The World Bank’s Country Economic Memorandum (CEM) for the Kyrgyz Republic is a comprehensive diagnostic analytical report that identifies and analyzes key constraints to sustaining high growth rates as well as outlines promising reform directions for the country to boost economic growth.
The CEM serves as a foundation for substantive policy dialogue with the government and helps strengthen engagement with a broad range of stakeholders, offering a set of practical and actionable reform recommendations aimed at supporting fair competition in markets, improving the business environment, expanding trade opportunities, attracting more foreign investments, and increasing human capital’s contribution to growth.
Challenges and Constraints
According to the CEM for the Kyrgyz Republic, the country faces several key constraints to raising living standards and ensuring greater and better jobs creation to employ the fast-growing Kyrgyz population.
- The country’s heavy reliance on investment and capital accumulation, largely into extractive sectors, with very limited contribution of labor and skills, is an obstacle to achieving high and sustainable economic growth.
- Linked to this is a lack of improvement in the efficiency with which the economy operates, which has impacted private sector-growth and led to a decline in productivity. While many factors explain this, institutional and policy weaknesses related to the business environment have been particularly problematic because they dampen competition as well as constrain entry by new firms and the expansion of the most efficient firms.
- Such conditions deter private investment, including high productivity foreign direct investment (FDI), and prevent the country’s labor and capital from being put to their most productive uses.
- These findings are reflected in the observation that, while annual economic growth increased at 4.7% on average between 2000 and 2024, the creation of well-paying jobs remains a challenge, and about 70% of employment remains informal and low paying.
Recommendations
The CEM analysis suggests that improving business dynamism, leveling the playing field, and radically simplifying the business environment are central to tackling the country’s growth and employment challenges. Removing barriers to firm creation, growth, and expansion will boost the private sector’s ability to grow and employ more skilled workers, invest in productive activities—and not only in the extractive sectors—and hence generate rapid and sustained economic growth as well as good quality employment for the Kyrgyz population.
To address these constraints and boost the country’s growth, the CEM for the Kyrgyz Republic recommends:
- Streamlining the business environment by designing a new business climate reform agenda, strengthening regulatory reforms and their consultations and communication, and reforming regulatory impact assessment procedures.
- Sharpening competition by strengthening competition law, approving a SOE ownership policy, fostering competitive neutrality, and introducing state aid control framework.
- Maximizing spillovers from high-value FDI to the Kyrgyz economy by removing barriers to FDI entry, operationalizing investor grievance mechanisms, designing FDI attraction strategy, and strengthening investment promotion mechanisms.
- Harnessing trade as an engine for growth by streamlining non-tariff measures, boosting logistics performance, improving national quality infrastructure, and enhancing regional cooperation on trade.
The government’s reform strategy will also require targeted measures to enhance human capital with the skills required to adopt more sophisticated technologies and business models. Given the multiple constraints on business dynamism, reforms should be implemented in a comprehensive manner, as tackling only specific constraints is unlikely to be effective.