Despite experiencing strong growth in the first half of 2015, full-year developments in the Kyrgyz Republic will depend heavily on remittances from and trade with the Russian Federation, which is experiencing a marked recession.
|Selected economic indicators (%)||2015||2016|
|ADO 2015||Update||ADO 2015||Update|
|Current Account Balance (share of GDP)||-5.9||-5.9||-4.8||-4.8|
The Kyrgyz Republic’s Gross Domestic Product (GDP) grew by 7.3% in the first half of 2015, or by 4.4% excluding gold. Industry expanded by 23.6%, reflecting strong mining and goods processing. Agriculture grew by 2.4%, while trade expanded by 5.8%. Growth in construction halved to 11.2% from 22.0% in 2014, reflecting more moderate expansion in capital investment—which also halved, to 6.8% from 13.5% in 2014.
Prices in the first half of 2015 averaged 7.8% higher than a year earlier, reflecting increases in energy tariffs and prices for most items, though prices at the end of June were only marginally above those of December 2014. Food prices fell by 3.5% on seasonal factors. The Kyrgyz som depreciated by about 5.4% in the first 6 months of 2015, and the exchange rate became highly volatile after 20 August 2015, following the sharp depreciation of the Kazakh tenge. By 26 August 2015, the som had depreciated by about 10.9%, from Som58.9 to the dollar on 1 January to Som65.3.
The January–June 2015 trade deficit narrowed by 23.1% from a year earlier as total trade declined. Imports fell by 16.8%, mainly as imports of vehicles, machinery and equipment, fertilizers, apparel, and accessories sagged, while exports fell by 2.6% with smaller shipments of fruits, vegetables, apparel, and accessories—and despite higher gold exports. Remittances were about 25.4% less than during the first 6 months of 2014, reflecting continued recession in the Russian Federation and ruble depreciation.
Despite experiencing strong growth in the first half of 2015, the Asian Development Outlook 2015 Update maintains the growth forecast for 2015, as full-year developments will depend heavily on remittances from and trade with the Russian Federation, which is experiencing a marked recession. The growth forecast for 2016 is similarly sustained on the assumption of some recovery in the Russian Federation and other subregional trading partners.
The Kyrgyz Republic’s accession to the Eurasian Economic Union (EEU) on 8 May 2015 and the physical opening of the EEU borders effective from 12 August 2015 add uncertainty to the country’s growth prospects in the second half of 2015 and over the medium term.
Inflation may accelerate in the second half of the year, following the opening of the borders within the EEU as a consequence of external shocks from the depreciation of the tenge and the ruble, strong growth in the first half of the year, and an expected rise in food prices. Inflation is expected to be at least as high in 2016 because of transitional price adjustments within the EEU, so the forecast for 2016 is similarly raised.
The Asian Development Outlook 2015 Update maintains the current account deficit forecasts for 2015 and 2016.
Excerpted from the Asian Development Outlook 2015 Update.