External and Internal Factors Affecting the Socio-economic Situation

of the EAEU during the COVID-19 Pandemic

Alexandra A. Kaskova

and Lyudmila A. Trofimova

Saint Petersburg State University of Aerospace Instrumentation, Saint-Petersburg, Russia

Keywords: Pandemic, Eurasian Economic Union, Socio-economic Situation, External Environment Factors, Internal

Environment Factors, Saint Petersburg, Sustainable Development.

Abstract: The global spread of the new coronavirus infection has had a strong destructive effect on the socio-economic

situation in the EAEU countries, which required the search for factors that could quickly influence its

improvement. The analysis showed that the factors of the external and internal environment can have both

positive and negative impact on the socio-economic situation in the EAEU. Particular attention should be paid

to the role of internal factors and, first of all, the effectiveness of the work of authorities at all levels, because

they are the ones who are able to control other factors and set the directions for their development, relying on

the resource potential.

1 INTRODUCTION

The pandemic of the new coronavirus infection has

become a serious challenge for the entire world

community. In a short period of time, this caused a

number of negative socio-economic consequences in

many countries, which led to a very deep recession in

the global economy. According to UN estimates, the

global economy contracted by 4.3% in 2020

compared to 2019 due to the spread of COVID-19 and

the widespread introduction of restrictive measures to

contain it (United Nation, 2021). This was the largest

decline since the Great Depression.

One example of the negative impact of the

pandemic is the deterioration of the socio-economic

situation in the countries of the Eurasian Economic

Union. A sharp deterioration in external economic

conditions and the introduction of internal restrictive

measures to limit the spread of coronavirus infection

have led to a weakening of export demand, a decrease

in investment inflows, a deterioration in the business

climate, a decrease in migration flows, a decrease in

the performance of many sectors of the economy, a

reduction in budget revenues, an increase in

unemployment and poverty in each EAEU country

(Sorokina, 2021; Selishcheva, 2021). In this regard,

https://orcid.org/0000-0001-8379-2602

https://orcid.org/0000-0002-3839-8507

additional difficulties have been created for the

implementation of the Concept of Sustainable

Development, proposed by the United Nation in the

90s of the XX century.

In fact, the successful functioning of the EAEU is

a derivative of the successful functioning of the

economies of its member countries. Thus, it can be

argued that the socio-economic problems that have

arisen in the EAEU countries negatively affect the

development of the Union as a whole and

significantly reduce the possibilities of achieving the

ambitious goals of Eurasian integration.

The situation is complicated by the fact that there

are currently no unambiguous forecasts regarding the

timing of the end of the pandemic. In particular, this

is due to the fact that the SARS-CoV-2 virus mutates

rapidly, new more aggressive strains appear, while

the rate of vaccination in the EAEU countries is

growing at an insufficient rate. As of November 1,

2021, only 16.76% of the total population has been

vaccinated in Armenia, in Belarus — 29.22%, in

Kazakhstan — 44.04%, in Kyrgyzstan — 15.21%, in

Russia — 39.72% (Minfin, 2021).

The ambiguity of epidemiological forecasts

complicates the fight against the consequences of a

pandemic and the choice of its strategy. This requires

404

Kaskova, A. and Troﬁmova, L.

External and Internal Factors Affecting the Socio-economic Situation of the EAEU during the COVID-19 Pandemic.

DOI: 10.5220/0011121400003439

In Proceedings of the 2nd International Scientiﬁc and Practical Conference "COVID-19: Implementation of the Sustainable Development Goals" (RTCOV 2021), pages 404-409

ISBN: 978-989-758-617-0

a search for factors that can affect the socio-economic

situation of the integration association.

2 METHODOLOGY

The theoretical basis of this study was the work of O.

L. Goikher, U. Kanykei and others in the field of the

content and characteristics of external and internal

factors of economic systems. Certain aspects of the

functioning of the Eurasian economic were

considered in the works of A.V. Bredikhin V.E.

Frolov, T.A Meshkova and others. The socio-

economic consequences caused by the coronavirus

pandemic were described in the works of L.E. Slutsky

and E.A. Khudorenko.

In addition, numerous various analytical materials

were used, which contain certain aspects of the socio-

economic development of the EAEU countries during

the pandemic, prepared by the United Nations, the

World Bank, the World Trade Organization, the

Eurasian Economic Commission, the Central Bank of

the Russian Federation and the Eurasian

Development Bank.

This work was based on such theoretical methods

as analysis, synthesis, and generalization.

