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Kyrgyzstan - Economy

Kyrgyzstan is one of the poorest countries in the former Soviet Union, and it has suffered badly since the collapse of Communism thanks to a lack of resources and infrastructure. However, the country has had noticable success dismantling Soviet-era central planning, and was the first CIS nation to be accepted into the WTO. The government has also made substantial economic and fiscal policy reforms in an effort to attract foreign investment and to qualify for international aid.

Kyrgyzstan was pushed to its economic edge by the 2020 coronavirus pandemic. It was the first country to receive emergency financial assistance from the International Monetary Fund (IMF) over COVID-19 and has had to postpone several debt repayments.

External pressures continued to hold the Kyrgyz economy back in 2016. Non-gold growth reached 2.1 percent by end-August 2016 on the back of modest improvements in trade, construction, and agriculture. Consumer prices, which ventured into deflation range earlier in the year, rose to 0.5 percent by the end of August due to some recovery in food and fuel prices. Oil and commodity prices, based on the April 2016 WEO assumptions, were projected to be lower, with weaker growth and currencies in key trading partners such as Russia and Kazakhstan. These developments were depressing trade and remittances, reducing custom revenues, especially from the Eurasian Economic Union (EEU) countries, and harming the business sentiment. While the worst of the crisis seemed to be over, annual growth will remain weak at about 2.3 percent in 2016 as a result the regional slowdown. The economy should improve further over the medium term as trading partners growth recovers but remain below potential.

In 1993, industrial output had plummeted by 20-25 percent; hyperinflation, estimated at a rate of 40 percent/month in early 1993, was rampant; ruble devaluation was widespread prior to issuance of a new currency (SOM) in May 1993, and; real worker wages had eroded to the extent that many people spent their total income on food. There was no reliable, functioning banking or taxation system. Labor discipline was becoming a more serious issue and there was only limited foreign investor interest.

Today about forty percent of the population is thought to live below the national poverty line (down from 56% in 1999). With most average monthly wages ranging from $50-$125, many consumers are unable to purchase western imports. People living outside the larger urban areas rely almost entirely upon herding and subsistence farming. As a result of GDP growth over the last several years, the middle class has grownsubstantially, especially in Bishkek. This middle class generates demand for western products, many of which have been entering the Kyrgyz market recently.

Despite recent economic growth and modest natural resources, the country grapples with substantial poverty, and the tourist industry is not highly developed. Air and land travel internally and to neighboring countries is limited and can be subject to delays due to infrastructure shortcomings and winter weather. Rural and urban areas are subject to power, natural gas, and water outages, leaving many homes without running water, heat, or electricity at times.

Despite the backing of major Western donors, including the International Monetary Fund (IMF), the Kyrgyz Republic has had economic difficulties following independence. Initially, these were a result of the breakup of the Soviet trading bloc and resulting loss of markets, which impeded the republic's transition to a free market economy. Through economic stabilization and reform, the government seeks to establish a pattern of long-term consistent growth. Reforms led to the Kyrgyz Republic's accession to the World Trade Organization (WTO) on December 20, 1998.

The Kyrgyz Republic's economy was severely affected by the collapse of the Soviet Union and the resulting loss of its vast market. In 1990, some 98% of Kyrgyz exports went to other parts of the Soviet Union. Thus, the nation's economic performance in the early 1990s was worse than any other former Soviet republic except war-torn Armenia, Azerbaijan, and Tajikistan. While economic performance has improved in the last few years, difficulties remain in securing adequate fiscal revenues and providing a sufficient social safety net.

Agriculture is an important sector of the economy in the Kyrgyz Republic. By the early 1990s, the private agricultural sector provided between one-third and one-half of some harvests. In 2010 agriculture accounted for 55% of GDP and about 32% employment. The Kyrgyz Republic's terrain is mountainous, which accommodates livestock raising, the largest agricultural activity. Main crops include wheat, sugar beets, cotton, tobacco, vegetables, and fruit. Wool, meat, and dairy products also are major commodities. Agricultural processing is a key component of the industrial economy, as well as one of the most attractive sectors for foreign investment.

The Kyrgyz Republic is rich in mineral resources but has negligible petroleum and natural gas reserves; it imports petroleum and gas. Among its mineral reserves are substantial deposits of coal, gold, uranium, antimony, and other rare-earth metals. The government hopes to attract foreign investment in mining and metallurgy, but local business conditions are very challenging to most companies. The Kyrgyz Republic's plentiful water resources and mountainous terrain enable it to produce and export large quantities of hydroelectric energy.

Gold production dominates Kyrgyz industry and exports. The Kumtor gold field is one of the worlds largest but is rapidly being depleted. Gold production is the largest component of the industrial sector. Fluctuations in gold prices and production have a large impact on GDP. Rapid growth in 2007 and 2008 was buoyed by high international gold prices.

The Kyrgyz Republic's principal exports are nonferrous metals (primarily gold) and minerals, woolen goods and other agricultural products, electric energy, and certain engineering goods. Its imports include petroleum and natural gas, ferrous metals, chemicals, most machinery, wood and paper products, some foods, and some construction materials. Its leading trade partners include Switzerland, Russia, China, and neighboring Kazakhstan and Uzbekistan.

The Kyrgyz Republic exports antimony, mercury, rare-earth metals, and chemical products to the United States. It imports grain, medicine and medical equipment, vegetable oil, paper products, rice, machinery, agricultural equipment, and meat from the United States. In 2010 Kyrgyz exports to the U.S. totaled $90.3 million; 2010 Kyrgyz imports from the U.S. totaled $188.2 million, much of which consisted of vehicles, poultry meat and equipment.

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Page last modified: 06-06-2021 18:21:40 ZULU