Kyrgyzstan

EDB investment portfolio

01/05/2018

6 projects

$100 million

1.5% 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

In 2017, the decline in gold production in Kyrgyzstan, which is typically seen mainly in 4Q, was less pronounced than in previous years. The risk of a reduction in exports to regionally integrated trading partners was quickly neutralized and had a limited impact on GDP trends. This restrained the volatile trajectory of economic growth within the year, but also improved the results for the year. GDP growth in 2017 accelerated to 4.5% YoY (compared with 3.8% YoY in 2016).

Economic activity in Kyrgyzstan was influenced by the following main factors:

  • in the second half of 2017, the downward growth trend in the gold sector’s output was compensated for by the revival of activity in the services sector, namely, the acceleration in the growth of retail turnover and the increased volume of completed construction work. After nine months of low growth in the agricultural sector (0.8% compared with the first nine months of 2016), the last three months of 2017 showed 7.5% growth compared with 4Q 2016.
  • there are also signs of a revival in domestic demand, both consumer and investment. The contribution of net exports is less given the reduction in the supply of Kyrgyz gold and the real volume of imports of goods and services.

The composite leading indicator calculated by the Eurasian Economic Commission suggests that, in the short term, economic activity, despite the volatility, will continue to grow, albeit at a slower pace compared with the recovery period. This will be boosted by growth in domestic demand given stabilization in the growth of the inflow of remittances. The positive investment trend will compensate for the lack of credit impulse, which remains weak given stagnation in the volume of newly issued loans.

Inflation

The weak price environment in the consumer sector during 2017 was primarily driven by external factors. Prices for imported grain made a negative contribution to annual CPI. Short-term shocks in the supply of fruit and vegetable products and energy products and a one-time increase in tariffs and excises were manifested in short-term spikes and led CPI out of the deflationary zone. However, the weak price environment on global food markets and the stable exchange rate kept overall price levels below the target level of 5.0%-7.0%. 2016 deflation was 0.5% YoY, whereas 2017 saw inflation of 3.7% YoY. Furthermore, two of the three inflation components were below the target range. The annual increase in food prices in 2017 was 2.9%, while for non-food products it was 3.2% YoY and for services it was 6.9% YoY.

External Sector

The real depreciation of the effective exchange rate of the som during 2017 provided support to exports, with the exception of gold. Gold shipments declined year-on-year in the second half of 2017, but the value of other exports maintained positive growth. Due to the reduction in the deficit of goods and services balance and the net inflow of remittances increasing by 26.1% compared to the first nine months of 2016, the current account deficit narrowed to 4.8% of GDP according to the preliminary results for the first nine months of 2017 (the deficit was 11.6% of GDP a year earlier). The net inflow of foreign direct investment decreased 2.6 fold compared to its figure for the first nine months in 2016. In this context, the outflow of currency driven by investments in financial assets abroad contributed to the negative financial account balance.

Fiscal Policy

The budget deficit for 2017 amounted to 3.3% of GDP (compared with 4.6% of GDP in 2016). Despite the fact that, in the second half of 2017, the budget deficit widened, the actual figures did not exceed the 2017 target of 4.3% of GDP. The growth in the revenue segment (up 14.4% YoY) outpaced the growth of expenditures (up 9.5% YoY). In nominal terms, there was an increase in revenues for all of the larger category items. In the expenditure segment, allocations for environmental protection (down 8.9% YoY) and recreation, culture and religion (down 5.0% YoY) were reduced.

State debt grew by 10.1% compared with the beginning of 2017 and amounted to KGS 310.0 billion (62.7% of GDP) as of 1 December 2017. Debt grew due to both domestic borrowing (up 34.0% compared with the beginning of the year) and external borrowing (up 7.4%).

Monetary Policy

The refinancing rate did not change during 2017 and was stable at 5.0%, within the range of 6.25%-0.25%. If one considers market indicators of monetary value, then the money market rates are about 1.5% for the 21st month in a row. In the first half of 2017, the money supply was expanded through credit auctions among commercial banks. Credit auctions were not conducted in the second half of 2017.

From the point of view of the exchange channel, the monetary conditions as a whole for 2017 also weakend compared to 2016. On average for the first 11 months of 2017, the real effective exchange rate of the som decreased by 2.3% compared to the same period in 2016. This was primarily due to the weakening of the som’s exchange rate against the Russian ruble and the Kazakhstani tenge. Despite the fact that the real exchange rate of the som against the US dollar appreciated over the year, the National Bank of the Republic of Kyrgyzstan limited the volatility of the nominal exchange rate of this currency pair by intervening in the domestic foreign exchange market. Overall in 2017, the regulator was a net seller of foreign currency. At the same time, more than 60% of that year’s sales of foreign currency fell within the last two months of 2017, when devaluation pressure on the domestic market increased.


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

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