KYRGYZ REPUBLIC

Growth returned in 2021, reflecting strong expansion in mining, trade, and transportation, along
with higher consumption and public investment. Inflation jumped as continued disruption to
supply chains boosted prices for food and other goods, while lower exports brought the sizable
current account deficit. Growth is projected to slow in 2022 and recover slightly in 2023, with
significant downside risks. Inflation will remain high, and the current account deficit will widen.
Developing a greener economy will mitigate risks to sustainable development.

Economic performance
The economy reversed contraction by 8.4% in 2020 On the demand side, public consumption grew to
to grow by 3.6% in 2021 (Figure 3.5.1). Despite a 4.8% cover COVID-19 vaccination costs and higher spending
decline in construction, industry replaced 9.9% decline on health-care facilities. Private consumption is also
in 2020 with 3.1% growth as mining expanded by 21.2% thought to have risen with remittances 16% higher in
and the processing of gold and other metals by 7.0%. 2021. However, investment fell by 5.9% despite the
Agriculture contracted by 5.0% as drought cut farm resumption of delayed infrastructure projects.
output by 11.6%. Services recovered by 6.5%, with
increases of 11.4% in trade, 15.6% in transportation, Average annual inflation nearly doubled from 6.3% in
and 14.3% in hospitality. 2020 to 11.9% (Figure 3.5.2). Large price increases
persisted for food, at 18.4%, with smaller increases of
7.1% for other goods and 4.2% for services, as supply
Figure 3.5.1 GDP growth by sector
chains were slow to recover and inflation was further
Growth recovered in 2021, led by gains in services and industry. boosted by Kyrgyz som depreciation against the US
Agriculture dollar by 18.9% in 2020 and a further 1.5% in 2021
Industry (Figure 3.5.3).
Services
Gross domestic product
The fiscal deficit narrowed from the equivalent of
%
3.3% of GDP in 2020 to 0.3% in 2021 as revenue and
10 4.7
3.8
4.6 expenditure both rose (Figure 3.5.4). Current spending
5 3.6 expanded to address hardship from COVID-19, raising
0 total expenditure from 28.6% of GDP in 2020 to
–5 29.3%. Revenue rose even more, from 25.3% of GDP
–10 to 29.0%, with improved tax administration following
–8.4 the 1 July 2021 introduction of digitalized tax filing and
–15
2017 2018 2019 2020 2021 compulsory use of cash registers in most small retail
businesses. Public debt fell from 57.9% of GDP at the
Source: National Statistics Committee of the Kyrgyz Republic (accessed
9 March 2022). end of 2020 to 51.8% a year later in line with a fiscal
rule approved by Parliament in 2020 to cap government
debt at 70% of GDP and the budget deficit at 3%.

This chapter was written by Gulkayr Tentieva of the Kyrgyz Resident Mission, ADB, Bishkek.
2 Asian Development Outlook 2022

Figure 3.5.2 Monthly inflation To curb inflation from currency depreciation and
Inflation accelerated in 2021 as food prices surged. manage a floating exchange rate, the National Bank of
the Kyrgyz Republic, the central bank, raised its policy
Headline
Food rate by 3.0 percentage points to 8.0% in November
Nonfood 2021. The average deposit rate nevertheless fell by
Services
0.05 points in 2021, and the average lending rate by
% 0.92 points. Growth in broad money slowed from 23.9%
25 in 2020 to 19.1% in 2021, with credit rising by 11.8%
20 and deposits by 34.3%. The share of nonperforming
15 loans worsened from 10.5% of all loans at the end of
10 2020 to 11.6% a year later as weak business activity
5 raised payment arrears. Dollarization remains extensive,
0 but the foreign currency share of loans fell from 33.0%
–5 in 2020 to 28.0%, and of deposits from 43.4% to 42.2%.
Jan Jul Jan Jul Jan
2020 2021 2022 To support the currency, the central bank sold $689
Source: National Bank of the Kyrgyz Republic (accessed 9 March 2022). million in foreign exchange reserves in 2021, up from
$466 million in 2020.

