Partnering for Economic Growth and Job Creation in the Kyrgyz Republic

Challenge

Landlocked and largely mountainous, with a population of nearly 6 million and a GNI per capita of US$1,250 in 2014 (Atlas methodology), the Kyrgyz Republic is one of the poorest countries in the Europe and Central Asia region. Barely 7 percent of the land area is arable; the rest is glaciers, mountains, and pastureland or steppe that supports livestock grazing.

The country’s natural resources—minerals (mainly gold) and water for hydropower generation—are also limited. The Kyrgyz economy is vulnerable to exogenous shocks, owing to its reliance on one gold mine, Kumtor, which accounts for over 10 percent of GDP, and on workers’ remittances, equivalent to about 30 percent of GDP in 2011–15.

Over the past decade, the country has achieved significant reductions in poverty, but progress has been uneven: poverty declined from 68 percent to 37 percent between 2003 and 2013, with faster poverty reduction between 2003 and 2008 than from 2009 onward.

According to the National Statistics Committee (NSC), the absolute poverty rate in 2014 was 30.6 percent. Although its economy and society are the most liberal in Central Asia, the country has experienced significant political and social instability since independence in 1991; weak governance and entrenched corruption were major stress factors underlying political and social upheavals in 2005 and 2010.

In order for the Kyrgyz Republic to realize its growth potential—including to export hydroelectricity as a nexus for regional trade and transport and to promote tourism—economic activities need to be diversified through increased private sector development and improved occupational skills and productivity in the young labor force.

Above all, dramatic improvements in governance are required, as public trust in government institutions at all levels and private sector confidence have eroded.

Approach

The strategic focus of the ongoing WBG program highlighted in the 2013–17 Country Partnership Strategy (CPS) has been supporting the Kyrgyz Republic’s efforts to improve governance, with particular emphasis on three broad areas of engagement: (i) public administration and public service delivery; (ii) the business and investment climate; and (iii) natural resources and physical infrastructure.

Support for these areas of engagement has been provided through concessional IDA lending averaging US$55 million annually (supplemented where appropriate by trust fund financing, including the Multi-Donor Health Results Innovation Trust Fund) and intensified analytical and advisory activities that emphasize practical, problem-solving advice.

A balance between investment and development policy lending has been maintained: in FY2014-2015 approved IDA lending made US$142 million, while development policy financing constituted US$74 million (2:1 ratio). The International Finance Corporation (IFC) has contributed to the CPS program by promoting private sector development through investment and advisory services that encourage diversification and competitiveness.

Results

Public administration and public service delivery:

• Public Sector Reform Roadmap (PSRR), developed with WBG technical assistance, adopted in 2014 (PSRR is medium-term action plan identifying priority these measures: anti-corruption, public financial management, public administration, civil service, judicial reform, and governance in energy and extractives)
• Judiciary sector development action plan adopted in 2014
• New Public Procurement Law, developed in line with good international practice, adopted (2015)
• Road Asset Management System, a database of 18,000 kilometers of roads and the condition of 1,500 kilometers to support maintenance planning, programming, and budgeting and to monitor performance, established
• Automated Information System for Municipal Property Management developed and operational
• National full-year preschool program was launched in 2015 and now covers 65 percent of six-year-olds, who otherwise would not have possibility to enroll in elementary school preparatory classes
• Number of villages with improved social and economic infrastructure increased from 1,000 in 2007 to 1,698 in 2015
• Mortality rate from cardiovascular disease (40–59 years per 100,000) declined from 310 in 2011 to 284.5 in 2014
• Share of social assistance spending on poverty-targeted programs increased from 18.5 percent of GDP in 2011 to 24.5 percent in 2014
• Water-borne diseases in IDA project areas decreased by 62.5 percent in 2009–14.

Business environment and investment climate:

• Government’s Private Sector Development Strategy and Action Plan adopted in 2014,
  with World Bank Group support
• Business regulations simplified, particularly in tax payments and inspections
• Kyrgyz Republic rose to 67th out of 189 countries in 2016 Doing Business report (102nd in 2012); report highlights improvement in the country’s “Distance to the frontier” score and recognizes the government for reforms in getting credit (with WBG-supported reform of the credit bureau) and registering property
• Institutional capacity building of commercialized or new entities (private credit bureau and credit registry) and strengthening of microfinance institutions (MFIs) to expand deposits and their outreach 
• Volume of micro, small, and medium-sized enterprise (MSME) loans provided by MFIs supported by IFC rose from US$150 million (2011) to US$190 million (2014)
• Private credit bureau coverage (percent of adults) increased from 24.6 percent (2012) to 36 percent (2015)
• New framework for risk-based streamlined business inspections implemented by pilot agencies (2015).

Natural resources and physical infrastructure:

• Independent regulator in energy sector created in 2014, new medium-term tariff policy adopted, and performance indicators established in energy generation, transmission, and distribution utilities 
• WBG-supported reform in pasture and forestry sector to improve natural resource management; new integrated ecosystem–based approach to management of forests, pastures, and unproductive lands adopted through government forestry reform and implementation of new pasture law
• Travel time along rehabilitated project road sections in Batken region reduced from 68 minutes (2009) to 40 minutes (2014)
• 72 water users associations (WUAs) in 2015, ensuring that water distribution to farmers closely matches irrigation demands in 80 percent of rehabilitated systems (10 WUA systems in 2008)
• 5 percent average increase in crop productivity in IDA-funded project areas compared to non-project areas in 2012–15.

