October 2019. Kyrgyz Republic: trends and forecasts

04 December 2019

The acceleration of economic activity in the first half of 2019 resulted from increased production at the Kumtor gold mine. This was also a key factor behind the increase of net physical exports. Rising real household incomes supported domestic consumer demand, while collective consumption limited GDP growth. Investment in fixed capital also promoted the expansion of economic activity, while the decrease of inventory stocks resulted from a high base effect. 

The inflation slowdown trend ended in 2Q2019 as world grain and meat product prices grew and the supply of vegetables was limited in the domestic market. The non-food basket price remained virtually the same as in the first half of 2018 as the Kyrgyz som to U.S. dollar exchange rate was stable. 

The current account deficit is on a downward trend as exports (mainly gold) grow while imports of goods and services are decreasing. The smaller volume of imported goods partly results from the use of inventory stocks built up a year before. 

There was a State budget surplus of 0.1% of GDP in the first half of 2019 after a deficit of 0.2% of GDP a year before. The growth on the income side is outrunning the budget’s expenditure increase. 

The National Bank of the Kyrgyz Republic reduced its policy rate by 50 basis points in the first six months of 2019, to 4.25% as of end of June 2019, and took a number of decisions to narrow the interest rate band. The main thrust of its foreign exchange policy remained the same, while its interest rate policy became more reserved, which was one of the factors that drew the interbank loans rate closer to the policy rate. 

Economic activity is projected to slow down in the second half of 2019, largely due to expected low gold production volumes and the public sector’s moderate demand. In the medium term, the economy is expected to continue its gradual growth at near potential rates. 

Inflation will be shaped by food price growth. In the medium term, inflation will rise to the target range of 5.0–7.0%.

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