Kyrgyz Republic

Politics:

• Analysis

  Kyrgyz Republic politics: Quick View - Russia extends financial and militar

  Event

  On December 5th Russia confirmed a grant of US$25m to the Kyrgyz Republic to bolster its public finances.

  Analysis

  The agreement was signed between the two prime ministers at a bilateral meeting that followed a summit of the Shanghai Co-operation Organisation. The grant is expected to arrive by end-December. It will ease serious fiscal pressures that have been exacerbated in 2012 by a severe economic slowdown, linked in particular to output disruptions at the flagship Kumtor gold mine and a poor harvest. We estimate a budget deficit of around 8% in 2012, probably the largest in Central Asia.

  This is the latest in a series of Russian overtures to the Kyrgyz Republic. During a visit to Bishkek in September, the Russian president agreed to write off almost US$500m in debt owed by the Kyrgyz Republic. At the same time, he secured a 15-year extension to Russia's lease at its Kant air base, 20 km from Bishkek, which is home to around 600 servicemen. In addition, in 2013 Russia is to supply the Kyrgyz military with helicopters, small arms, vehicles and medical equipment worth more than US$1bn. This suggests that the Russian leadership believes that Almazbek Atambayev will keep to his word and close the US airbase at Manas when its lease expires in mid-2014 (the previous president, Kurmanbek Bakiyev, took Russian money to do so, but then reneged on the deal).

  Russia has also signed deals in 2012 to complete the construction of Soviet-era dams-notably, the Upper Naryn cascade and the first Kambarata hyrdroelectric plant. The Kyrgyz Republic will benefit from the electricity generated by the hydropower plants, but tensions with neighbouring Uzbekistan, which will worry that the dams could reduce the volume of water that will remain for its agricultural irrigation. As an important investor, Russia will be able to mediate between these conflicting interests. Its recent deals in the Kyrgyz Republic are part of a wider ongoing effort to rebuild Russian influence across former Soviet space.

  December 07, 2012

• Background

  Kyrgyz Republic: Political forces

  Parliamentary election, Dec 2007
  	Share of the vote (%)	Seats (no.)
  Ak Jol	61.7	71
  Ata Meken	11.3	–
  Social Democratic Party of Kyrgyzstan (SDPK)	9.3	11
  Communist Party of Kyrgyzstan (KPK)	7.0	8
  Turan	2.8	–
  Ar-Namys	2.2	–
  Others/"against all"	5.7	–
  Source: Economist Intelligence Unit calculations based on data from the Central Election Commission (CEC), as well as on elaborations by the Organisation for Security and Co-operation in Europe (OSCE).

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  September 10, 2008

• Structure

  Kyrgyz Republic: Political structure

  Official name

  Kyrgyz Republic

  Form of state

  The Kyrgyz Soviet Socialist Republic declared its independence in August 1991 and changed its name to the Kyrgyz Republic. A constitution was approved on May 5th 1993. The president's powers were enhanced by referendums held in February 1996, February 2003 and October 2007. The provisional government in place since April 2010 held a referendum on a new constitution restoring powers to parliament in June 2010; a parliamentary election under this new constitution was held in October 2010

  National legislature

  The Jogorku Kenesh is a unicameral chamber elected for a five-year term. Under changes approved by referendum in June 2010, the number of seats in the legislature has been raised from 90 to 120

  National elections

  October 10th 2010 (parliamentary) and October 30th 2011 (presidential); the next parliamentary election is due in 2015 and next presidential election is due in 2017

  National government

  If a party holds more than one-half of the seats in parliament, it has the right to nominate the prime minister, who must then be approved by the president (if no party wins a majority, the president will entrust one of parliament's parties with forming a coalition)

  Head of state

  Almazbek Atambayev won the election in October 2011 and took over from the interim president, Roza Otunbayeva, on December 1st