3 RESULTS OF THE STUDY

Considering the factors affecting the socio-economic

situation in the EAEU, it is important to note that this

is a macroeconomic concept. According to the

authors, it characterizes not only the current state of

the social and economic spheres, but also the

possibilities of their development in a specific time

period.

The EAEU is a regional integration association of

five countries, which ensures the freedom of

movement of goods, services, capital, labour and the

conduct of a coordinated, agreed or unified policies in

key sectors of the economy to achieve sustainable

economic growth in the long term (Treaty on the

Eurasian Economic Union, 2021).

Based on these provisions and on the research of

Goikher and Laryushkina (2013), we can conclude

that the Union has all the features characteristic of

economic systems, including:

 the interconnectedness of system elements;

 the certain territory;

 the presence of multifunctional connections

between the elements;

 the presence of socio-economic relations;

 the motivation of the participants;

 the presence of various mechanisms of

interaction (Goikher and Laryushkina, 2013).

Consequently, based on the principles of

functioning of such systems, the EAEU is influenced

by factors of both external and internal environment.

Traditionally, the internal environment of any

economic subject is understood as a set of factors that

are controlled by this subject and affects his activities.

In turn, the external environment arises and exists

independently of the activity of an economic subject,

but at the same time it has a certain influence on it. In

contrast to the internal environment, it is

characterized by greater uncertainty and the rate of

change (Panasyuk, Pudovik and Vakhterova, 2019).

The external environment of direct impact includes

factors that directly and purposefully affect the

activity of an economic subject. On the contrary, the

external environment of indirect impact includes

factors that affect it indirectly and may not have a

quick impact. It is important to note that both

environments exist in close relationship (Figure 1).

Figure 1: External and internal environment of the

integration association.

There are many factors of the external and internal

environment that differ in their effects. The analysis

of these factors is complicated by the fact that some

of them affect individual countries, and only later can

transfer the effect to the entire association. Due to the

complexity of the analysis of all factors, it is

advisable to further consider them in generalized

groups.

The following factors of the internal environment

affecting the socio-economic situation of the EAEU

can be noted:

 activities of supranational and national

authorities;

 production and resource potential;

 the development of legal and financial

institutions;

External and Internal Factors Affecting the Socio-economic Situation of the EAEU during the COVID-19 Pandemic

405

 the state of public infrastructure;

 the educational level of the population;

 the level of scientific, technical and innovative

development, etc.

The specificity of the internal environment

determines that among the indicated factors, a special

role belongs to the activities of supranational and

national authorities, because they can control other

factors and determine the directions of their

development, relying on resource potential.

Thus, the activities of the supranational

authorities of the EAEU (Supreme Eurasian

Economic Council, Eurasian Economic Commission)

are mainly aimed at shaping a common agenda for

Eurasian integration and at making decisions, orders

and developing recommendations that relate to the

economic interaction of the member states. At the

same time, responsibility for the practical

implementation of many acts remains in the

competence of national government bodies, including

at the level of individual administrative-territorial

units (cities, regions, etc.).

The importance of administrative-territorial units

and territorial authorities in achieving the goals of

Eurasian integration is steadily increasing, because

they are able to coordinate their implementation,

taking into account local specifics and available

resources. Moreover, many of these units can become

drivers of the Union's socio-economic development

due to the existing opportunities. Mainly, these are

the largest cities of the EAEU, which have a

developed industry, transport system, scientific,

educational and cultural spheres. Thanks to this, they

are able to take an active part in political and socio-

economic processes of both national and

supranational scale (Bredikhin, 2017).

For example, Saint Petersburg is such a city,

because the issues of Eurasian integration occupy a

special place in its activities. Currently, the city is the

most important political and diplomatic center in the

EAEU. It is a frequent meeting place for the political

elites of the member states, and is also a platform for

events dedicated to integration issues. In addition,

Saint Petersburg is actively developing partnerships

with many cities and regions of the EAEU countries.

Among them: Yerevan, Minsk and Minsk region,

Alma-Ata and Nur-Sultan, Osh and Bishkek

(Government of Saint Petersburg, 2021). The city

also has a practice of signing “diagonal” cooperation

agreements with Belarus and Kyrgyzstan (Frolov,

2015). At the same time, occupying leading positions

in a number of indicators of socio-economic

development among Russian regions, it is able to

significantly influence the socio-economic situation

of the integration association. The city receives on its

territory huge migration flows from the EAEU

countries and actively develops trade and investment

relations with them (Trofimova and Kaskova, 2021).

Turning to the factors of the external environment

of direct impact on the socio-economic situation of

the EAEU should consider:

 the influence of third countries;

 the influence of international organizations and

development institutions.

