The World Bank in the Kyrgyz Republic

Country Context

The Kyrgyz Republic is a land-locked, lower-middle-income country. It has rich endowments, including minerals, forests, arable land, pastures, and has significant potential for the expansion of its hydroelectricity production, agriculture sector, and tourism industry.

The country has experienced instability since independence in 1991: political upheavals in 2005, 2010 and 2020 led to the overthrow of presidents. Mr. Sadyr Japarov, who came to power following political unrest in October 2020, was elected president in January 2021 with 79% of the vote and pledged to tackle crime and corruption while establishing order in the country.  The presidential form of government has been consolidated, and the overall political situation has stabilized. The latest parliamentary election took place in November 2021. 

The Kyrgyz economy is heavily dependent on remittances, gold production and foreign aid and as a result has been vulnerable to external shocks.  Strong and sustainable economic growth requires institutional strengthening and policies to develop the private sector, spur international trade, and encourage fiscally sustainable energy production.

Strategy

The World Bank and the Kyrgyz Republic

The 30-year partnership between the World Bank and the Kyrgyz Republic has brought about significant development gains in all major sectors of the economy through investments of US$2.7 billion in 149 projects, technical assistance, and advisory and analytics. At the same time, more remains to be done. The Bank will continue supporting the country maintain macroeconomic stability, invest in strategic infrastructure, develop the private sector, and improve access to public services.

Building on the Systematic Country Diagnostic update and learnings from other core diagnostics and on consultations with various stakeholders throughout the country, the World Bank is launching a new five-year Country Partnership Framework (CPF) for 2024-28. The new CPF sets a program of support aligned with the country’s development strategy. Particularly, it focuses on strengthening foundation for sustainable private sector-led job creation, improving efficiency and sustainability of natural resources use, and improving human capital.

Economy

Recent Economic Developments

Economic growth reached 7 percent in 2022. Growth was driven by gold production, agriculture, and the services sector. The latter was supported by trade related services and additional demand boosted by reallocation of Russian citizens to Kyrgyzstan. On the demand side, growth was supported by private consumption and public investment while net exports contributed negatively. Inflation reached 14.7 percent in 2022. It increased for the fourth consecutive year and recorded the highest CPI since 2010. Inflation was driven by rises in global food and fuel prices and by higher domestic demand. 

While gold production was strong, gold exports fell by 99 percent as domestic gold was sold to the National Bank of the Kyrgyz Republic. The current account deficit is estimated to have widened to 27 percent of GDP from 8.6 percent a year earlier.

Fiscal deficit increased to 1.4 percent of GDP in 2022 from 0.3 percent a year earlier. The fiscal expansion was less than projected due to strong revenue performance. Tax revenues increased from 24.5 percent to 29.2 percent of GDP due to increased imports and improved tax compliance. Expenditures increased from 32.8 percent to 38.4 percent of GDP following significant wage increases for public servants, doctors, teachers, and social workers, and higher capital spending. As a share of GDP, public debt declined to 52 percent in 2022 from 59 percent in 2021.

Economic Outlook 

GDP growth for 2023 is expected to moderate to 3.5 percent as gold production contracts and agriculture and the services sector experience a slowdown. On the demand side, growth is expected to be supported by consumption and investment while net exports are expected to be a negative contributor. GDP is expected to converge to a potential growth rate of 4 percent in the medium-term. Inflation is expected to remain elevated at about 10 percent in 2023, driven by rising tariffs for electricity and other utilities. Inflation is projected to moderate gradually to 7 percent by end-2025.

The current account deficit is projected to be about 14 percent of GDP in 2023 and narrow slightly in 2024–25 as external demand for non-gold goods improves and export of services increases.

The fiscal deficit is expected to widen in 2023 due to the full year effect of increases in public sector wages and social benefits. However, the fiscal position is expected to be consolidated in 2024–25 due to higher revenues from the mining sector and the containment of expenses on goods and services and lower capital spending.