Kyrgyz Republic and ADB

ADB supports inclusive growth in the Kyrgyz Republic, helping to reduce poverty, lessen gender and social disparities, build infrastructure, develop human capital, transform agriculture, and mitigate the effects of disaster and climate change.

Economic forecasts for the Kyrgyz Republic

Figures are based on the latest edition of ADB's Asian Development Outlook, which analyzes economic and development issues in Asia and the Pacific. This includes forecasting the inflation and gross domestic product growth rates of economies throughout the region.


 

Comparative economic forecasts

The latest available economic data for Kyrgyz Republic compared to countries in Caucasus and Central Asia.


 

Policy Challenge—Strengthening Monetary Policy Transmission

Despite a recent decline in inflation, inflation expectations have remained high in the Kyrgyz Republic. Recent external shocks, including a surge in food prices, supply-chain disruptions, and currency depreciation in 2022, have been the main sources of inflationary pressures. Inflation remained high, at 7.3% at the end of 2023. Despite the decline of inflation to 5.5% in February 2024, inflation expectations remain elevated, according to the central bank.

Structural factors hamper the effectiveness of monetary policy. Despite tight monetary policy, with the central bank raising its policy rate six times since 2021 and selling foreign exchange to curb inflation, expectations of high inflation persist. The financial system is shallow and underdeveloped, with a small and uncompetitive banking sector and a nascent stock market. The banking system has continuing excess liquidity, concentrated in a few banks, that is not lent to the private sector or other banks. These features, together with restricted access to international capital markets, limit the central bank’s ability to affect lending rates or the exchange rate. Financial literacy also remains low despite central bank efforts to improve it. This hinders the formation of expectations, thwarts communication, and limits the central bank’s credibility.

High dollarization weakens monetary policy transmission amid risks of financial stability and currency mismatches. Despite a gradual decline in dollarization over the past 8 years, both the private and the public sector rely heavily on foreign currency borrowing, increasing vulnerabilities in case of exchange rate movements. Historically high reliance on remittances also limits monetary policy. Despite the issuance of long-term government securities in som, local currency debt accounts for only 25.9% of total public debt. Administrative and macroprudential measures in place—such as differentiated minimum reserve requirements with higher reservations for liabilities denominated in foreign currency, higher loss provisions for foreign currency loans, and regulatory limits on commercial banks’ net open foreign exchange positions—should be implemented further and complemented with stronger macroprudential policies to reverse dollarization.

Frequent foreign exchange interventions limit how much the exchange rate can be a shock absorber, possibly undercutting monetary policy transmission. According to a study by the International Monetary Fund, currency depreciation in the Kyrgyz Republic by ­10 percentage points boosts inflation in the first year by 3 points. The central bank frequently intervenes in the foreign exchange market to smooth exchange rate fluctuations, mainly by selling foreign currency in periods of som depreciation.

Bolstering the credibility and independence of the central bank is crucial. The central bank uses standard channels of announcements and press releases on its website. Better communication achieved by sharing more detailed and transparent information could improve policy predictability and lower inflation expectations. The central bank can benefit from further aligning its communications to best practices, improving public financial literacy, and adopting a forward-looking strategy. Streamlining central bank gold purchases and adhering to rules for profit distribution from the central bank to the budget are essential to strengthen central bank governance and independence.

More resources

Asian Development Bank and the Kyrgyz Republic: Fact Sheet

Asian Development Bank and the Kyrgyz Republic: Fact Sheet

The Fact Sheets summarize ADB's partnerships with member economies, providing key facts and figures and an overview of activities and future directions.

Asian Development Outlook (ADO) April 2024

Asian Development Outlook

The Asian Development Outlook analyzes economic and development issues in developing countries in Asia.

Key Indicators for Asia and the Pacific 2023

Key Indicators

The Key Indicators for Asia and the Pacific publication presents data regarding the economic, financial, social, and environmental situations in a broad range of countries across the region.

Basic Statistics 2024

Basic Statistics

The Basic Statistics brochure presents data on selected social, economic, and SDG indicators such as population, poverty, annual growth rate of gross domestic product, inflation, and government finance for economies in Asia and the Pacific.