The Kyrgyz Republic became a full-fledged member of the Eurasian Development Bank in August 2011. A minor participant of the Bank, the Kyrgyz Republic holds US$ 100 thousands in the Bank’s charter capital.
Economic growth in 2015, backed primarily by higher fiscal expenditure and inflation slowdown in Q4, turned to be higher than forecast by many experts (3.5% year-on-year). In the first six months, GDP growth was stimulated by gold production and export, while in the second half of the year the signs of a crisis began to appear in the construction sector and industrial production decelerated due to reduced production of precious metals. However, fiscal expenditure, which surged with the National Bank's currency interventions, and exchange rate stabilisation at year-end helped to restore the services and construction sectors quickly.
The balance of payments continued to be influenced by external factors in the first place. The depreciation of currencies of Kyrgyzstan's key trade partners relative to the US dollar affected international trade and money remittances to the country. In 2015, the current account deficit stood at 14.8% of GDP, which is significantly lower than in 2014 (-24.9%). Increased FDI inflows and foreign borrowings in the second half of the year helped to finance external deficit. Despite strong currency interventions in the end of the year caused by US dollar appreciation and high volatility of the partnering countries’ currencies, international reserves were equivalent to 4.9 months of imports as at year-end.
In Q4 2015, despite stable grant financing, tax revenues decreased in both nominal and real terms. Non-tax payments that supported the government budget during the first six months (16.4% of GDP) reduced to 5.5% in the second half of the year. With significantly higher capital expenditure (14.1% of GDP), the government budget deficit was 22% of GDP over the last three months and 7.7% over the year. Current expenditure increased after the parliamentarian election and this raised the current deficit to 3.6% of GDP.
The growth in consumer prices over the year was driven by the prices of non-food items and services, which are most exposed to foreign exchange rate fluctuations. The National Bank of Kyrgyzstan raised the base interest rate and expanded its presence in the foreign exchange market. Its currency interventions and stabilised devaluation expectations helped to steady the inflation pressure. In December 2015, the twelve-month inflation rate was 3.4% (compared to 11.6% and 6.4% in January and September 2015) and the average annual inflation was 6.5%.
With the foreign currencies’ increasing role in savings, deposits in 2015 grew due to foreign currency placements while lending in foreign currencies was decreasing as a result of prudential restrictions. Despite an increase in classified loans (7.1%), overall bank stability indicators were beyond critical values as at end-2015.
EDB’s priorities in Kyrgyzstan
In the framework of its Strategy for 2013–2017:
• EDB finances investment projects in power generation, transport, and mining industries, as well as in the area of developing modern information and telecommunication technologies.
• In the framework of targeted programmes implemented through the banking sector, EDB supports small and medium business development in agriculture, and light and processing industries of the country.
• In addition, EDB is prepared to support projects aiming at human capital development, projects in the education and health sectors through their co-financing with the donor club and providing assistance in the framework of its Technical Assistance Fund programmes.