain also includes traders and gasoline blenders. The price also depends on the contract the retailer may have negotiated with the refiner or supplier.

"Without transparency, we can't see who is making what and where they are adding the margin," Bosdet indicated.

Retail analysts who cover British supermarket chains such as Tesco and Morrison said fuel sales are an increasingly important source of income for them and that falling wholesale oil prices will support their margins at a time when competition is fierce over food and other products.

The analysts could not break out specific figures, however, for the retailers' margins on petrol sales.

In the United States, by contrast, pump prices respond to declines in the crude price almost immediately, analysts said, due to greater retail competition, lower taxes and the fact that retail and wholesale prices are both denominated in dollars.

The US government publishes wholesale prices regularly, which ensures consumers will pressure retailers to pass through savings, the AA said.

The AA data shows the overall margin on petrol in Britain was 6.4 per cent in October and most of November 2014 versus 4.7 per cent in the same period of 2010.

The difference meant that British consumers were paying almost 6 per cent more in 2014 than four years ago. But crude prices in the two six-week periods were about the same.

Bosdet said one explanation could be that consumers lose out if crude prices rebound before the previous price decline reaches the retail level.

Refiners

European refiners have enjoyed slightly better margins since oil prices started tumbling. The refining margin in the Rotterdam hub was at $5.54 on Friday compared with $4.44 for the last 365 days, according to Reuters data.

But still, refiners' spot wholesale prices have fallen closely in line with crude prices.

"Hauliers tend to see the [wholesale] price fall by the next time they buy in bulk for delivery, while for consumers we often see a six-week lag before the price falls," said Nick Deal, logistics development manager at the Road Haulage Association.

Retailers blame the high prices on the level of taxes on fuel and the shrinking options for local supply as European refineries close.

"If you take what we've got from wholesale pricing... we're not far off keeping pace with crude oil pricing," said Brian Madderson, chairman of Britain's Petrol Retailers Association.  "There is a massive amount of fixed duty."

The AA comparison between retail and spot wholesale prices does not measure the margin of any one retailer, because each will have negotiated contracts to buy petrol for different time periods at different wholesale prices.

"I imagine that physical volumes throughout the supply chain are hedged to manage price risk," said Stephen George, chief economist at KBC Advanced Technologies. "It will take probably one to two weeks for the cheaper market prices to work their way through the system, but they will eventually."

How quickly retailers respond may come down to public pressure, George remarked.

"So when do they respond by letting the product's price drop? When the market drives them to do this. A few days, at least. Maybe a few weeks. A few extra quid in our pockets for Christmas," he added. 

KIEV — Ukraine's new energy minister pleaded with industrial and domestic consumers to use less electricity as hard frosts led to a sharp drop in gas stocks and low coal stockpiles, making more blackouts likely.

Volodymyr Demchyshyn on Thursday asked for a reduction in evening electricity consumption by 15 per cent.

"Please, take it seriously. We expect reductions in  electricity consumption even today. If we see consumption fall... I promise to appeal [to the regulatory body] to stop the outages," the minister told the government press service.

He also asked industrial companies to switch to working at night, promising attractive tariffs if they do. Shortages on the electricity grid have caused some outages across parts of eastern Ukraine and in the capital Kiev.

Ukraine consumed a record high volume of gas from its limited storage on December 2 due to hard frosts, gas transport monopoly Ukrtransgaz said.

Weather forecasters expect relatively mild weather in mid-December and this could reduce gas consumption.

Ukraine uses gas to produce electricity but has been forced to switch to coal or fuel oil after Russia suspended gas flows.

However, the national electricity company, Ukrenergo, said on Tuesday coal reserves at thermal power plants stood at 1.3 million tonnes, around 65 per cent lower than in December 2013. It said five plants only had enough coal to last up to another four days.

Mired in a power crisis caused by a separatist conflict in industrial eastern regions that has shut down mines and rail links for transporting coal, Ukraine has said it may now depend on Russia for both coal and electricity to make it through the winter.

A spokesman for Ukrtransgaz said 132.7 million cubic metres of gas were drawn from underground storages on Tuesday versus an average of around 100 million per day last week.

Company data showed that the volume of stored gas has fallen more than 17 per cent to 13.8 billion cubic metres since Kiev started pumping gas on October 20 for heating in cold season.

Ukraine has been left without flows from Russia since mid-June due to a pricing dispute and unpaid debts.

After months of talks, the two sides reached an agreement in October, and Kiev said on Wednesday it planned to make a pre-payment for 1 billion cubic metres of Russian gas by Friday. 

Separately, more and more of Ukraine's companies are finding themselves unable to repay overseas debt with an economy in meltdown, a currency that has tanked 45 per cent and a possible sovereign default ahead.

