Kyrgyzstan

EDB investment portfolio

01/07/2018

6 projects

$100 million

1.45% 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

There was a sharp decline in the country’s economic growth in 1Q 2018. Apart from the Kumtor factor, the decline resulted from a decrease in the service and construction sectors. Kyrgyzstan’s GDP growth amounted to 1.3% YoY in the first quarter (+5.2% YoY in 1Q 2017).

Typical fluctuations in output at the Kumtor gold mine resulted in a decrease in overall manufacturing of 1.1% YoY. Mining industry output was down 15.5% YoY due to a reduction in metal ore and coal mining. This decline was compensated for by growth in the power and public utility sectors (electricity, water and gas), which resulted in a zero overall contribution to GDP growth from the manufacturing sector. There was a slowdown in the service sector, from 6.7% growth YoY in 4Q 2017 to 1.5% YoY in 1Q 2018. That said, the key wholesale and retail trade segment demonstrates stable growth (+3.7% YoY), while the decline in the hotel and restaurant segment resulted partially from a seasonal factor, given that the highest demand in this segment falls in the fourth quarter. A decline in the information and telecommunication sector of 5.8% YoY was an additional negative factor.

In terms of use of GDP, a trade balance surplus (due to both higher exports and lower imports), household consumption and gross domestic capital formation made a positive contribution to GDP growth in 2017.

The EEC aggregate leading indicator signals that economic growth is likely to decelerate in the short term, mainly due to a slowdown in gold mining. At the same time, other sectors continue to grow at their previous year’s rate. Lending to the construction and consumer sectors grew in March 2018, which supported economic growth. Domestic demand continues to grow and there are favorable conditions in export markets.

Inflation

Despite excise taxes for tobacco products and tariffs for telecommunication services increasing in 1Q 2018, low prices in the global and regional food markets kept inflation below its target range. Prices of alcoholic drinks and tobacco products grew by 6.5% YoY and those of services grew by 6.9% YoY. The monthly decline in prices in the global sugar market that has been ongoing since December 2017, as well as weak prices in regional grain markets resulting from high yields in Kazakhstan and Russia, contributed to a slowdown in prices in Kyrgyzstan’s consumer sector. The 12-mo increase in food prices amounted to 2.7% in 4Q 2017 and decelerated to 1.2% in 1Q 2018. This resulted in 12-mo CPI growth of 3.2%.

Low inflation is likely to have continued in the first months of 2Q 2018 in the absence of supply shocks and with the national currency stable.

International trade

Movements in the real effective exchange rate of the Kyrgyzstani som (KGS) did not affect the country’s international trade in 4Q 2017. Despite an increase in the balance of payments deficit compared to 4Q 2016, there was a surplus in the current account in 4Q 2017 (a preliminary estimate) due to lower interest payments to nonresidents, an increase in the profit reinvested by direct investors and increased remittances. The net outflow of direct investments due to principal payments on loans was partially compensated for by the growing amount of loans provided to both the public and private sectors. 

Fiscal Policy

There was a budget surplus in 1Q 2018 amounting to 1.1% of GDP. By comparison, the country saw a budget deficit in 1Q 2017 of 0.9% of GDP. This was mainly attributed to increased tax revenues, up 20.1% YoY, and decreased spending on purchasing non-financial assets (down 45.5% YoY). The share of non-tax budget revenues and transfer payments in total revenues decreased from 25.9% in 1Q 2017 to 17.4% in 1Q 2018. The rate of budget spending growth remained unchanged.

Government debt decreased by 4.1% QoQ and amounted to 57.1% of GDP as of April 1, 2018. At the same time, there was a decrease in government external debt of 4.4% QoQ, while government domestic debt increased by 16.5% QoQ.

Monetary Policy

The refinancing rate was unchanged in 1Q 2018 at 5%, within its target range of 6.25–0.25%. The upward trend in financial market interest rates that emerged in 4Q 2017 ceased in 1Q 2018. One of the reasons for this was the National Bank’s decision to resume providing liquidity to commercial banks through credit auctions. Real financial market interest rates have been of a stimulative nature for over a year, making commercial banks revise their interest rates on both liabilities and assets. Interest rates for new deposits in KGS decreased on average from 3.0% to 2.7% in 1Q 2018. The cost of loans in KGS provided to commercial banks amounted on average to 19.6% in 1Q 2018 (20.5% in 1Q 2017).

As the KGS exchange rate increased in 1Q 2018, the National Bank was a net buyer of the national currency.


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.
  • Agricultural machinery supplies to Kyrgyz Republic
    The Bishkek-Osh Road Rehabilitation Project in Kyrgyz Republic
  • Toktogul HPP Rehabilitation in Kyrgyz Republic

Bishkek Representative Office

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