  Main political parties

  Ata-Jurt (Fatherland); Ak Jol (True Path); Social Democratic Party of Kyrgyzstan (SDPK); Communist Party of Kyrgyzstan (KPK); Socialist Party Ata-Meken (Fatherland); Alga (Forward), Kyrgyzstan!; Adilet (Justice); Ar-Namys (Dignity); Asaba (Banner); Democratic Party of Women of Kyrgyzstan; Erkindik (Freedom); Mekenim (Fatherland) Kyrgyzstan movement; Moya Strana (My Country); Progressive-Democratic Party Erkin Kyrgyzstan (ErK); Respublika; Party of Communists of Kyrgyzstan (PKK); Protection Party; Republican People's Party; Butun Kyrgyzstan (United Kyrgyzstan)

  Government

  Prime minister: Omurbek Babanov

  First deputy prime minister: Karash Aaly

  Deputy prime ministers:

  Gulnara Asymbekova

  Djoomart Otorbayev

  Key ministers

  Agriculture: Saparbek Tinayev

  Defence: Taalaibek Omuraliev

  Economy and competition policy: Temir Sariev

  Emergency situations: Kupatbek Boronov

  Energy & industry: Askarbek Shadiyev

  Finance: Akylbek Japarov

  Foreign affairs: Ruslan Kazakbayev

  Health: Dinara Sagimbayeva

  Internal affairs: Zarylbek Risaliyev

  Justice: Almambet Shykmamatov

  Labour, employment & migration: Aliyasbek Alimkulov

  Transport & communications: Kalykbek Sultanov

  Head of National Security

  Shamil Atakhanov

  Acting central bank chairman

  Baktygul Zheyenbayeva

  November 01, 2012

Economy:

• Background

  Kyrgyz Republic: Education

  The education system remains underfunded. For most of the 1990s spending on education was severely curtailed, falling from the equivalent of 6.5% of GDP in 1995 to a post-independence low of 3.5% in 2000, according to the IMF. Since then, spending has risen steadily, from 4.4% of GDP in 2002 to 5.6% in 2006, according to official figures. Nevertheless, the education system is hampered by low wages and a lack of investment in materials. The law requires nine years of compulsory education, after which students may pursue vocational programmes or university degrees. Enrolment rates rose to an average of 78% across all levels of education in 2005. Although this was high compared with countries in the same income group, the number of students dropping out of school was reported to have increased by 36% in 2000-05. In 2000-05 the number of institutions of higher education rose to 51 from 48, and student numbers rose by 11%.

  September 10, 2008

• Structure

  Kyrgyz Republic: Economic structure

  Economic structure: Annual indicators

  	2008a	2009a	2010a	2011a	2012b
  GDP at market prices (Som bn)	188.0	196.4	220.4	273.1	278.5
  GDP (US$ bn)	5.1	4.6	4.8	5.9	5.9
  Real GDP growth (%)	7.6	2.9	-0.5	5.7	0.5
  Consumer price inflation (av; %)	24.5	6.9	8.0	16.5	3.0
  Population (m)	5.3	5.4	5.5	5.5	5.6
  Exports of goods fob (US$ m)	1,874	1,700	1,779	2,331	2,120
  Imports of goods fob (US$ m)	-3,754	-2,814	-2,981	-3,959	-4,376
  Current-account balance (US$ m)	-750	-300	-467	-253	-739
  Foreign-exchange reserves excl gold (US$ m)	1,153	1,494	1,604	1,703	2,094
  Exchange rate Som:US$ (av)	36.57	42.90	45.96	46.14	46.99
  a Actual. b Economist Intelligence Unit estimates.

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  Main origins of gross domestic product 2009	% of total	Main components of gross domestic product 2009	% of total
  Agriculture & forestry	24.8	Private consumption	86.0
  Industry	23.1	Public consumption	22.8
  Services	52.0	Gross fixed investment	21.2
  		Change in stocks	0.9
  		Net exports	-30.9
  Principal exports 2010	% of total	Principal imports 2010	% of total
  Precious metals & stones	33.1	Mineral products	27.5
  Chemicals	8.2	Machinery & equipment	12.6
  Textiles	8.0	Chemicals	9.3
  Mineral products	6.2	Food, beverages & tobacco	8.3
  Main destinations of exports 2010	% of total	Main origins of imports 2010	% of total
  Switzerland	17.3	Russia	33.1
  Russia	12.7	China	17.9
  Uzbekistan	10.1	Kazakhstan	12.9
  Kazakhstan	3.1	Uzbekistan	4.4

