Economic growth in the Kyrgyz Republic slowed to 4.1% in the first half of 2014 from 7.9% in the same period of 2013, as the expansion in industry slowed to 7.2% from 13.8% a year earlier, reflecting a decline in glass, cement, and mining other than gold. The slowdown in industry and a modest 1.4% rise in agriculture offset an 18.5% expansion in construction. On the demand side, stagnation in the Russian Federation weakened remittances and trade, though investment strengthened. Exports are expected to rise, but meager gains in domestic demand prompt cutting the growth forecast for 2014 by 1.5 percentage points and for 2015 by 1.0 point. An expected modest rebound of the Russian economy would help realize these projections.

Selected Economic Indicators (%) - Kyrgyz Republic 2014 2015
ADO 2014 Update ADO 2014 Update
GDP Growth 6.5   4.0  5.5   4.5 
Inflation 7.0   9.8  6.0   9.8 
Current Account Balance (share of GDP) -15.7   -14.5  -15.1   -15.1 

Source: ADB estimates.

Inflation in the first half of 2014 reached 6.3%, reflecting a 9.5% rise in food prices, fueled by the 5.8% depreciation of the Kyrgyz som in the first half of the year and smaller increases of 2.3% for other goods and 2.0% for services. Current trends and the expectation of further modest price increases for food and services prompt an upward revision of the inflation forecast for 2014 by 2.8 percentage points to 9.8%. Inflation is projected to remain at this rate in 2015, 3.8 points above the Asian Development Outlook (ADO) 2014 forecast in April. This reflects mainly the price adjustments expected from the country’s anticipated accession into the customs union with Belarus, Kazakhstan, and the Russian Federation, including a rise in fuel prices by roughly 30% to match those in the Russian Federation.

The trade deficit shrank by 16.5% in the first half of 2014, as exports rose by 11.7% and imports fell by 9.5%. Export growth came from increases of 45.0% for gold and 36.1% for other metals, while the decline in imports resulted mainly from sharply lower imports of gas (by 60.0%), diesel (26.1%), other fuel (25.4%), textiles (12.4%), and machinery and equipment (11.4%). As slower growth is expected to keep imports weak, the projected current account deficit for 2014 is reduced by 1.2 percentage points. However, the deficit forecast for 2015 remains unchanged.

Source: ADB. 2014. Asian Development Outlook 2014 Update. Manila.