IDA-Related Results

• 83,000 people have improved access to clean water, thanks to new connections for 3,902 households and the improved access of an existing 1,000 piped household water connections, as well as from the construction/rehabilitation of 226 community water standpipes from 2009 to 2014.
• 212,537 children were immunized and 8,959 health personnel received training from 2012 to 2015.
• 10,000 teachers were trained to implement the revised curriculum in 2015–16 and significantly improved teaching learning practices.
• 419 WUAs were established and 182,888 hectares of land nationwide have improved irrigation and drainage services (2007–15).
• 454 pasture users unions were established, with increased access to an additional 51,000 hectares of pasture through community investment in bridges, tracks, and watering points.
• Vehicle use of the rehabilitated Osh-Batken-Isfana road increased from 3,046 per day in 2009 to 4,570 in 2014, with a tenfold increase in truck traffic. Travel time has halved, thus improving the access of the population to services and markets.

World Bank Group Contribution

Since the Kyrgyz Republic joined the World Bank in 1992, the Bank’s financial assistance has amounted to over US$1.3 billion. Currently, 45 percent of the IDA’s assistance is provided in the form of grants; the other 55 percent are highly concessional credits (IDA Terms: https://ida.worldbank.org/financing/ida-lending-terms).

Since 1992, 50 IDA-funded investment operations for US$1.1 billion have been completed and closed, and 13 large projects (nine IDA projects and four large stand-alone trust funds, such as from the Global Agriculture and Food Security Program (GAFSP), Global Partnership for Education, Multi-Donor Health Results Innovation Trust Fund, and Government of Switzerland) for a total of US$217.74 million are ongoing as of April 2016. 

IDA lending in FY14–16 included: (a) three development policy operations totaling US$74 million supporting governance reforms in public administration, public services delivery, anti-corruption and transparency, and the energy sector; and (b) seven investment projects totaling US$166 million in energy, roads, pasture and livestock management, rural infrastructure, and forest management.

The Kyrgyz Republic also benefited from three IDA-funded Central Asia regional projects: Central Asia Road Links Project, Central Asia Hydromet Project and CASA-1000. Programmatic poverty analysis and public expenditure reviews and advisory products on energy tariff regulations and public services standards underpinned this lending program and informed key policy reforms.

The deployment of Conflict Filter tools to consider social factors because of the ethnic tensions contributed to the post-conflict reconciliation effects of WBG projects. 

Partners

Donor coordination has been a landmark of the WBG’s ongoing operations in the Kyrgyz Republic to date. Through its convening role, the WBG coordinated policy dialogue with other partners involved in budget support, macro-financial assistance, and structural and sectoral reforms.

In areas where the Bank Group has a track record of technical quality and leadership, it leveraged substantial donor funds.

For example, the Bank spearheaded the efforts of seven development partners under the Health and Social Protection Project (SWAp); mobilized a significant amount—equal to two-thirds of IDA’s annual allocation—from GAFSP for the Agricultural Productivity and Nutrition Improvement Project; and raised and administered the funds of three key donors for improving public finance management.

Although limited, the IDA financing envelope for the Kyrgyz Republic allowed for significant financial leveraging, which has been instrumental in mobilizing much-needed additional resources to supplement the Bank’s investment program, technical assistance, and advisory services.

Moving Forward

Over the next several years, the WBG will continue to provide assistance to the Kyrgyz Republic, supporting the Government’s important public investments program and maintaining the CPS focus on governance.

However, with the deterioration in the external environment and weaker prospects for growth, the WBG aims to focus on helping the country to mitigate the impact of the slowdown on job creation, provide protection to vulnerable populations, and exploit new opportunities for private sector development, while accelerating the pace of structural reforms.

These adjustments will tilt the Bank’s engagement toward a greater focus on growth and jobs, helping the Kyrgyz Republic take advantage of the opportunities emerging from membership in the Eurasian Economic Union and from improved prospects for broader regional cooperation in Central Asia and addressing the sources of macroeconomic vulnerability.

Beneficiaries

1. Women self-help groups under the Agricultural Productivity Assistance Project start with about US$20–25 worth of high-quality seeds and fertilizer per member, and members take classes in basic agriculture. The value of seeds and fertilizers that farmers receive through the Bank-supported project is repaid by group members in the fall to allow further on-lending to new members.

2. Residents of Kan village, located along the Osh-Batken-Isfana road corridor, rehabilitated under the IDA-financed National Road Rehabilitation Project:

3. Because of a new, more transparent public procurement system, the Ministry of Transport and Communication was able to save around US$2 million.

4. Thanks to IDA-supported On-Farm Irrigation Projects 1 and 2, WUAs now cover over 70 percent of irrigated land in the Kyrgyz Republic. Mamiev Abdilamit has been growing cotton since 1992, before WUAs existed. Farmer Uulkan Orozova says her WUA means more income, crops, and spending money for everyone. She made enough money to send her husband on the hajj to Mecca.