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  November 01, 2012

• Outlook

  Kyrgyz Republic: Country outlook

  Kyrgyz Republic: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  OVERVIEW: The handover of the Kyrgyz presidency to Almazbek Atambayev in December 2011 and the quick formation of a new government in September 2012 set positive precedents for future political development. In the short term policy will focus on countering the impact of a drastic economic slowdown in 2012 and on maintaining political stability. Difficulties with raising revenue, as well as high levels of social and economic spending, produced a large budget deficit in 2012. The deficit will shrink gradually as the economy strengthens in the 2013-14 outlook period. Economic growth in 2012 has been badly hit by a reduction in gold output, a poor agricultural performance and a slowdown in the economies of leading partners. The Economist Intelligence Unit estimates growth of just 0.5% for the year. In 2013-14 faster growth will be driven by a boost to trade and remittances from a pick-up in growth in Russia, and from higher gold production. A regional drought will see food prices rise in the remainder of 2012 and into 2013. The current-account gap is estimated to have widened sharply in 2012, but it is likely to narrow from 2013 as the economy strengthens.

  DOMESTIC POLITICS: The smooth handover of the presidency to Mr Atambayev in December 2011 set a precedent for the peaceful transition of political leadership. A new, three-party coalition government was formed in early September 2012, but with a smaller parliamentary majority. This came after the disintegration of the previous coalition government, following the departure of two of its four constituent parties because of dissatisfaction over the handling of the economic crisis and allegations of corruption. The new government is made up of three of the five parliamentary parties. It commands fewer seats than the previous government-69 out of 120 in the Jogorku Kenesh (parliament), against 92 for the previous administration. Its position is, therefore, more precarious. The omission of the nationalist Ata-Jurt (Fatherland) from the coalition aids government cohesion. However, as shown by a series of demonstrations, this is at the risk of stoking political unrest in the south, where the party has most of its support. Mr Atambayev's main support base is in the more urbanised north, but he also won significant backing among the ethnic Uzbek minority, which is concentrated in the south. Nonetheless, since ethnic clashes in June 2010, Uzbeks have been subject to prosecution in disproportionate numbers. In March 2012 the party of a mayor accused of stirring anti-Uzbek feeling won the municipal election in Osh, the second-largest city. In April Kyrgyz nationalist groups joined forces to stage a large anti-government rally in Jalalabad. A report by the International Crisis Group, a non-governmental organisation, indicated a commercial component behind the ethnic political tensions in the south, as shown by the seizure of some Uzbek businesses. In early October, three members of parliament from Ata-Jurt were arrested following attempts to storm government buildings in the capital, Bishkek, at a demonstration that they led. For a while, the arrests caused protests in the south, but these seem to have fizzled out. Socio-economic divisions will thus remain a potential source of political disruption.

  INTERNATIONAL RELATIONS: Mr Atambayev's visits to Russia and his public statements show a definite movement back into the Russian sphere. At the end of September 2012 this culminated on a deal on the extension of the lease on a Russian military base for 15 years in return for economic support. In addition, the government has embarked on the process of joining the Russia-led Customs Union, even though there might be an economic price to pay. Nevertheless, Mr Atambayev has indicated that his administration's allegiance should not be taken for granted. The Kyrgyz leadership may be seeking to counterbalance the overwhelming weight of Russia in its foreign relations by improving ties with other important regional powers, such as Turkey. At the same time, Mr Atambayev will be aware of Russia's economic and political leverage over the Kyrgyz Republic. This will militate against any concerted attempt to reorient the country too strongly towards the West. Following his victory, Mr Atambayev said that, once it expires in 2014, he did not expect to renew the agreement that allows the US military to use the Manas airbase, although civilian co-operation would be welcome. The influence of China is growing in Central Asia. This was shown at a meeting of the Shanghai Co-operation Organisation in June 2012, when the Chinese president, Hu Jintao, promised an additional US$10bn in loans to other members, including the Kyrgyz Republic. In the Kyrgyz Republic the main sign of growing economic links is in foreign trade, rather than in energy resources. However, at the conference China also expressed concern over developing a common approach to countering regional instability and extremism.