The context of influence of third countries can

imply both cooperative and confrontational relations.

Of course, cooperative relations can largely

contribute to the formation of a favorable socio-

economic situation in the EAEU. For example, at

present the Union is actively developing relations

with the countries that are members of ASEAN,

BRICS and SCO, with the aim of mutual exchange of

experience and expansion of economic cooperation.

Also, the international dialogue on the Latin

American direction is intensively developing: the

Union has documented relations with the Andean

Community, the Pacific Alliance and the Southern

Common Market (Meshkova, Izotov, Demidkina and

Kofner, 2019).

At the same time, there are rather problematic

relations in the Euro-American vector, which is

mainly associated with the introduction of sanctions

by Western countries against Russia and Belarus, as

well as the reciprocal acceptance of counter-sanctions

by these countries. The policy of mutual sanctions

significantly complicates the development of

international economic cooperation, interferes with

negotiation processes and has a significant

destabilizing effect on the socio-economic situation

in these countries. According to some estimates, the

sanctions against Belarus, which were imposed due to

disagreement with the results of the presidential

elections in August 2020, could bring the total

economic damage to the country in the amount of 7-

8% of GDP (DW Akademie, 2021). In turn, the

damage to Russia is estimated at more than $50

billion after the imposition of sanctions in 2014 due

to the Ukraine crisis (TASS, 2021).

As for the influence of international organizations

and institutions on the socio-economic development

of integration associations, today these structures

perform a number of important functions. They act as

research centers for various socio-economic

problems, developing ways to solve them

(recommendations, humanitarian and financial

assistance, etc.) and coordinating international

cooperation in problem areas. This is confirmed by an

analysis of the interaction of the EAEU countries with

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international organizations and institutions.

Unfortunately, the EAEU cannot take full advantage

of the advantages of this interaction due to the strong

politicization of economic processes.

Considering the factors of the external

environment of indirect impact, it should be noted

that they set the general directions for the

development of the entire world economic system

and, therefore, are of the most complex nature

(Kanykei, 2018). In general terms, these include:

 pandemics,

 a global competition,

 the cyclical nature of the world economy,

 socio-demographic trends,

 the acceleration of the pace of scientific and

technological progress, etc.

In particular, the problem of the COVID-19

pandemic today determines many trends in world

development and has a direct impact on all other

specified factors.

Thus, the spread of coronavirus infection led to a

decrease in world trade in goods by 8% in 2020

compared to 2019. Trade in services decreased by

21% over the same period (WTO, 2021). Forecasts

for 2021 are quite optimistic: the world economy is

expected to recover by 5.6% compared to the

previous year, and world trade may grow by 10.8%

(World Bank, 2021). However, many countries

continue to strengthen their policies of imposing

barriers and restrictions on international trade due to

unfavourable external conditions and the protracted

nature of the pandemic (Ministry of Economic

Development of the Russian Federation, 2021). Of

course, this negatively affects the development of

global competition and reduces the opportunities for

economic recovery in individual countries by

increasing export volumes.

An equally important aspect of the impact of the

pandemic on world economic development is the

exacerbation of global imbalances, which can lead to

a systemic crisis even in conditions of post-СOVID

economic recovery. According to the Central Bank of

Russia, the likelihood of a systemic crisis could

significantly increase “if a rapid and significant

tightening of monetary policy in the United States is

superimposed on the bursting of bubbles in asset

markets” (Bank of Russia, 2021).

It should also be noted that the pandemic had a

serious impact on the territorial mobility of the

population both between countries and within

individual states due to the introduction of a huge

number of internal restrictions and the closure of

borders. The widespread decline in labour migration

has contributed to increased unemployment and

poverty in many countries. This has become a serious

problem for the EAEU countries, and mainly for

Russia, which receives huge migration flows from

allied countries on its territory and largely depends on

the labour of migrants. According to the EEC, in 2020

the migration growth of Russia from other EAEU

member states decreased by more than 10 times: in

2019 it was 95.9 thousand people, in 2020 – 6.6

thousand people (Eurasian Economic Commission,

2021).

An important trend provoked by the pandemic is

the strengthening of the role of science and an

increase in its funding (Slutsky and Hudorenko,

2020). Thus, the scientific community was tasked

with the early development of a vaccine and treatment

for COVID-19.

The increase in the growth of e-commerce, the

widespread transition to distance learning in

universities and schools, the transfer of many

enterprises to remote work, led to the acceleration of

digitalization, which became part of the competitive

indicators for enterprises and countries.

