After independence in 1992, the Kyrgyz Republic’s economy and public services were hit hard by the break-up of the Soviet economic zone and the end of subsidies from Moscow. Thanks to the adoption of market-based economic reforms in the 1990s, the economy has nearly recovered to its pre-independence level of output, but infrastructure and social services have suffered from low investment.
With per capita GNI of $920 in 2011, the Kyrgyz Republic remains a low income country. Moreover, the global economic crisis, the political unrest of April and June 2010 and food price increases in 2011 and 2012 have reversed earlier gains in poverty reduction. The absolute poverty rate increased from 33.7 percent in 2010 to 36.8 percent in 2011.
A series of reform-oriented governments since the political crises of 2010 have sought to restore economic and social stability, and to address shortcomings in public governance and the investment climate. Following strong growth in 2011, the Kyrgyz economy was hit by a significant decline in gold production due to geological movements at the Kumtor gold mine. Real GDP in the first half of 2012 contracted by 5.6 percent as gold production at Kumtor fell by 60 percent. Excluding Kumtor, real output grew moderately at 3.9 percent with growth across all sectors.
Weak economic governance and a high level of perceived corruption remain key obstacles to development in the Kyrgyz Republic, and were considered causes of the political unrest of 2010. The government’s Medium Term Development Program, adopted in 2011, stated improving governance and fighting corruption to be its top priority.
The agricultural sector, which accounts for about a quarter of the country’s GDP and about one third of employment, expanded rapidly between 1996 and 2002. The Government successfully completed a land reform, created a rural bank and agribusiness/rural advisory services, and established water-user associations and pasture committees.
The energy sector is one of the largest in the Kyrgyz economy, accounting for around 3.9 percent of GDP and 16 percent of industrial production. The bulk of the country’s current generating capacity is hydropower. The key challenges faced by the sector are high commercial losses and low tariffs, leading to inadequate funding for maintenance and investment, winter energy shortages, and governance issues. All these led to significant deterioration of energy assets and poor sector performance.
Mining constitutes about 26 percent of tax revenues, about 10 percent of GDP, and 50 percent of export earnings. The country has been reviewing mining legislation and mineral licensing procedures. To address governance issues in mining, the Kyrgyz Government started implementing the Extractive Industries Transparency Initiative in 2004.
The road network connects remote communities and links the Kyrgyz Republic to neighboring countries. Rehabilitating strategic road corridors is on the Government’s priority list, given their importance in providing access to international markets and basic public services. However, basic preventative maintenance is seriously underfunded.
Improving education, healthcare and social protection is another top priority for the Kyrgyz Republic. The Government is currently implementing medium term reforms in these sectors.