  POLICY TRENDS: Over the short term, policy will continue to aim at countering the impact of a drastic economic slowdown in 2012, laying the groundwork for faster economic growth and making the country more attractive to foreign investment. The widening of the external deficit has been of increasing concern. The Kyrgyz Republic has developed its policy programme with the IMF. A previous government agreed a US$100m, 18-month arrangement under the Fund's exogenous shocks facility in December 2008. In June 2011 the Fund reached agreement on a further three-year lending programme, equivalent to around US$106m, under its Extended Credit Facility. Approval of a first review saw the first instalment released in December, and a second followed at the end of April 2012. A third is likely to be passed by the Fund's board in December 2012. The new administration has developed detailed anti-corruption plans to improve the investment environment. However, the image of the country as an investment destination may have been tarnished by the persistent political struggles around the ownership status of the Kumtor gold mine. In 2012 foreign direct investment (FDI) inflows have remained depressed because of the financial turbulence in the euro zone. Despite a strong rise in government revenue linked to GDP and trade growth, the state budget deficit was around Som13.5bn (US$284m) in 2011, equivalent to around 5% of GDP. In 2012 the budget has come under strain as external demand and domestic manufacturing output have slowed. At end-July the president passed a revised budget that widens the targeted deficit to 7.2% of GDP, from 5.2%. In January-August a sizeable deficit (Som8.9bn) developed on the state budget. This compares with a deficit of Som2.4bn in the year-earlier period. Recent press reports suggest a considerable deterioration since then, to perhaps 10% of GDP in January-September. This is likely to trigger further cuts. Together with a return to economic growth in the fourth quarter (which we expect), this could narrow the deficit, although not enough to enable the government to meet its revised target. We estimate the budget deficit at around 8% of GDP in 2012. The deficit should narrow in parallel with economic recovery in 2013-14, especially if some of the gold extraction originally planned to be mined in 2012 is shifted to 2013.

  ECONOMIC GROWTH: In 2011 real GDP grew by 5.7%, according to the National Statistical Committee. Initiated by a recovery in domestic demand that was backed by remittance inflows, growth broadened during the year. Industrial expansion was sustained by exports, as well as by the high price of gold. Following a slowdown in December, economic growth plummeted in the first quarter of 2012, reflecting problems in the important gold sector. Although there has since been an amelioration in the pace of decline, real GDP has continued to contract, dropping by 4.6% year on year in January-September. Industry was down by more than one-third year on year in this period. Agricultural output rose by just 2%, hindered, as in much of the region, by the impact of a drought. Manufacturing dropped by almost 45% year on year in the first nine months; exports fell by more than 20% in US dollar terms. More positively, remittance growth rebounded unexpectedly strongly in July and August, supported by steady economic expansion in Russia, as well as by rouble appreciation against the US dollar. Stronger than originally expected growth of remittances in the second half will be a factor that keeps the economy growing in 2012, alongside a return to more usual volumes of production and foreign sales in the gold sector. We estimate real GDP growth of 0.5%. The impact of a series of cuts in policy interest rates is unlikely to be felt before 2013, but will anyway be weak. Gold production should get back on track and gold prices will remain high. Some positive results of the anti-corruption drive could foster a rise in FDI. Nevertheless, the prospects for external recovery in 2013 look limited, and we forecast real GDP growth of just 4%. Despite the restraint represented by a likely fall in gold prices, in 2014 modestly stronger external demand should nudge up exports sales and so the pace of economic expansion. Growth could be faster in 2013 if some gold output planned for 2012 is realised in that year.