Figure 3.5.3 Exchange rate

Falling exports and rising imports yielded a current
The Kyrgyz som depreciated against the US dollar as inflation account deficit equal to 7.0% of GDP in 2021, reversing
accelerated.
a 4.8% surplus a year earlier. Exports declined by 15.9%,
Som/$ mainly because of a 68% fall in gold exports from an
65
ongoing dispute and litigation embroiling the country’s
70 largest goldmine, Kumtor, and the introduction of
75 external management in May 2021 (box). Higher
80 imports of machinery and equipment, apparel, and
sugar boosted total imports by 49.8%, supported by
85
a 16.0% rise in remittances to $2.7 billion, 97% from
90
Russia, as the number of migrant workers rose with
Jan Jul Jan Jul Jan
2020 2021 2022 the reopening of Russian borders (Figure 3.5.5).
Source: National Bank of the Kyrgyz Republic (accessed 9 March 2022). International reserves increased from $2.6 billion

Figure 3.5.4 Fiscal indicators

Box 3.5.1 Kumtor goldmine dispute
The fiscal deficit narrowed in 2021 as tax administration reform
boosted revenue. In February 2021, a government commission
Revenue investigated Kumtor Gold Company’s operations
Expenditure and concluded that Centerra Gold Inc., the
Fiscal balance operator of the Kumtor goldmine, had caused
% of GDP environmental degradation at the mine.
30 Following the May 2021 appointment of external
24 management at Kumtor, Centerra filed cases
18 against the Government of the Kyrgyz Republic, in
12
the Arbitration Court in Sweden in that month and
6
in the US Bankruptcy Court of the Southern District
of New York in the following month. However, a
0
settlement out of court is expected by the end of
–6
March 2022, with the government swapping its
2017 2018 2019 2020 2021
26.1% stake in Centerra for full ownership of the
GDP = gross domestic product.
Kumtor goldmine.
Source: Ministry of Finance of the Kyrgyz Republic (accessed 9 March
2022).
Economic trends and prospects in developing Asia: Caucasus and Central Asia Kyrgyz Republic 3

at the end of 2020 to $2.9 billion a year later, cover Table 3.5.1 Selected economic indicators, %
for 5.6 months of imports. External debt, including
government-guaranteed and private debt, is estimated Growth is projected to slow in 2022 and recover slightly in 2023,
with significant downside risks, while inflation increases and the
to have fallen from the equivalent of 101.2% of GDP current account deficit widens.
at the end of 2020 to 90.7% at the end of September
2021 (Figure 3.5.6). 2020 2021 2022 2023
GDP growth –8.4 3.6 2.0 2.5
Inflation 6.3 11.9 15.0 12.0
Figure 3.5.5 Remittances
CAB/GDP 4.8 –7.0 –10.0 –10.0
Remittances rebounded in 2021 as the number of migrant
workers rose. CAB = current account balance, GDP = gross domestic product.
Source: Asian Development Bank estimates.
$ billion
2.4
Figure 3.5.7 GDP growth
Growth is projected to slow in 2022 and recover slightly in 2023, with
1.8 significant downside risks.
%
8
1.2 5-year moving average
2017 2018 2019 2020 2021 4

Source: National Bank of the Kyrgyz Republic (accessed 9 March 2022). 0

–4
Figure 3.5.6 External debt –8

Public debt fell as share of GDP in 2021, but some risk of debt distress –12
remains. 2017 2018 2019 2020 2021 2022 2023

Private GDP = gross domestic product.

