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Kyrgyzstan at the Cross-Roads
The Economic Situation
in the Kyrgyz Republic
Chris Lovelace
Country Manager
The World Bank
March 3, 2006
Oxford, UK
Economic Growth

Growth remains fragile
and sensitive to
domestic and external
instabilities.
Growth in 2005 (-0.6%)
was affected by a decline
in gold production and
political uncertainties.
Structure of GDP, growth, and inflation
80000
20.0
70000
15.0
60000
50000
10.0
%

Macroeconomic situation
has been stable; Inflation
remains low; and
exchange rate relatively
stable recent years.
million soms, 1995 prices

40000
5.0
30000
20000
0.0
10000
0
-5.0
2000
2001
2002
2003
2004
2005p
Agriculture
Services
Manufacturing
Consutruction
Power
Gold
GDP growth
non-Gold GDP growth
Inflation (avg)
Economic base




Instability of economic growth is largely due to
the fact that the economic base remains
narrow.
“-” The economy heavily concentrated in
agriculture, gold and power production and
production of essential services.
“+” Strong growth of services and signs of
recovery in manufacturing.
Inherited good infrastructure and a welleducated population (although deteriorated)
Pro-poor economic growth



Poverty declined steadily over last years
Poverty is concentrated in rural areas
Albeit progress in poverty reduction, its level
remains high (with GDP per capita at about US$ 470)
8
70
63
6
% of population
5.3
50
50
46
40
30
2
0.0
0
-2
2001
-4
2002
2003
-8
20
2001
Rural poverty
2002
2003
Urban poverty
2004
Total
2004
-2.8
-6
2000
7.1
4
55
annual % change
56
60
7.0
-7.9
-9.0
-9.8
-10
Real GDP growth
Change in poverty rate
Progress made in fiscal adjustment,
but further reforms are needed
The general government
deficit fell from 10% of
GDP in 2000 to 3.8% of
GDP in 2005.

Better revenue collection
and controlled spending

However, public
expenditure management
reforms need to be
deepened to improve
public service delivery and
use scare resources
efficiently.
General Government Balance
35.0
30.0
25.0
20.0
% of GDP

15.0
10.0
5.0
0.0
-5.0
2000
2001
2002
2003
2004
-10.0
-15.0
Total Revenue and Grants
Total Expenditure
Fiscal balance
Primary balance (w/o foreing PIP and %)
2005p
Low domestic investment is
a constraint

The economy continues to rely heavily on foreign and
national savings, including increased remittances and
foreign transfers. FDI is relatively low.
35.0
30.0
30.7
25.0
25.6
22.7
20.0
22.0
20.0
19.0
18.7
17.1
17.5
15.0
10.0
5.0
0.0
Armenia
Tajikistan
Uzbekistan
Kyrgyz Rep.
Mongolia
Gross capital formation (annual % growth) Average 2000-2003
Nepal
Uganda
Burkina Faso
Gross capital formation (% of GDP)
Mali
The Kyrgyz export performance
remains weak and vulnerable



Exports, Imports, and Current Account Balance
1,400.0
0.0
1,200.0
-1.0
1,000.0
-2.0
800.0
-3.0
600.0
-4.0
400.0
200.0
-5.0
0.0
-6.0
2000
2001
Exports GNFS
2002
2003
Imports GNFS
2004
2005p
CAB (% GDP)
% of GDP

High commodity and
geographical concentration.
Gold is about 40% of
exports.
Exports are largely primary
commodities and very
volatile due to regional
restrictions, barriers, and
price shocks.
The unfavorable
performance of merchandise
trade was counterbalanced
by the strong flow of
remittances.
Oil price increase negatively
affected the CAB
million US$

External Debt is a constraint for
development





Progress achieved in debt restructuring (Paris
Club)
Debt/GDP ratio declined from 111% in 2002 to
89% in 2005
External debt service/ exports ratio declined
from 20% in 2002 to under 10% in 2005
Debt sustainability remains vulnerable to
domestic and external shocks
HIPC eligible country
Regulatory environment needs
improvements

Contributions of
SMEs to GDP and
employment
increased only
slightly over the
last three years

Corruption and
poor governance
are key issues.
Source: BEEPS
Growth requires more reforms
Table 1 the Kyrgyz Republic:Key Economic Indicators, 2000-2010
2002


Medium Term (MT)
assumptions:
political stability and
moderate progress
with reforms
But these path of
reforms not sufficient
to achieve stronger
growth (8-10 % in
MT) to reduce
poverty substantially
2003
2004
2005 2006p
2006-2010
average
Real Sector
Real GDP growth (%)
0.0
7.0
7.0
-0.6
5.6
5.5
Non-gold real GDP growth rate (%)
3.6
5.4
7.8
1.5
5.7
5.4
GDP per capita (current US$)
Investment (% of GDP)1
322
381
434
473
490
552
20.3
20.5
20.9
21.6
22.2
22.9
2.1
3.1
4.1
4.3
5.5
4.3
22.7
22.9
23.4
24.1
24.1
25.1
18.1
17.7
18.3
19.4
19.2
19.8
Expenditure
27.9
27.6
27.4
28.3
27.4
28.6
PIP credits
4.7
3.7
3.8
2.5
2.7
2.0
Fiscal Balance
-5.2
-4.7
-4.0
-3.8
-3.3
-3.6
-3.1
-4.2
-3.4
-9.0
-7.0
-3.1
Exports (% growth)
3.7
18.1
24.6
-0.8
9.9
6.7
Imports (% growth)
25.1
21.4
31.3
17.7
9.8
7.3
111.1 101.2
95.2
82.8
80.9
69.1
Inflation (average)
General Government Balance (% of GDP)
Revenue and grants
Tax revenue (incl. Payroll tax)
External Sector
Current Account Balance (% of GDP)
External Debt (% of GDP)
Source: Kyrgyz authorities, WB staff estimates and projections
1/ Data on investments for 2002-2005 are based on the IMF assumptions
Good Governance is the key
to higher growth






Political stability and government speaking with
coherent voice
Implementation of Civil Service Reforms
Institutions for effective management of public
resources
Implementation of reforms to improve business
environment
All the above required to deal with systemic
corruption and rent seeking
Huge challenges and not clear whether the state is
strong enough to make these reforms
Conclusions

While macroeconomic situation is stable, growth
remains fragile and sensitive to domestic and
external instabilities, and fragmented policy making.

Although the economic growth has been pro-poor,
poverty remains high.

Advantage of inherited infrastructure and a welleducated population should be capitalized.

Export performance and external debt sustainability
have to be strengthened.

Investment levels both domestic and foreign need to
be raised.

Business environment, public finance management,
and governance have to be improved substantially.
Thank you!