Population 5.588 million
GDP 6.197 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
-0.5 |
5.7 |
1.0 |
5.0 |
|
Inflation (yearly average) (%)
|
7.8 |
16.6 |
7.0 |
8.0 |
|
Budget balance (% GDP)
|
-6.5 |
-4.8 |
-9.0 |
-6.0 |
|
Current account balance (% GDP)
|
-6.4 |
-6.3 |
-9.0 |
-6.5 |
|
Public debt (% GDP)
|
60.3 |
52.4 |
52.0 |
51.3 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Mining resources (gold)
- Vast hydroelectric potential
- Financial support from bilateral and multilateral donors
- Geographic position enabling the country to play an intermediation role in trade between Asia and CIS
WEAKNESSES
- Poor diversification of an economy very dependent on gold production and transfers from expatriates
- Isolated country, oil importer
- Business environment difficult due to high concentration of power and corruption
- Weak social and political situation; regional tensions between the country’s north and south
Risk assessment
Growth dependent on gold production
Growth was hit hard in 2012 by the global economic slowdown, mediocre harvests but mainly by a contraction in gold production, the main driver of activity in Kyrgyzstan. Strikes at the beginning of the year and operational problems at the country’s main gold mine, Kumtor, whose production contributes 12% of GDP, explain this fall. Renewed production and maintenance of high prices will enable growth to rebound in 2013. Transfers from expatriates (over 30% of GDP), essentially from Russia, will remain high and help support the economy. Social spending, higher wages and pensions will boost consumption.
Inflation slowed distinctly in 2012 due to a tighter monetary policy. Upward pressures are expected to remain strong in 2013 with the drought that struck the region (particularly Kazakhstan, a major supplier of wheat) pushing up food prices while oil prices will remain high. The 8% target set by the Central Bank (NBKR) is, however, likely to be respected.
Fiscal deficit maintained by a social spending policy
The fiscal deficit widened in 2012. The growth in tax revenues was impeded by the strong fall in gold production and official transfers (Kyrgyzstan not having observed all the conditions for funds to be released), while spending continued to grow rapidly. The deficit is expected to fall gradually in 2013, due to the recovery of gold production and the unfreezing of aid, as well as improved tax collection. Fiscal policy will continue to be aimed at counter-cyclic measures to support the economy and at social spending (health and education).
The debt-servicing burden will ease due to debt cancellations granted by Russia in 2012 ($189bn) and Turkey ($49mn). Public debt is stable and essentially on concessional terms, limiting the risk of overindebtedness.
Scale of imports puts pressure on the current account balance
The country’s dependence on imports of highly priced products (oil and foodstuffs) is the main reason for the current account deficit. In 2012, the value of imports was about twice that of exports, hit by the fall in the volume of gold production (25% of total exports). The expected rebound due to the resumption of operations in the Kumtor mine, combined with the still high price of the precious metal, will enable export revenues to rise in 2013. Moreover, the healthy level of transfers from expatriates is expected to help reduce the current account deficit, even though imports will remain high. Foreign direct investment flows are expected to remain limited in 2013 due to the economic slowdown in the eurozone and the fragile political situation.
Fragile political situation
The coalition, which had governed the country since October 2011, collapsed in August 2012. A new government was formed from September 2012. The new coalition has a reduced majority in the Assembly (69 of the 120 seats) and the political rivalries, based on regional and ethnic divisions, make the country’s political and social evolution uncertain. The nationalist opposition party, which demands nationalisation of the Kumtor mine, was responsible for violent protests in the capital in October 2012. Moreover, the country suffers from persistent inter-ethnic tensions in the southern provinces between the Kyrgyzes and Uzbeks (14% of the population) and new outbreaks of violence cannot be ruled out in this region.
Kyrgyzstan is clearly turning towards Russia. With the prospect of his country joining the Russia-Kazakhstan-Belarus Customs Union, President Atambayev has accepted continued Russian military presence on his territory until 2032. The agreement authorising the American military presence on the Manas base until 2014 could not, however, be renewed.
Unsatisfactory business environment despite efforts to improve it
The authorities are taking steps to improve governance and the business environment and the quality and effectiveness of public services, to strengthen property rights and to fight corruption. The parliament, therefore, passed a new law in 2012 providing for greater involvement of civil society in fighting corruption. But the administrative authorities show little respect for the regulations.