Public Sources: National Statistics Committee of the Kyrgyz Republic (accessed
9 March 2022); Asian Development Bank estimates.
% of GDP
120

90
to limit currency depreciation, contain inflation, and
60 maintain economic growth in the short term. The plan
will include stimulus for the private sector and measures
30
to diversify imports of essential goods including fuel and
0 natural gas, equipment and machinery, grain and other
2017 2018 2019 2020 2021 food products, medicine, construction materials, and
GDP = gross domestic product. raw materials for manufacturing.
Note: Public debt includes government-guaranteed debt.
Sources: Ministry of Finance of the Kyrgyz Republic; National
Statistics Committee; National Bank of the Kyrgyz Republic (all On the supply side, gold production is expected to
accessed 9 March 2022). rebound by about 10%, aided by higher prices. Industry
will benefit from the resumption of infrastructure
projects in energy and transport. Services are projected
Economic prospects to grow by about 3%, reflecting gains in trade,
hospitality, and transport from economic recovery
With economic sanctions imposed on Russia, the and reopening borders and other transport links as
Kyrgyz Republic’s main trade partner, growth is COVID-19 wanes. Agriculture is forecast to expand by
projected to slow to 2.0% in 2022 and recover to 2.5% about 2% in 2022 and again in 2023, mainly from better
in 2023, with significant downside risks if external livestock performance, as crop production is expected
uncertainties are prolonged (Table 3.5.1 and Figure to continue suffering over the next few years from
3.5.7). The government is developing an anti-crisis plan drought and lack of water for irrigation.
4 Asian Development Outlook 2022
On the demand side, private consumption is expected
to decline as economic sanctions on Russia reduce
demand for migrant workers, and thus remittances,
while infrastructure projects will somewhat augment
public investment. Public consumption will show little
change, as will net exports, with exports and imports
alike declining.
Average annual inflation is expected to remain high
at about 15% in 2022 and 12% in 2023, mainly from
a sharp surge in fuel and gas prices by more than
20%, which may push up prices for food and other
items (Figure 3.5.8). The central bank is expected to
maintain its focus on attaining price stability. In March
2022, when sharp depreciation of the Russian ruble
prompted a nearly 23.8% plunge in the som against the
US dollar, the central bank raised the policy rate by 4.0
percentage points to 14.0% and undertook currency
interventions to support the exchange rate.
Figure 3.5.8 Inflation
Inflation is expected to remain high in both 2022 and 2023.
% 2021 in 2022–2023, reflecting lower demand for migrant
16
12
8
5-year moving average
4
0
2017 2018 2019 2020 2021 2022
Forecast
Sources: National Bank of the Kyrgyz Republic (accessed 9 March 2022);
Asian Development Bank estimates.
The fiscal deficit is projected to expand to the
equivalent of 3%–5% of GDP in 2022–2023 as higher
spending resumes on infrastructure projects. However,
slowing economic activity could leave a larger deficit.
Revenue is projected equal to about 31% of GDP, and
expenditure no less than 34%. Public debt is forecast
to exceed 60% of GDP in 2022 and 2023, approaching
the limit set by the recently enacted fiscal rule. The
International Monetary Fund assesses that the country
is still at moderate risk of debt distress.
The current account deficit is expected to widen to
about 10% of GDP in both 2022 and 2023 (Figure 3.5.9).
Increased gold exports should boost export growth
Figure 3.5.9 Current account balance
The current account deficit is expected to widen with the resumption of
infrastructure projects.
% of GDP
10
5
0
–5
–10
5-year moving average
–15
2017 2018 2019 2020 2021 2022 2023
Forecast
GDP = gross domestic product.
Sources: National Bank of the Kyrgyz Republic (accessed 9 March 2022);
Asian Development Bank estimates.
to 5% in both years, and the resumption of delayed
infrastructure projects should similarly boost imports.
However, as Russia is the country’s largest trade partner,
with almost 32% of all external trade, economic sanctions
on it may slash both exports and imports. Remittances are
likely to fall in US dollar terms by at least 30%–50% from
workers and a weakened ruble against the US dollar. Gross
international reserves are projected in the range of $2.2
billion–$2.3 billion in 2022–2023, or cover for about
4.5 months of imports, while shrinking external debt is
projected to equal 60% of GDP at the end of 2023.
2023
Policy challenge—developing a
green economy
In October 2021, the government adopted a new
medium-term development program for 2021–2026
that is an integral part of the country’s long-term
