Kyrgyzstan

EDB investment portfolio

06/30/2017

4 projects

$45 million

0.8% of the total

EFSD investment portfolio

06/30/2017

5 projects

$330 million

5.9% of the total


Kyrgyz Republic became a full member of Eurasian Development Bank in August 2011. Its contribution to the Bank’s capital is US $100,000.

Trends

GDP

The high gold production volumes in Kyrgyzstan drove the acceleration in GDP growth to 7.8% in 1Q 2017 compared with 1Q 2016. The acceleration in growth in other industrial production occurred amid weakening REER imbalances. The declining production in a number of processing industries, partially driven by the overvalued Kyrgyz som, changed to surging growth in 1Q 2017.

The main factors driving economic activity in Kyrgyzstan included:

on the value added side: high production indicators in 1Q 2017 were recorded both in gold extraction and production (50.1% YoY), and in other industrial sectors (23.8% YoY). The contribution of other sectors to GDP growth was less significant. Near-zero growth was registered in the construction and services sectors. Despite the positive growth rates in trade and transport, the negative trend in telecoms limited growth in the services sector. Agricultural output grew by 1.5% YoY.

on the income side: Real money income grew (by 5.2% YoY) against the low inflation background, with a high growth rate in net remittances (21.6% YoY in 2016).

The output gap was in positive territory in 1Q 2017, estimated at +1.2%.

GDP growth slowed to 6.8% year-on-year in January – May 2017. The consolidated leading indicator calculated by the EEC evidences that the high growth rates will remain in the short-term, supported by the external economic environment and improved purchasing power of the population. However, in 1H 2017, after the low base effect is exhausted, growth is expected to slow.

Inflation

The increase in excise taxes on tobacco products and tariffs for communications services, healthcare and education pushed annual CPI back to positive in the first months of 2017. The supply shock in the fruit and vegetable market interrupted the year-and-a-half deflation in the production segment, laying the basis for acceleration of the overall price level. On average, for 1Q 2017, inflation accelerated on an annualized basis to 1.6% YoY (-0.4% YoY on average for 4Q 2016).

The effect of the supply shock remained during the first months of 2Q 2017. Prices for vegetables grew 1.6 times year-on-year on average in April – May 2017. Inflation continued to accelerate to the lower threshold of the 5.0-7.0% target. At the end of May 2017, 12-month inflation was 4.8%.

Exchange Rate

The nominal effective exchange rate of the som strengthened by 3.1% in 1Q 2017 versus 1Q 2016. In real terms, the som depreciated by 1.5% due to the low annual inflation compared with that in those countries which are the key trading partners. The real bilateral KGS-RUR rate depreciated by 6.5% versus 1Q 2016. That partially contributed to doubled growth in goods exports from Kyrgyzstan to Russia. Overall, exports increased by 18.7% YoY, while the 55% (versus 1Q 2016) rise in remittances drove a recovery in imports, which grew on an annualized basis by 14.3%. According to preliminary estimates, the current account deficit in 1Q 2017 dropped to 9.7% of GDP.

In April 2017, the strengthening of the KGS versus the USD intensified, which caused the National Bank of the Kyrgyz Republic to intervene in the domestic currency market. The volume of absorbed foreign currency in April 2017 was USD 16.2 million. In early May, the KGS - USD trend turned to depreciation against a background of high volatility in the markets of the key trading partners, Russia and Kazakhstan, where the national currencies started to devalue due to falling oil prices.

Fiscal Policy

The budget deficit in 1Q 2017 reached 0.9% of GDP (the budget surplus was 3.4% of GDP a year before). Despite the fact that tax revenues grew by 9.4% YoY, the reduction in other levies and transfers drove a 4.1% decline in budget revenues compared with 1Q 2016. Current expenses grew by 7.7% YoY, partially due to an increase in salaries of state employees. Expenses on purchases of non-financial assets increased by 5.3%.

Public debt grew by 0.7% compared with the beginning of 2017 to reach KGS 285.5 billion as of 1 April 2017 (57.6% of GDP, versus 61.4% of GDP at the end of 2016). The improved external debt ratio was driven by GDP growth.

Monetary Policy

The National Bank of the Republic of Kyrgyzstan left the reference rate unchanged at 5.0% in 1Q 2017. Money market rates varied near the lower threshold of the set 0.25% range, which reflects the surplus liquidity in the system. Additional evidence of the structural som surplus comes from the low level of activity in the interbank lending market and investment of excess soms in the government securities market. That, in its turn, drove a reduced yield on Ministry of Finance securities. Despite the structural deficit, the National Bank continued to refinance the banks under the Financing of Agriculture - 5 project, and it also issued another loan to the Russian-Kyrgyz Development Fund.

EDB’s investment activities in the Kyrgyz Republic in 2013-2017 included the following:

  • The Bank finances investment projects in the power sector, transport, mining and IT.
  • SMEs in agriculture, the light and processing sectors are supported by targeted programmes fulfilled via the banking sector.
  • The Bank is ready to support projects aimed at developing human capital, as well as projects in healthcare and education in cooperation with the donor club and through the Technical Assistance Fund.

Bishkek Representative Office

Адрес:
21 Erkindik Blvd., Bishkek, 720040, Kyrgyz Republic