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 agriculture sector, hydroelectricity production, and tourism industry.

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

September 18, 2022, marked the 30-year anniversary of the partnership between the World Bank and the Kyrgyz Republic. The partnership spans all major sectors of the economy and includes investment of $2.7 billion in 149 projects, technical assistance, and analytics. The Bank’s support has helped the country maintain macroeconomic stability and achieve important results ranging from modernization of irrigation, transport and energy infrastructure to expansion of rural water supply and community-driven development initiatives throughout the country.

In the context of COVID-19 pandemic and economic shocks, the Bank focused on supporting health sector’s response to the pandemic, community-focused initiatives with direct impact on people’s lives, and allocated financing of $100 million to help speed up recovery of micro, small and medium enterprises.

Building on the forthcoming Systematic Country Diagnostic update and on preliminary consultations with various stakeholders throughout the country, the World Bank is launching a new five-year Country Partnership Framework for FY24-28 and looks forward to expanding the engagement in energy, water, climate adaptation, food security, public sector governance, private and financial sector development, and other key priority areas.

Economy

Recent Economic Developments

The Kyrgyz economy has proved more resilient than expected to the spillovers of the war in Ukraine and sanctions on Russia. Real GDP grew 7.7 percent during January-July, yoy, supported by industry, agriculture, construction and services. Growth was driven by domestic demand which in turn was supported by solid remittance inflows (7.5 percent growth in US$ terms) from Russia, aided by a strong Russian ruble.

Inflation increased to 13.8 percent in July from 11.2 percent in December 2021, driven by food and fuel prices following the global trends. In the first 7 months of 2022, the fiscal position was solid with a surplus of 1.4 percent of GDP. Total revenues increased to 45.9 percent of GDP from 38.6 percent a year ago, driven by higher tax revenues.

Spending increased to 44.5 percent of GDP from 37.2 percent a year ago driven mainly by capital outlays. The surplus, along with the appreciation of the national currency helped reduce the public debt burden to an estimated 49 percent of GDP by end July 2022. The current account deficit significantly increased to an estimated 15.2 percent of GDP in H1, 2022 because of a sharp reduction in gold export and a surge in imports.

Economic Outlook

GDP growth is expected at 4 percent in 2022. Consumption will be supported by remittances and investment spurred by high public outlays, while net exports are expected to contribute negatively to growth. Inflation is expected at about 15 percent by end-2022. The fiscal deficit is expected to widen in 2022 due to the decision of the Cabinet of Ministers to increase social transfers and public sector salaries in 2022. The current account deficit is projected to remain high at about 13 percent of GDP in 2022, reflecting the fall in gold exports. 

The poverty rate is expected to increase to 25.5 percent in 2022 (at the $3.65 a day, 2017 PPP poverty line) from 21.8 percent in 2021, and 18.7 percent in 2020. High inflation remains the most immediate concern for the welfare of the population. Increases in public sector salaries and in pensions, and the enhancement of the social protection program have softened the negative impact of the food price increase on the population. The intention of the authorities to further scale up and extend the social protection program will help protect the most vulnerable part of the population.