While a relatively modest $12.4 billion in private sector debt falls due in 2015, according to International Monetary Fund (IMF) estimates, it still exceeds Ukraine's total hard currency reserves and is double what the government owes foreign creditors next year.

Many companies and banks have already fallen behind on debt payments. Metals firm Metinvest for instance last week swapped 2015 dollar debt for bonds maturing at the  end of 2017, and agricultural producer Agroton asked bondholders' consent to hold off next year's coupon payments until 2016.

Agro firm Mriya, pipe manufacturer Interpipe and banks First Ukrainian International Bank, VAB, Nadra, and Finance and Credit Bank are also in trouble.

Bonds of all these companies have fallen sharply, with the Agroton issue for instance now valued at 25 cents on the dollar  and Mriya's 2016 bond at 15 cents.

And as company after company reports steep falls in revenues, investors are bracing for more trouble ahead.

"I think that almost all the Ukraine corporate sector will restructure," said David Spegel, head of emerging debt at BNP Paribas.

He bases this on a conviction that the sovereign itself will default, pushed by Russia which could call due a $3 billion debt by spring. That may spark a default cascade across all sovereign debt, in turn flattening the private sector.

Ukraine's Eurobonds are trading around 66-70 cents in the dollar, an indication of how much investors expect to recoup on each dollar invested. Even that is too much, says Spegel, who calculates a recovery value of less than 50 cents in the dollar.

"Even seemingly strong corporates and banks usually default when the sovereign does, as we saw in Argentina," Spegel said. "The speed of sovereign restructuring will decide whether all do, or just most."

None of the companies could be reached for comment. 

Mriya's Chief Financial Officer Oleksander Cherniavskiy told Thomson Reuters financial news service IFR three weeks ago that he expected debt restructuring "to be substantially expanded in companies alongside us as a result of the aggregation of the sovereign's circumstances".

Avangardco, Ukraine's biggest agriculture firm, is a prime example of the hardships companies are facing. It posted a net loss of $5.7 million in the first nine months of the year compared to net profits of $162 million in the same period of 2013. It suspended work at poultry farms in rebel-held regions and said egg sales were down as people spend less.

Its $200 million 2015 bond has fallen to 69 cents in the dollar as the company, owned by the same group as the failed VAB bank, is seen likely to restructure.

For firms like Avangardco that have hryvnia earnings, the currency collapse makes debt servicing costlier, while economic recession causes a cash flow collapse at home.

Banks' bad loans meanwhile are approaching 40 per cent, while the hryvnia value of their total deposits is down 20 per cent this year, according to Andre Andrijanovs, a debt strategist at Exotix.

"Several companies have done liability management and other companies will be asking themselves if they should do the same," Andrijanovs said. "Most bonds are already pricing haircuts."

There is some sympathy for Ukrainian companies, given the country's plight and Russia's perceived aggression. Restructurings have also been mostly investor friendly, says Jefferies analyst Richard Segal, involving some cash payments, maturity extensions, higher coupon rates and fees for consenting to restructure.

"If this practice remains the rule rather than the exception, then market engagement with the sector should remain encouraging overall," Segal said.

Investors are watching state-run Ukreximbank's $750 million bond due April 2015. The bond price, at 80 cents in the dollar, suggests some expectation of restructuring.

LONDON — Global oil and gas exploration projects worth more than $150 billion are likely to be put on hold next year as plunging oil prices render them uneconomic, data show, potentially curbing supplies by the end of the decade.

As big oil fields that were discovered decades ago begin to deplete, oil companies are trying to access more complex and hard to reach fields located in some cases deep under sea level. But at the same time, the cost of production has risen sharply given the rising cost of raw materials and the need for expensive new technology to reach the oil.

Now the outlook for onshore and offshore developments, from the Barents Sea to the Gulf or Mexico, looks as uncertain as the price of oil, which has plunged by 40 per cent in the last five months to around $70 a barrel.

Next year, companies will make final investment decisions (FIDs) on a total of 800 oil and gas projects worth $500 billion and totalling nearly 60 billion barrels of oil equivalent, according to data from Norwegian consultancy Rystad Energy.

But with analysts forecasting oil to average $82.5 a barrel next year, around one third of the spending, or a fifth of the volume, is unlikely to be approved, head of analysis at Rystad Energy Per Magnus Nysveen said.

"At $70 a barrel, half of the overall volumes are at risk," he indicated.

Around one third of the projects scheduled for FID in 2015 are so-called unconventional, where oil and gas are extracted using horizontal drilling, in what is known as fracking, or mining.

Of those 20 billion barrels, around half are located in Canada's oil sands and Venezuela's tar sands, according to Nysveen.

