BISHKEK, KYRGYZ REPUBLIC - After the difficult year of 2010, all economy sectors in Kyrgyzstan in 2011 showed robust gains, reflecting improved security and sustained public confidence, the Asian Development Bank (ADB) says in a major new report.

In 2012, ADB expects GDP growth to slow to 5.0% and then rise to 5.5% in 2013, according to figures contained Asian Development Outlook 2012, ADB’s flagship annual economic publication.

The report shows GDP growth reached 5.7% for 2011, reflecting industry expansion by 8.8%, services sector rebound by 5.2%, and a slight increase in agriculture production by 2.3%.

Consumer prices rose by 16.6% on a year-average basis, mainly because of rapid price increases during the first half of the year. Inflation slowed during the second half, and the 12-month (December over December) rise in the consumer price index was only 5.6%. Food prices, which rose by 25.9%, were the main driver of inflation; nonfood prices rose by 10.3%.

On the demand side, private consumption is estimated to have grown by 4.5%, reflecting a notable rise in retail sales, despite a small increase in unemployment.

“The growth in consumption was driven largely by returning consumer confidence and an increase in remittances to $1.4 billion, equivalent to 25% of GDP, reflecting more Kyrgyz migrants working in the Russian Federation in 2011,” said Gulkayr Tentieva, ADB’s Senior Economics Officer in Kyrgyzstan.

With the restoration of public confidence and political stability, higher domestic demand and stronger investor confidence are expected to spur private sector activity in the non-gold sectors. Private transfers are forecast to stay around 20–25% of GDP, however.

Year-average inflation is expected to continue decelerating to 5.0% in 2012, reflecting tighter fiscal and monetary policies and likely moderation in the prices for imported food. In 2013, inflation is forecast to rise to 5.5% on expected price increases for imported food.

Over the longer term, the planned accession of the Kyrgyz Republic into the customs union that Belarus, Kazakhstan, and the Russian Federation inaugurated in January 2012 poses major challenges for the Kyrgyz economy, says ADO 2012. Entry into the customs union would make the country subject to new common external tariffs, which are generally higher than those now in force in the Kyrgyz Republic. These new tariffs would raise prices, and reduce the volume of “shuttle trade” products, which consist largely of textiles re-exported from the People’s Republic of China to the Russian Federation and Kazakhstan.