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.

Since the Kyrgyz Republic joined the World Bank in 1992, commitments have reached over US$ 1 billion for 49 International Development Association (IDA)-funded projects, out of which US$ 908 million have been disbursed. To date, 32 operations for US$ 739.5 million have been completed and closed, and 17 projects for US$ 349.5 million are ongoing.

From 1992 until 2000, the Kyrgyz portfolio concentrated on budget support. After 2001 there was a gradual shift towards investment projects. Nonetheless, there have been two budget support operations since the July 2010 Donors Conference and a multi-year budget support program is being prepared.

In August 2011, the Board approved the Bank Interim Strategy Note (ISN), which covers the period from August 2011 to June 2013.  The need for an interim strategy approach was underscored by the fragile political, social and economic situation in the country in the aftermath of April and June 2010 events.  It focuses on the country’s recovery and stabilization needs, while paving the way for support for long-term development. The ISN will be followed by a full Country Assistance Strategy, based upon the national development strategy.

Projects in progress or showing results and, in some cases, implemented with the help of key development partners in the country include:

Second Village Investment Project
Many Kyrgyz people live in rural areas, where poverty is widespread, the population depends on agriculture, and basic necessities such as drinking water, health and child care are often lacking. The project objective is to build local self-government, and village level capacity to plan and implement local investments and manage financial resources effectively. Approximately 2.3 million people have benefited directly from the completion of about 6 thousand micro projects.  These include over 317,000 beneficiaries of drinking water micro projects; 131,000 from electricity micro projects; 570,000 beneficiaries of new or rehabilitated primary health facilities, and about 1,028,700 from schools construction and rehabilitation micro projects.  More than 1,698 villages throughout the country improved their social and economic infrastructure.

Agribusiness and Marketing Project
The main aim of the project is to boost agribusiness and contribute to economic growth. It works directly with private enterprises and business groups to improve the competitiveness of Kyrgyz products. It also engages policymakers in identifying and addressing the critical policy and regulatory constraints for the development of the agribusiness sector. Two main components of the project are market development, with the aim of streamlining commodity supply chains, and access to credit, which finances loans to agribusinesses. The project has assisted 44 agro-processing enterprises to improve their technological processes, marketing and sales, food safety and quality management, as well as accounting and financial management, and trained 259 farmer cooperatives.

Energy Emergency Assistance Project
The Kyrgyz Republic depends on hydropower, which accounts for about 80 percent of total installed generation capacity. In 2008, due to unprecedented cold weather, low rainfall, and insufficient gas supply, the Kyrgyz Republic faced a severe energy deficit. This meant that winter fuel supplies were uncertain. The project aimed urgently to increase thermal power generation and heat supply.

All project activities have been completed, and the project has achieved its objectives: uninterrupted handling of coal ensured through the supply of coal handling equipment (truck lifts, bulldozers, and coal conveyor band) and repaired heat boilers of the heat and power plants allowed to increase additional thermal power output during the last three winter seasons by an average of 150 gigawatt hours (GWh). Additional heat output during these winter seasons reached 300,000 GWh (equal to about one month of normal operation before the project). Ash remission reduced over 10, 000 tons for a winter season.

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Kyrgyz Republic: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments