Kyrgyz Republic overview

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Urban scene

In the Kyrgyz republic we focus on:

Fostering sustainable growth by strengthening regional cross-border linkages: As a landlocked economy with a limited domestic market, the Kyrgyz Republic would benefit greatly from deeper regional integration, given its important energy export potential, as well as good regional trade and transit position. In that context, the Bank will aim to help facilitate economic and trade cooperation and integration with the region, by supporting rehabilitation of critical infrastructure, strengthening the exporting sector including through access to finance and advisory, as well as supporting cross-border investments and regional cooperation projects.
 
Enabling SMEs to scale-up and bolster competitiveness: Outside the extractive sector, the economy is dominated by SMEs, with few mid-sized corporates in existence. While deeper regional trade links create opportunities for the best local firms, stronger operating models and core competencies will be needed to better compete. The Bank will thus support competitiveness and sustainable growth of SMEs with viable business models through investment and advisory, promoting in particular skills transfer and operational efficiency improvements, and seek to strengthen the financial sector to facilitate access to finance for SMEs, in particular in local currency. The Bank will also step up its efforts of improving the business environment through policy dialogue.
 
Promoting sustainability of public utilities through commercialisation and private sector participation: To address underinvestment, deficient regulatory environment, weak core competencies, poor financial and operational performance, the Bank will continue to support municipal utilities, where it has a recognized expertise and delivery model in improving operators’ financial condition, operating practices and governance, and seek to support sustainability of power sector by rehabilitating assets and developing a more attractive institutional framework for private investment.
 
In addition, the Bank will seek to support through the above priorities the reduction of regional economic disparities, by increasing its outreach to less developed rural areas, in particular in the southern regions, and addressing inclusion gaps in relation to gender and youth across sectors.

EBRD forecast for Kyrgyz Republic Real GDP Growth in 2021 6.6%

EBRD forecast for Kyrgyz Republic Real GDP Growth in 2022 4.6%

Real GDP declined by 3.8 per cent in January-April 2021, the lowest contraction since the beginning of the pandemic. Economic and political uncertainty, as well as longer-term Covid-related disruptions, weigh on the supply side of the economy. Fixed investment continued to contract; gold production is down 9.8 per cent year-on-year, and construction and manufacturing dropped by 17 and 16.4 per cent year-on-year, respectively.
 
However, excluding the Kumtor gold mine, real GDP increased by 1.1 per cent year-on-year on the back of a sharp increase in remittances (up 22 per cent year-on-year in US dollar terms in the first quarter of 2021). A remittance-financed surge in consumer demand led to a recovery in services (up 1.3 per cent year-onyear) and food price inflation. To quell inflationary pressures, the central bank raised the policy rate from 5.5 to 6.5 per cent in April 2021. As a result, annual inflation decelerated to 8.7 per cent in April 2021 from the peak of 10.6 per cent in February 20 2021, but remains above the target corridor of 5-7 per cent.
 
The volume of newly issued loans increased by 38.8 per cent year-on-year in January- April 2021, with strong growth in agriculture, trade and consumer loans. At the same time, the nonperforming loan (NPL) ratio climbed to 11.24 per cent in April 2021 from 8.67 per cent a year ago, signifying a build-up of risks in the banking sector.
 
The economy is expected to grow by 6.6 per cent in 2021, fuelled by strong recovery in remittances from Russia and growth in private consumption, which will positively affect the services industry. However, fixed investment is expected to remain subdued in 2021 due to political risks and investment climate concerns resulting from the temporary takeover of Kumtor by the authorities in May 2021 and the ratcheting up of inspections and regulatory pressure on medium-size businesses.
 
Hence, real GDP growth is projected to decelerate to 4.6 per cent in 2022.
 

Kyrgyz Republic in the EBRD’s 2020-21 Transition Report

 
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