Growth in the Kyrgyz Republic slowed to 3.6% in 2014 as the economies of the Russian Federation and Kazakhstan weakened, while local currency depreciation of about 19% pushed inflation to 7.5%. With economic contraction expected in the Russian Federation, growth will likely slow further to 1.7% in 2015 before recovering slightly to 2.0% in 2016 as the external environment shows some improvement. Inflation will likely reach or exceed 10%, and the current account deficit 15% of the gross domestic product.
|Selected economic indicators (%) - Kyrgyz Republic||2015||2016|
|Current Account Balance (share of GDP)||-16.0||-15.0|
Source: ADB estimates.
A 16% decline in gold production at the main Kumtor gold mine cut growth in the gross domestic product (GDP) of the Kyrgyz Republic by two-thirds to 3.6% in 2014 from 10.9% in 2013. Apart from gold mining, GDP rose by 4.6%, buoyed by expansion in services and industry.
On the supply side, growth in industry was 5.1%, but this was a steep plunge from 30.5% in 2013, in which gold output doubled. Lower gold production contributed to declines of 3.0% in manufacturing and 0.5% in mining, though industry growth remained positive because of expansion in food products by 8%, construction by 24.9%, and minerals other than gold by 6.2%. Services grew by 4.1% as higher consumer demand and improved cross-border trade boosted retail and wholesale trade by 7.2%, hotels and restaurants by 9.6%, and transportation by 4.3%. Agriculture, by contrast, contracted by 0.6% because of adverse weather.
On the demand side, private consumption is estimated to have increased on rising retail trade. Investment expanded by 21.6%, reflecting a jump in private housing construction.
Growth is likely to slow further to 1.7% in 2015, reflecting recession in the Russian Federation, sluggish performance in Kazakhstan, and a further drop in gold production as the quality of extracted ore declines. Growth is expected to remain positive, however, with recovery in agro-processing and textiles and more trade as the Kyrgyz Republic joins the Eurasian Economic Union (EEU) on 1 May 2015. The government is developing an action plan to support export-oriented industries such as textiles and agro-processing through fiscal incentives and tax waivers. Growth is projected at 2.0% in 2016 on the assumption of some recovery in the Russian Federation and Kazakhstan and higher remittances. The highly volatile external environment poses downside risks to growth.
Excerpted from the Asian Development Outlook 2015.