Assessing the economics 

Geographically, the projects on the balance are widespread.

Chevron's North Sea Rosebank project is among those with a shaky future and a decision on whether to go ahead with it will likely be pushed late into 2015 as the company assesses its economics, analysts said.

"This project was not deemed economic at $100 a barrel so at current levels it is clearly a no-go," indicated Bertrand Hodée, research analyst at Paris-Based Raymond James. 

He estimates a development cost of $10 billion for Rosebank, with potential reserves of 300 million barrels, meaning the Chevron would only recoup $33 a barrel.

Even with oil at $120 a barrel, the economics of some projects around the world were in doubt as development costs soared in recent years. Chevron's Rosebank project has already been delayed for several years.

In response to a question from Reuters, the company said "the Rosebank project is in the Front End Engineering and Design phase. The review of the economics and the additional engineering work is progressing... It is premature to make any statements on an FID date”.

According to Hodée, any offshore project with a development cost above $30 a barrel would most likely be put on hold in current oil prices.

Norway's Statoil this week said it had postponed until next October, a six-month delay, a decision to invest $5.74 billion in the Snorre field in the Norwegian Sea as its profitability was under threat.

New oil fields typically require four to five years to be developed and billions before the first drop of oil is produced.

Any cutbacks in oil production bodes ill for international oil companies that are already struggling to replace depleting reserves as exploration becomes harder and discoveries smaller. It also points to tighter supplies by the end of the decade.

Least likely

Projects in Canada's oil sands, which require expensive and complex extraction techniques, are the most unlikely to go ahead given their high investment requirements and relatively slow returns. 

Total recently decided to postpone the FID on the Joslyn project in Alberta, the cost of which Hodée estimated at $11 billion.

Shell's liquefied natural gas (LNG) project in Canada's British Columbia, already under pressure from a looming supply surge, faces further strain in the current price environment, analysts said. 

According to research by Citi, the project requires oil at $80 a barrel to break even.

Royal Dutch Shell's chief financial officer Henry Simon indicated in October that it was "less likely" to go ahead with unconventional projects in West Canada if oil falls below $80 a barrel.

Asked by Reuters what the company's current thinking was, a Shell spokesman would not comment on "internal decision-making."

Even in the Gulf of Mexico, one of the most attractive oil production areas in the world, projects are facing challenges.

BP last year put on hold a decision on its Mad Dog Phase 2 deep water project in the Gulf of Mexico after its development costs ballooned to $20 billion and the oil major is now expected to further delay an investment on the field's development.

"BP were talking positively about bringing it back, but now it may be put on hold," BMO Capital Markets analyst Iain Reid said.

BP's chief financial officer Brian Gilvary, however, said in an analysts briefing in October that he expected Mad Dog Phase 2 to be sanctioned in the first quarter of 2015.

Statoil's Johan Castberg field in the Barents Sea, which was expected to get its FID in 2015, seems unlikely to get the go-ahead at the moment given it has an estimated project cost of $16-$19 billion, Hodée said.

Statoil said the final project design is due in the summer of 2015. Its giant Johan Sverdrup field in the North Sea is still on track for development with a price tag of $32.5 billion.

DUSHANBE/BISHKEK — Vali Salimov quit his job at a Moscow supermarket last month after his salary was halved, and returned home to Tajikistan another migrant victim of Russia's economic downturn whose family livelihood now looks precarious.

Salimov, like millions of other migrants, used to send much of his salary back home. So as he and others leave Russia, the economies of their home countries — poor former Soviet republics like Tajikistan and Kyrgyzstan — are also feeling the pinch.

"I was paid 25,000 rubles ($536) a month. Then they started paying me just 15,000 rubles. My boss said his revenues had dropped," Salimov, a father of three who also supports his elderly parents, said in the Tajik capital, Dushanbe.

Nonetheless, the 35-year-old — who could only afford to eat cheap instant noodles in Moscow — still hopes to return to Moscow in the spring. No matter how stacked the odds look, he has even less chance of finding work in Tajikistan.

On a World Bank calculation, Tajikistan was the world's biggest recipient of migrant workers' remittances last year at 42 per cent of the gross domestic product.

The share in neighbouring Kyrgyzstan was 32 per cent, demonstrating a similar number of workers suffering the knock-on effects of the crisis in Russia, which has seen its economic growth and currency collapse as a result of falling oil prices and Western sanctions imposed over the crisis in Ukraine.

Mukhayo Zhorobayeva, a 45-year-old teacher in southern Kyrgyzstan, relies on the 26,000 rubles a month that her husband sends home from his job at a confectionery distributor in St Petersburg.

"He was not paid in October. I don't know why," she said. "I watch the news and think my husband's problems could be linked to those sanctions — they are selling fewer sweets now."

