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Kyrgyz republic - Economy and industry overview 2019/2020

Обновлено: 31 мар. 2022 г.

The Kyrgyz economy is largely driven by mining sector, though textile industry, transportation, tourism and energy sectors also contribute a lot to the growth of the country. Integration in the EUEU gave the country an access to the union’s huge market and the country did its best to increase the trade turnover with the member countries. We expect agricultural and textile exports to expand in 2018-2021.

In January-June 2018, nominal GDP amounted to KGS213,6bn (USD3.1bn) and in real terms expanded by 0.1%. GDP growth without the largest goldfield Kumtor amounted to KGS192,6bn (USD2.8bn) and amounted to 2.1% yoy. Mining and quarrying (17% of GDP) made up with -23% yoy while manufacturing (17% of GDP) declined by -6.1% yoy. Metal ore output decreased by -52.8%, precious metals productions -18.7% and production of the base metals decreased by 14.4%. The analysis of the quarterly statistical data from the goldfield Kumtor shows decline of gold production by 40% in 1Q2018 and 31% in 2Q2018. Gold output amounted to 2,607 kg and 5,724 kg respectively. Realization of gold went down by 33% in 1Q2018 and 23% in 2Q2018. Kumtor Gold Company CJSC (Centerra Gold) management explains decline in production by processing sarytor quarry gold ore that has low concentration of gold in it compared to the gold from site #17. In 2018, gold output in Kumtor goldfield will range 14.15 to 15.55 tonnes that is by 11.1% less than in 2017.

Figure 1 GDP growth in Kyrgyz republic in 2010-2021.

Source: CSKR, company’s calculations

Textile industry (+1.7 times), oil products output (+27.3%) and production of other non-metal mneral products (24.5%) supported current GDP growth. Water supply, waste treatment and cleaning contributed the most to the growth and amounted to 10.7% yoy in 1H2018. Construction (6% of GDP) was the second largest contributor to the growth with 6.3% yoy, hotels and restaurants (1.4% of GDP) followed with 6.2% yoy. Wholesale and retail trade (16% of GDP) made up 4.3% yoy while transport and storage (4% of GDP) ended with 4.7% yoy in 1H2018.

In 2017, economy growth was more solid with mining and quarrying expansion by 78.4% yoy and manufacturing expanding by 7.6% yoy. Construction increased by 7.1% yoy. Transportation and storage ended by 7.6% yoy. Hotels and restaurants grew by 8.3 % yoy. Agricultural production increased by 2.2% yoy. Structural analysis of GDP in 2014-2017 evidenced that in GDP structure agriculture decreased its share from 14.7% in 2014 to 12.3% in 2017 while manufacturing increased from 13.7% in 2014 to 15.1% in 2017. Construction had also increased its share from 7.4% in 2014 to 8.2% in 2017. All other sectors had hardly changed its share in GDP structure.

Forecast: The EAEU further integration, increase in personal remittances from labor migrants from the Russian Federation and Kazakhstan, improvement of competitiveness of the domestic products exported within the EAEU, implementation of energy projects (gas and hydropower) as well as targeted support of tourism and agriculture would support the economy in the period. We expect the Kyrgyz republic to expand


Mining industry, hydropower electricity generation, transportation, agriculture and textile industries will be the sectors that will receive the most of foreign investments. The Russian Federation, China and Canada still be the largest investors in the country. Uzbekistan will slowly increase its investment activity in the country.

Total fixed capital investments in 1H2018 increased by 5.3% yoy and amounted to KGS45,998bn (USD673m). Breakdown of investments by object went to construction 36.1%, mining 19%, transport and storage 16.3%. Composition of investments by sources was the following: fund of enterprises 35%, public funds (population) 36%, foreign loans reached 13.3%, foreign direct investments 5.6%, foreign grants and assistance accounted for 3.4%. In 2017, investments in fixed assets increased by 8.5 yoy and amounted to KGS144,706bn (USD2,101m). Breakdown of investments by object that was distributed as following: construction 26.8%, production and distribution of electricity, gas and water 16.5%, mining 15.5%, transportation and storage 13%. Investments by sources were presented by enterprises 25.5%, foreign loans 29.1%, public funds 25.4%, foreign direct investments 9%, foreign loans 29.1%, foreign grants and assistance 4.3%.