  EXTERNAL ACCOUNT: The current-account deficit narrowed considerably in US dollar terms in 2011, to around US$250m (around 4% of GDP), from US$470m in 2010 (about 10% of GDP). In the first half of 2012 imports were tempered by falling food prices, although high prices for energy imports worked in the opposite direction. International prices for gold, the country's main export, have remained high, but a drastic curtailment of output from the domestic gold sector early on has reduced export earnings. The divergence between export contraction and continuing import growth-supported by remittance growth-has opened up the trade gap, so the current-account deficit widened to almost US$700m in the first half, equal to 15.7% of GDP, according to the National Bank of the Kyrgyz Republic (the central bank). Nominal depreciation in the remaining months of the year is likely to be weaker than previously expected, owing to a changed balance of forces on international currency markets. This could slow the pace of narrowing of the trade deficit. The external imbalance is estimated at more than 12% of GDP-a considerable widening compared with 2011. In 2013-14 a recovery in exports and remittances will see an improvement in the external position, although the gap will remain wide.

  October 31, 2012

• Forecast

  World: Country forecast summary

  COUNTRY VIEW

  FROM THE ECONOMIST INTELLIGENCE UNIT 

  • The Economist Intelligence Unit forecasts a slowdown in global growth in 2008, reflecting the sharp deceleration in US growth and a weakening in a number of other industrialised economies in the year. In 2009 the weaker US economy will continue to depress global growth and (mostly modest) tightening measures in response to the recent surge in inflation in many emerging markets will start to have an impact on the real economy. Later, growth will firm but will not match the rapid rates seen in recent years.
  • The recent surge in inflation has become a major concern, but inflationary pressures will fade in the developed world, as slower growth leads to lower demand-side price pressures and commodity prices are expected to stabilise. The impact on emerging markets will be more prolonged, as limited credibility of monetary policy raises the risk of second-round effects.
  • The US economy will grow by only 1.2% in 2008 and 1.1% in 2009, reflecting the impact of the turmoil in the housing market, the turbulence in credit markets and the indebtedness of households. The recovery in subsequent years will be slow owing to continued consolidation needs.
  • Following a substantial weakening in 2007, the rate of expansion in Japan will remain well below the pace seen in 2004-06, as a strengthening currency, slowing business investment and faltering housing investment take their toll. The euro zone will slow down in 2008 and 2009, affected by the US downturn and the financial market turmoil. UK growth will slow in 2008, partly reflecting the impact of financial market turmoil and an exposed housing market.
  • The emerging world will continue expand rapidly, although there will be a deceleration from the extraordinary pace in the last five years. Chinese growth will slow, partly owing to slower foreign demand and official measures to prevent overheating. India will also weaken as a result of increasing resource constraints, but the pace of growth will still be strong.
  • Uncertainties about the US outlook is the biggest risk to the global outlook in the short term. Our core forecast assumes that monetary and fiscal policy action will prevent a severe recession, but the extent of financial market problems and of prior imbalance means the risk is high that these measures will prove insufficient.

  Key indicators	2007	2008	2009	2010	2011	2012
  World GDP growth (%; at PPP)	4.9	3.9	3.6	4.2	4.3	4.2
  OECD	2.7	1.7	1.5	2.4	2.5	2.5
  Non-OECD	8.3	7.2	6.6	6.7	6.6	6.1
  World inflation (%; av)	3.4	4.9	3.8	3.3	3.2	3.1
  World trade growth (%)	7.3	6.1	6.3	7.3	7.6	7.7
  US$ effective (2000=100)	80.8	74.2	75.4	76.4	77.2	77.9

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  August 01, 2008

View detailed map

Country Briefing

Total area

198,500 sq km

Population

5.48m (end-2010 official estimate)

Main towns

Population in '000 (end-2004 estimates)

Bishkek (capital): 804

Osh: 228

Jalalabad: 78

Kara Kul: 63

Climate

Continental high mountain

Languages

Kyrgyz and Russian are the official languages

Weights and measures

Metric system

Currency

The som was introduced on May 10th 1993. The average exchange rate in 2010 was Som45.97:US$1

Time

Five hours ahead of GMT

Fiscal year

Calendar year

Public holidays

January 1st (New Year); January 7th (Orthodox Christmas); February 23rd (Defenders' Day); March 8th (International Women's Day); March 21st (Noruz); March 24th (National Revolution Day); May 1st (Labour Day); May 5th (Constitution Day); May 9th (Victory Day); August 31st (Independence Day; end of Ramadan); November 7th (Feast of Sacrifice)

August 11, 2011