Adding to the family's troubles, her 23-year-old son Saidmaksud, a cook in the Russian city of Perm, recently returned home because his work permit expired.

Safety valve

About 1 million Kyrgyz citizens and over 1 million Tajiks — about half each country's workforce — work in Russia.

For Tajikistan, a state of 8 million bordering Afghanistan and China, having so many of its citizens earning a living in Russia has helped bring stability following a 1992-97 civil war. The same goes for Kyrgyzstan, a country of less than 6 million where two presidents have been overthrown since 2005.

The prospect of those workers returning home has raised not just concern about the economic impact but also worry that high unemployment could exert intense pressure on the population.

"Even partly losing this outlet to Russia could give rise to social discontent domestically, particularly if the Russian economic downturn is protracted," said Lilit Gevorgyan, senior economist at IHS Global Insight.

Worker remittances to Tajikistan dropped by $162 million to $2.517 billion in January-September, International Monetary Fund (IMF) data showed. As a result, Tajik growth will slow to 6.5 per cent this year from 7.4 in 2013, according to Jonathan Dunn, the head of an IMF visiting mission to Tajikistan.

Tajikistan's budget envisages gross domestic product (GDP) growth of 7 per cent in 2015. But a Tajik official, declining to give his name, said: "We hope for real growth of 4 to 5 per cent, and these are the most optimistic expectations."

The reality is that Russia's economic problems are likely to result in a worsening situation in Tajikistan and Kyrgyzstan.

"Our view is that growth will decline further because we expect the remittances will decline further," Dunn said.

Separately, the Russian economy ministry on Tuesday slashed its economic forecast for 2015, announcing a contraction of 0.8 per cent because of Western sanctions over the Ukraine crisis combined with falling oil prices.

The ministry cut its previous outlook of 1.2 per cent growth by two percentage points, referring to worsening economic indicators and a "more conservative" assumption that Western sanctions will remain through 2015.

Plunging oil prices also led to the revision, with a weakening ruble  and rising inflation slowing consumer spending, the ministry added in its official statement.

In its outlook on recession, Deputy Economy Minister Alexei Vedev said the economy may completely flatline or slightly shrink in the fourth quarter of 2014, which could push Russia into recession by the end of the first quarter next year. 

The technical definition of a recession is two successive quarters of economic contraction. It would be Russia's first recession since 2009.

The ministry previously assumed Western sanctions would be lifted during 2015, with Russia then ending its tit-for-tat food embargo. 

"The current forecast for 2015 is, on the contrary, based on continuing strong geopolitical risks," the ministry said.

"Uncertainty and lack of economic confidence caused by harsher geopolitics have led to a prediction of higher capital flight and lower investment," the ministry added in the full report briefly posted on its website before it was removed.

Capital flight is expected to reach $125 billion for 2014, the ministry indicated, up from the previous estimate of $100 billion.

The World Bank also slashed its growth projection for Russia Tuesday from 0.5 per cent in 2014 and 0.3 per cent 2015 to 0.7 per cent and 0 per cent respectively.

Nine per cent inflation seen  

Russia's economy has been hit by falling oil prices which have battered Russia's energy-driven economy and triggered a record drop in the value of the ruble.

The Russian currency experienced its worst slump since 1998 on Monday. After rallying slightly Tuesday morning it lost all its gains and was trading at around 53.9 to the dollar and 66.8 to the euro at 1600 GMT.

The economy ministry has forecast the foreign exchange rate to average 49 rubles to the dollar next year — 30 per cent higher than its previous expected rate of 37.7 rubles.

The growth forecast for 2014 was slightly raised from 0.5 per cent to 0.6 per cent due to a better-than-expected performance of the agricultural sector, the ministry said.

Vedev said the ministry expects the Russian economy to reach bottom in mid-2015 and begin a rebound on rising oil prices which could climb back to $85-$95 a barrel.

Russia's growth has slowed dramatically in recent years, the rate falling to 1.3 per cent in 2013 compared with 3.4 per cent the previous year.

Meanwhile, inflation has accelerated over the ruble's falling value, and is set to reach 9 per cent by the end of 2014, Vedev said, up from the previous estimate of 7.5 per cent.

Real incomes of Russians will shrink by 2.8 percent next year instead of increasing by 0.4 per cent as previously predicted, due to inflation and slowing economic activity.

Alfa Bank economists said in a note Tuesday that 12 per cent inflation for the year was "inevitable", predicting spending to fall even further than during the 2008 economic crisis due to the government's inability to compensate the population through increasing pensions and salaries.

Retail giants and foreign companies have already hiked prices or announced expected hikes because of the ruble's slump, with Apple raising Russian prices by about 25 per cent.