Figure 2 Foreign investments, USDbn in the Kyrgyz republic

Source: CSKR, company’s calculations

Breakdown of foreign investments by object in 2010-2017, showed that largest concentration of investments was in manufacturing and ranged 30-50%. In 2014-2017, there is a notable decline of investments in this sector of the Kyrgyz economy. The second largest sector of foreign investments is the Professional, scientific and technical activities that we relate to prospecting of precious metals. Since 2014, there is observed a decline from 31% to 21% in 2017. Electricity, gas, steam and air conditioning supply was the third sector that received the most of the investments in the period, especially lately. Thus, since 2014 we observe solid increase from 6.0% to 12.9% in 2017. We relate the increase to electric power assets renovation, reconstruction and building electricity transmitting lines. Mining and quarrying investments shared 1%-13%. The largest share in the sector was in 2017.

Figure 4 Foreign investments in 2010-2016 by country

Source: CSU, company’s calculations Source: CSU, company’s calculations

The largest investors in the Kyrgyz republic in 2016 were China with USD301.3m (48.8% of the total), the Russian Federation with USD291.5m (47.3%) and Canada with USD118.9m (19.3%). Kazakhstan invested USD23.1m (3.7%) while Turkey’s investments amounted to USD33.2m and shared 5.4% of total investments. Annual dynamics evidences that in 2010-2016, Canada slowly decreased its investments from USD445.5m in 2011 (the largest investments since 1995) to USD104.8m to USD118.9m. China’s investments ranged from USD221.6m in 2014 to USD301.3m. In 2015, China invested the largest amount in the Kyrgyz republic USD474.4m since 1995. The Russian Federation investments in the Kyrgyz economy started to build up in 2015, when the investments peaked USD515.5m the largest inflow since 1995. In 2016 the inflow amounted USD291.5m, remaining the second largest investment in the country in the period.

Forecast: We believe that investments will largely go in power sector of the country as well as mining and quarrying. Construction will be another sector that will receive foreign capital especially connected with the recreation and tourism. Growing remittances will stimulate whole and retail sales and we expect investments to go there also. We also expect Uzbekistan to increase its investments in the Kyrgyz republic, especially in the power sector of the country. Investments form China will mostly go to gold mining and tourism while Turkey will continue to invest into textile industry. The republic need to develop its transport infrastructure and we expect that the government will create necessary conditions for the foreign investments in this sector (among which is building of the China-Kyrgyz-Uzbekistan railway). Agriculture, especially bio products will be another sector that will be attractive for the investments in the nearest future.


Inflationary pressure on the economy will originate through the trade channel with the Russian Federation and Kazakhstan, especially through import of energy products. Growing remittances from the Russian Federation will stimulate domestic demand that will expand further leveraged by retail lending.

Slowdown in inflation in the Kyrgyz republic to 0.8% yoy resulted from decrease of food inflation accompanied with copious import of fruits. Favorable situation on global food markets this year kept food prices down. Only prices for meat and meat products (5.4% yoy in June 2018) did not let food prices decrease more. Inflation in the country demonstrated stable dynamics and stayed within the target band of the National bank of the republic (5-7%). Prices for alcohol and tobacco were the only food items that demonstrated growth and made up 9.4% yoy in 1H2018. Prices for fuel (esp. diesel 19.8% yoy) and lubricants (13.4% yoy in June), coal and charges for information and communication (15.8% yoy), transport services (3.1% yoy) were on upside in the period and supported non-food and payable services inflation. In 2019-2020, food inflation will be moderately up since prices at global food markets will be on an upside triggered by expanding aggregate demand.

Figure 5 Consumer price inflation by component, %

Source: SCKR, company’s calculations

Forecast: However, we expect further alignment of energy prices within the EAEU that will continue to produce inflationary pressure upon the Kyrgyz Republic, considering energy dependence of the country from the Russian Federation and Kazakhstan, especially in January 2019 when fuel excises in the Russian Federation will be applied to the full under the” budgetary maneuver”. We also expect inflation rate to increase due to the drawback of inflation targeting monetary policy of the NBRK. Excessive liquidity amassed in the system by the commercial banks, as well as bloated deposit base will be directed by commercial banks for retail lending as the NBRK decreases its discount rate. Increase of consumer lending (71% ytd in 1H2018) supports our concern on this. Consumer lending will expand further supported by expansion of domestic demand fueled with money transfers by labor migrants (1Q2018 +9% yoy).

