BISHKEK, KYRGYZ REPUBLIC (6 April 2005) - The medium-term outlook of Kyrgyz Republic's economy remains positive, but it will be difficult to replicate the 7.1% GDP growth posted in 2004, according to a major ADB report released today.
The Asian Development Outlook 2005 (ADO), the annual ADB publication that forecasts economic trends in the region, says that gross domestic product (GDP) growth is expected to slow to 5% in 2005 due to the anticipated fall in gold production at the country's Kumtor gold mine as well as higher oil prices. However, this could be offset to some extent in 2006 and 2007 if production at "Jerui" and "Taldy-Bulak" deposits begins as scheduled.
"Diversification of domestic non-gold production through foreign trade, fiscal consolidation, implementation of structural reforms, and pursuit of good macroeconomic policies are key to sustainable growth," ADO says.
"The country needs to align its exports with evolving demand in neighboring countries, particularly People's Republic of China, Russian Federation and Kazakhstan."
Regional cooperation in trade, transport, and transit must be pursued, with the Kyrgyz Republic taking advantage of the intention of Russian Federation and Kazakhstan to enter the World Trade Organization, the report adds.
Last year, the Government instituted several structural reforms focused mainly on strengthening governance in the public and private sectors to create a conducive business climate and improving public resource management. A new national anticorruption strategy was adopted, the Law of Joint Stock Company was further amended, and a regulation was introduced to make public consultation mandatory before any new business-related legislation or regulation is introduced or existing ones amended.
In March 2005, the Paris Club creditors cancelled 50% of commercial credit (about $124 million) and rescheduled repayment of the remaining commercial credit over 23 years with a 7 year grace period. The repayment of bilateral official development assistance of about $306 million has been rescheduled over 40 years with a 13 year grace period. Even after receiving debt relief on concessional terms, the debt parameters are likely to remain above the Highly-Indebted Poor Country threshold until 2008 and the debt situation will remain vulnerable to external shocks.
While preliminary estimates have shown that poverty incidence declined to 39% in 2004, it is still a major problem in rural areas where some three quarters of the country's poor live.
The Government has continued its efforts to broaden the tax base and improve tax administration. A new tax code, which is simpler and investment-friendly, is expected to take effect this year.