Regions and Countries

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p. 10 of 47 BACK | NEXT Developing Asia and the Pacific The global economy Newly industrialized economies Central Asian republics, Azerbaijan and Mongolia Kazakhstan Kyrgyz Republic Tajikistan Turkmenistan Uzbekistan Azerbaijan Mongolia People’s Republic of China Southeast Asia South Asia The Pacific

Kyrgyz Republic

Economic performance

Economic growth: Preliminary trends for 2000 indicate a sustainable economic recovery in the Kyrgyz Republic, with GDP growth at about 5 percent. But for the poor performance of food grain crops in the latter part of the year, this would have been even higher. The agriculture sector output still recorded a 3.9 percent growth mainly because of solid performance in the horticulture, tobacco, and animal husbandry subsectors. The industry sector grew at 6.0 percent.

Employment: According to official statistics, 80,900 jobs were created in 2000, with total employment reaching 1.8 million. However, the official unemployment rate increased from 2.9 percent in 1999 to 3.1 percent in 2000; the negative social impact of this rise was worsened by deteriorating job quality. Migration of the workforce from high-wage sectors to the low-wage agriculture sector drove real wages down and poverty incidence up.

Inflation: The Government followed a tight monetary policy in 2000 to curb inflation and stabilize the domestic currency. Against a targeted broad money growth rate of 12 percent, money supply grew at 12.3 percent during the year. Consumer price inflation fell to 18.7 percent in 2000 from 35.9 percent in 1999, although increases in the prices of food products contributed 57 percent to overall inflation, placing a heavy burden on the poor.

Fiscal balance: The Government set an ambitious budget deficit target of 6.8 percent of GDP for 2000, against a deficit of 12.2 percent in 1999. Depressed industry sector output, a narrow tax base, and weak tax administration hampered fiscal consolidation. On the expenditure side, additional spending for defense, necessary to prevent or at least minimize the impact of rising military instability in the subregion, put pressure on government finances.

External sector: Foreign trade rebounded from a 21.8 percent decline in 1999 to register a 5.0 percent growth in US dollar terms for 2000. Aided by a massive depreciation of the som in 1999, exports grew at 9.1 percent, while imports increased by 1.4 percent during the period. Consequently, the trade deficit fell sharply to $50 million in 2000, from $84 million in 1999. At the end of 1999, external debt reached $1.3 billion, or about 130 percent of annual GDP. Tariffs have been reduced significantly, reflecting the country’s commitment to complying with WTO entry requirements. In 2000, the number of tariff rates was compressed to four, with a maximum rate of 20 percent. The new structure is expected to yield an average tariff of 5.2 percent. The domestic currency depreciated from 39 som to the US dollar in 1999 to 48.9 som in 2000. Gross external reserves stood at $269.4 million at the end of the third quarter of 2000.

Domestic policies: In 2000, improvements were made in fiscal and monetary management and in implementing structural reforms. External debt increased, posing a serious fiscal challenge in the medium term. As a consequence, the Government began prioritizing its public investment projects and began work on a comprehensive development framework for addressing poverty, while moving toward a market economy and maintaining good governance.

Revived growth of light manufacturing and agro-based industry resulted from privatizing about 60 percent of the manufacturing subsector. Businesses continued to face difficulties because of deficiencies in the policy and institutional environment and a weak financial infrastructure. Public enterprise restructuring has been delayed, further straining the budget. The agriculture sector showed considerable dynamism, driven essentially by the private farms created after 1995. This sector could act as an engine of growth for the entire economy.

ADB operations

Operational strategy: ADB’s operational strategy for the Kyrgyz Republic was finalized in December 1996, with the primary objectives being to support the Government’s reform activities and strengthen its development management by encouraging institutional change, strengthening institutional capacity, and improving public services. ADB has since made significant changes in its operational program to address poverty reduction. Activities will be concentrated on improved public services, particularly those provided by local governments; agriculture, including rural finance; human development; and infrastructure, especially rehabilitation projects to preserve the economic utility of past investments in the road subsector.

Policy dialogue: Policy dialogue with the Government continued on ADB support for policy and institutional reforms in the financial, infrastructure, and agriculture sectors. As part of its objective of reducing poverty, ADB assisted the Government in developing its comprehensive development framework to formulate and help implement a national poverty reduction strategy. The framework has three main thrusts: (i) poverty reduction and social protection; (ii) sustainable economic growth; and (iii) good governance and legal and judicial reform. Workshops conducted from February to December 2000 helped consolidate the Government’s policies and priorities in these areas. ADB’s ongoing technical assistance initiative in the country will help formulate the National Strategy for Poverty Reduction, which is expected to be completed in 2001.

Loans and technical assistance: In 2000, ADB approved three project loans totaling $66 million: $36 million for water supply, $25 million for education, and $5 million for the Kyrgyz Republic component of the Almaty-Bishkek Regional Road Rehabilitation Project. ADB also approved eight technical assistance projects totaling $4.9 million.

Project implementation: Since joining ADB in 1994, the Kyrgyz Republic has received 18 loans, of which 14 were active at the end of 2000. Contract awards totaled $9.2 million, bringing the cumulative figure to $282.2 million. The contract award ratio was 6.7 percent, lower than the ADB-wide average of 21 percent, mainly because newly approved projects had not reached the contract award phase. Disbursements during the year totaled $21.4 million, bringing cumulative disbursements to $256.4 million. The disbursement ratio was 11.9 percent, lower than the ADB-wide average of 20.5 percent.

Despite fiscal constraints, ADB-financed projects in the Kyrgyz Republic continued to perform well, although project implementation, particularly physical infrastructure, was hampered by bad weather. Weaknesses were identified in the submission of project progress reports, audited accounts, and financial statements; and in compliance with covenants.

A significant event in 2000 was the establishment of the Kyrgyz Resident Mission, which strengthened the Government’s and ADB’s relations and opened up new possibilities for more direct policy dialogue. It also had a positive impact on project implementation, aid coordination, and ADB response to civil society and nongovernment organizations.

   

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