The World Bank in the Kyrgyz Republic

Country Context

The Kyrgyz Republic is a land-locked, lower-middle-income country in Central Asia that has abundant natural resources and potential for the expansion of its hydroelectricity production, agriculture sector, and tourism industry.

Since gaining independence in 1991, the Kyrgyz Republic has experienced political instability, with several political upheavals leading to the overthrow of presidents in 2005, 2010, and 2020. Since 2021, the political situation has stabilized, and the presidential form of government has been consolidated. The latest parliamentary election took place in November 2021.

To unlock strong, sustainable growth, reforms are needed to attract private investment, boost international trade, and promote sustainable energy. By focusing on these areas, the Kyrgyz Republic can build resilience to shocks, drive domestic growth, and reduce dependence on external factors, ultimately securing a brighter future for its citizens.

Strategy

The World Bank and the Kyrgyz Republic

The World Bank has launched the implementation of a new five-year Country Partnership Framework (CPF) with the Kyrgyz Republic for FY2024-28. This CPF introduces shifts in focus and approach and is well aligned with, and responds to, the Kyrgyz Republic’s priorities and needs as reflected in the Systematic Country Diagnostic Update, building on the World Bank Group’s comparative advantages.

Energy, water, and agriculture are identified as priority sectors for World Bank financing with an emphasis on enabling private sector investments and building scalable projects and using innovative financing instruments. Along with it, the CPF includes a strong focus on key global challenges including strengthening climate resilience and reducing emissions, closing gender gaps, supporting jobs and economic transformation, strengthening institutions, and reducing fragility risk. A sound program of activities is in place. 

Economy

Recent Economic Developments

The Kyrgyz economy grew at an estimated 6.2% in 2023, following a 9% expansion in 2022. This growth was driven by the services sector, particularly services related to transit trade from China and Russia. On the expenditure side, exports and consumption supported growth. Average consumer price inflation declined from 13.8% in 2022 to 10.8% in 2023 due to easing global food and fuel prices and a tight monetary policy.

The current account deficit amounted to 66.2% of GDP ($3.4 billion) first half of 2023, the largest deficit to date, with significant 'errors and omissions,' which is likely driven by under-reporting of largescale re-exports to Russia. This large deficit is attributable to a 38% increase in imports (mainly in food, fuel, machinery, textiles and consumer goods) and a 6.5% decline in remittances despite strong exports growth of 52%, driven by gold exports, tourism, and transit trade services.  

The fiscal position improved in 2023, with a budget surplus of 1.2% of GDP. This surplus was supported by higher tax revenues, especially from VAT on imports, and non-tax income, offsetting increased public spending on wages, social transfers, pensions, and infrastructure. Public debt decreased to 45.5% of GDP at the end of 2023, down from 49.2% at the end of 2022.

Economic Outlook

GDP growth in 2024 is expected to moderate to 4.5% as services sector growth decelerates. Investment and exports are expected to drive growth, while consumption growth may ease despite a slight rise in remittances. Without structural reforms, the GDP growth rate is likely to stabilize at 4% in the medium term. Inflation is projected to decrease within the target range of 5%-7% by the end of 2024 and remain stable in the medium term.

The current account deficit is projected to be 10.5% of GDP in 2024 and decrease to 7.7% by 2026 assuming improved external demand for non-gold goods, rising services exports and remittances. A fiscal surplus is projected to turn into a 1.6% GDP deficit in 2024 due to lower revenues. The deficit is expected to widen to 2.4% of GDP by 2026, primarily driven by higher capital expenditure.