Figure 6 CPI projections 2010-2021, %

Source: SCKR, company’s calculations

FX rate

National currency will weaken to US dollar since commodity quotes as well as precious metal output will be lower in 2018 and will widen current account deficit. Remittances from abroad will support KGS, however stronger US dollar will USDKGS in 2019-2021

KGS exchange rate has been under an influence from an increasing inflow of remittances from the Russian Federation that increased in 1Q2018 increased by 9% yoy and amounted to USD434m. Since the Russian economy expected to expand at least 1.8% in 2018 the remittances will peak USD2.3-2.4bn that will account for circa 31-32% of GDP. Such an inflow will produce a strengthening effect on the currency of the country. Gold prices have been on downside since April and hit USD1,171 t. oz.

Figure 7 USDKGS foreign exchange projections, 2010-2021

Source: NBKR, company’s calculations

The production plans in Kumtor will be 11% less than a year before and that will produce a weakening effect on the national currency in 2018. The projected gold quote will be circa USD1,290 and that will favor KGS stability. We expect widening of current account deficit this year to USD1.2bn and PED (public external debt) will be at 51-52% of GDP. External liabilities coupled with declining export of commodities will urge a slight weakening of the currency to improve external accounts. We expect annual average KGS exchange rate to weaken in 2018 to KGS69.02 per US dollar. In the period of 2019-2021, USDKGS exchange rate will range from 72.69 to 75.32 per US dollar, provided gold quotes will range USD1,255-1,305 and exports will range 17-20 tons a year, otherwise the currency weakening will be more notable.

External trade

Trade balance of the Kyrgyz republic will widen since exports value will be eroded by decrease of global prices for precious metals as well as by a decrease in volume, whereas energy prices will still be relatively high. Current account deficit that will be circa US1.2bn in 2017 will reflect the widening deficit of the trade balance.

According to the National Bank of the Kyrgyz republic, external turnover in 5M2018 made up USD2,716m. Exports reached USD681m while imports amounted to USD2,035m. Trade balance deficit widened from USD956m to USD1,354m. In 2017, exports increased by 12.8% yoy and reached USD1,814m while imports increased by 12.1% yoy and amounted to USD4,197m. Trade balance in 2017 widened and made up USD2,383m (in 2016, USD2,136m).

Figure 8 External trade of the Kyrgyz republic, USDm

Source: SCKR, company’s calculations

Analysis of exports by product in 2017 evidences that Switzerland, the largest trade partner of the Kyrgyz republic, received mostly waste and scrap of precious metal or of metal clad with precious metal as well as gold. In 2017, waste and scrap of precious metal or of metal clad with precious metal 1,329 tons (Germany 916 tons, Lithuanian 383 tons), as well as gold 12 tons (Switzerland) and 5 tons (the UK). Silver exports amounted to 11 tons in 2017 and mostly went to Switzerland (8%) and the UK (3%). Precious metals shared 39.8% of exports in 2017.

Ores, slag and ashes seconded precious metals in exports and amounted to 8.1%. The largest importers of the Kyrgyz ores were Kazakhstan and China. Articles of apparel and clothing accessories shared 6.6% and mostly went to the Russian Federation (67%), Kazakhstan (33%) and Germany (0.2%). Mineral fuels, mineral oils and products of their distillation shared 4.9% of exports and went to Uzbekistan (40.7%), Turkey (24.2%), Tajikistan (11.7%) and China (9.6%). Those four export items made up 59.4% of exports’ structure of the country.

Figure 9.Exports by country Figure 10. Imports by country

Source: NBKR, company’s calculations Source: NBKR, company’s calculations

Imports went mostly from the Russian Federation (82.7%), Kazakhstan (13.8%) and Uzbekistan (1.2%). Analysis of imports by product evidenced that petroleum oils and oils obtained from bituminous minerals (excluding crude) made up 14.8% of total imports and were mostly received form the Russian Federation (86.1%) and Kazakhstan (10.9%). Machinery, mechanical appliances seconded by 8.1% in imports and were mostly received from China (36.5%), the US (16.2%) and the Russian Federation (8%). Footwear accounted for 6.7% of imports and went from China (90.7%) and Turkey (5.6%). Electrical machinery and equipment accounted for 5.7% of imports and went from China (57%), the Russian Federation (9.8%) and Kazakhstan (7.9%). Pharmaceutical products were 3.8% of imports in 2017 and went from the Russian Federation (10.8%), India (10.6%) and the US (9.6%). The above listed import items made up circa 37-38% of total imports of the country in 2017.

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