development strategy to 2040. The program aims
to improve public well-being by achieving key
Sustainable Development Goals (SDGs) through
ambitious objectives for structural reform to
strengthen governance and the rule of law, develop key
infrastructure to advance digitalization and improve the
business environment for private sector growth, and
promote a green economy.
A green economy will significantly reduce risks to
the environment, preserve and enhance natural
capital, promote efficient resource use, and conserve
Economic trends and prospects in developing Asia: Caucasus and Central Asia
natural ecosystems. The government expressed its
commitment to sustainable development through
green economy priorities at the United Nations
Conference on Sustainable Development in 2012. The
country’s Nationally Determined Contribution calls for
reducing greenhouse gas emissions 16.63% by 2025
and 15.97% by 2030 under the baseline scenario; or
36.61% by 2025 and 43.62% by 2030 with international
support. The estimated cost of implementing
measures to adapt to climate change while mitigating it
through reduced greenhouse gas emissions, as stated
in the Kyrgyz Republic’s updated nationally determined
contribution, is about $10 billion, of which 37% will
come from domestic resources and the rest from
development partners.
The country faces environmental problems that
threaten sustainable development, including land
degradation and increased air pollution. Land
degradation stems largely from unsustainable land
use in agriculture, notably overgrazing and inefficient
irrigation and water-management systems. Together,
these factors risk people suffering greater difficulty in
obtaining food and clean water, particularly as water is
scarce, especially in the southern part of the country.
Worsening air pollution harms human health and the
stability of ecosystems while hastening the corrosion
of infrastructure. Air pollution is especially serious in
cities. Experts estimate that more than 87% of the main
pollutants enter the atmosphere from motor vehicles,
their numbers increasing every year, as well as from
burning coal in winter. Rising air pollution induces
higher costs for health care and public infrastructure
maintenance and endangers natural ecosystems.
Worsening natural resource depletion and
environmental pollution and the risks they pose
demonstrate the country’s need to become a green
economy. Doing so will require government policy
to stimulate efforts toward energy efficiency and
conservation, renewable resource use, and more
efficient water and land management in urban and rural
areas alike.
The government has already taken some steps in this
direction. It has introduced a new national designated
authority for green economy efforts and developed
Kyrgyz Republic 5
a standalone green economy development program
for 2019–2023. Its goal is to create a framework for a
green economy that involves energy, agriculture, and
industry; switching to low-carbon and environmentally
friendly transportation; and developing sustainable
tourism and green cities.
In addition, the government has begun implementing
projects for drip irrigation, organic agriculture, small
hydropower plant construction, renewable energy, and
water conservation. It has established a climate finance
center to attract financial resources and investment
from the United Nation’s Green Climate Fund and
other international financiers of climate change
programs. The government will procure electric buses
and related infrastructure for the capital city.
The recently adopted tax code provides incentives
for developing a green economy and using green
technologies. These include value-added tax
(VAT) exemptions for technology, equipment, and
components that meet criteria for energy and resource
efficiency, and a 50% property tax cut for buildings and
other structures that are certifiably energy and resource
efficient. Besides these measures, the government has
doubled the property tax for vehicles with an engine
capacity of 3,000–4,500 cubic centimeters in use for
up to 5 years, and tripled the tax for those with engine
capacity of 4,500 cubic centimeters in use for more
than 5 years. In addition, VAT-free customs and tax
regimes were introduced at the beginning of 2022 for
imported vehicles with electric and hybrid engines to
cut pollution, especially in urban areas.
Introducing green technology into production and other
economic activity requires sizable financial resources
including private sector investment. To promote
investment in green technologies, the government
should cooperate with private firms to provide
incentives for attracting foreign direct investment in this
area. It should also encourage firms to produce greener
products while stimulating consumer demand for local,
organic, and environmentally friendly products.