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 2022 1.0%
EBRD forecast for Kyrgyz Republic Real GDP Growth in 2023 4.0%
Having suffered a severe recession of 8.6 per cent in 2020, the Kyrgyz economy expanded by 3.6 per cent in 2021 despite a major drop in gold exports. Economic recovery continued in the first quarter of 2022, with GDP growth estimated at 4.5 per cent year-on-year. A near doubling of imports in the first two months of 2022 (up by 91.3 per cent year-on-year) is indicative of the government’s success in reducing corruption in customs administration at the country’s border with China. Accompanied by a new tax code mandating the use of cash registers at all points of sale, this reform is likely to help the authorities clamp down on shadow economic activities, thus contributing to public revenues, levelling the playing field for companies operating in the formal economy, and creating incentives for investment in manufacturing. The government and Centerra have reached a tentative settlement over Kumtor, the country’s largest gold mine, potentially clearing a major roadblock for gold exports and FDI. However, remittances are likely to fall as sanctions start to bear on the Russian economy, and inflation has already picked up from 11.2 per cent in January to 13.2 per cent year-on-year in March 2022, putting further pressure on vulnerable households.
The Kyrgyz Som experienced the largest drop in value compared with other Central Asian currencies in the immediate aftermath of the war on Ukraine, reflecting the country’s dependence on Russia and its membership in the Russia-led Collective Security Treaty Organization and Eurasian Economic Union. A sharp increase in the central bank’s policy rate (from 8.5 to 14.0 per cent) and the Rouble’s recovery helped restore the value of the Som in the second half of March 2022. However, a further escalation of the geopolitical crisis is likely to put more pressure on the country’s currency and balance of payments given the large share of imports in energy, intermediary and consumer goods. The economy is projected to grow at 1.0 per cent in 2022, and 4.0 per cent in 2023, subject to strong downside risks.