Thus, factors of the external and internal

environment can have both positive and destructive

effects on the socio-economic situation of the EAEU,

which is confirmed by the analysis performed. The

pandemic has changed the conditions for the

functioning of economies, which sets before the allied

countries both the task of overcoming its negative

consequences and the task of adapting economies to

new conditions. Of course, the solution of these tasks

can be favoured by the expansion of interaction with

third countries and international organizations and

institutions. Unfortunately, the peculiarities of the

political situation can prevent the establishment of

this interaction and further shift the emphasis towards

the factors of the internal environment, which were

previously described.

4 DISCUSSION

According to the experts of the Accounts Chamber of

Russia, the spread of COVID-19 and the socio-

economic problems provoked by it seriously

worsened the possibilities of achieving the entire list

of Sustainable Development Goals that were

established by the UN (Accounts Chamber of Russia,

2021). The pandemic not only cancelled out previous

gains in improving living standards and well-being of

the population, but also created risks for increasing

inequality between countries. According to IMF

forecasts, the economies of developed countries will

be able to recover their pre-pandemic indicators as

External and Internal Factors Affecting the Socio-economic Situation of the EAEU during the COVID-19 Pandemic

407

early as 2022, but the vast majority of developing

countries may take “many more years” due to

extremely high inflation rates, growing budget

deficits and a significant increase in the volume of

public external debt (IMF, 2021). It should be noted

that these obstacles exist in most of the EAEU

countries. In 2020, in relation to 2019, inflation in the

EAEU as a whole amounted to 5.4%. Moreover, the

average inflation rate in the EAEU in the first quarter

of 2021 amounted to 6.7%, which significantly

exceeds the target values (Eurasian Economic

Commission, 2021).

In 2020, there was an increase in the budget deficit

in all EAEU countries due to a decrease in revenues

and an increase in budget spending on health care and

measures to support the economy and the population

(Figure 2).

Figure 2: Budget deficit/ surplus, % of GDP (Eurasian

Economic Commission, 2021

In 2020, the size of the republican budget deficit

increased in Armenia, Belarus, and Kyrgyzstan to

5.4% of GDP, 3.1% of GDP and 3.3% of GDP,

respectively. In turn, budget surpluses were replaced

by deficits in Belarus (1.5% of GDP) and Russia

(3.8% of GDP).

Due to the lack of own funds for economic

recovery, the EAEU countries, except for Russia,

increased external borrowing, which affected the

growth of external public debt (Table 1).

Table 1: Public external debt in the EAEU in 2019-2020.

Country

Public External

Debt, US $ bln

Year-on-year

growth, %

2019 2020

Armenia 5.8 6.0 ▲4.6

Belarus 17.1 18.6 ▲8.4

Kazakhstan 15.2 16.4 ▲7.6

Kyrgyzstan 3.9 4.2 ▲9.5

Russia

41.6 39.1 ▼6

Source: (Eurasian Economic Commission, 2021).

Russia continued the course to reduce the external

debt burden, even in the context of the pandemic. On

the contrary, other countries of the Union actively

resorted to borrowing from other organizations and

international development institutions, including the

IMF, IBRD, EBRD, ADB, IFC and others. However,

an increase in external public debt with insufficient

GDP growth is associated with great financial risks

for the EAEU countries. According to EDB forecasts,

the economies of Armenia, Kyrgyzstan will not be

able to reach the pre-crisis level in 2021, while the

protracted nature of the spread of COVID-19 and its

socio-economic consequences can only contribute to

a further increase in external borrowing (Eurasian

Development Bank, 2021).

According to the authors, the current situation has

shown the importance of creating its own financial

support mechanism within the EAEU and confirmed

the conclusions about the important role of its own

resources and reserves.

5 CONCLUSIONS

Currently, the global spread of the new coronavirus

infection has had a strong destructive impact on the

socio-economic situation of the EAEU countries.

This required a search for factors that can quickly

affect its improvement. The factors of the internal and

external environment were identified as influencing

factors. Their interaction and significance in a given

time interval have been described.

The results of the study showed that the specificity

of the internal environment is associated with a

special role that belongs to the activities of

supranational and national authorities. They are the

ones who are able to control other factors and

determine the directions of their development.

Unfortunately, at the present stage they cannot fully

express themselves, due to the fact that the Union is a

fairly young association, which is just entering the

stage of revealing its integration potential.

In this situation, it is proposed to pay particular

attention to the role of internal factors and, first of all,

to the efficiency of the work of authorities at all levels

and the presence of their own resource potential. At

the same time, much attention should be paid to

constant analysis of the current socio-economic

situation and mutual exchange of experience with

third countries.

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