Publication: Kyrgyz Republic Economic Update, Spring 2017: A Resilient Economy… on a Slow Growth Trajectory
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2017-06
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2017-06
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The first part of the Economic Update analyzes recent macroeconomic trends and presents an assessment of the country's short- and medium-term outlook. The Special Focus Section discusses the state of the country's energy sector, including issues surrounding its financial viability and fiscal implications, as well as the social implications of reform scenarios.
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“World Bank Group. 2017. Kyrgyz Republic Economic Update, Spring 2017: A Resilient Economy… on a Slow Growth Trajectory. © World Bank. http://hdl.handle.net/10986/27523 License: CC BY 3.0 IGO.”
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Publication Kyrgyz Republic Economic Update No. 7, Spring/Summer 2018(World Bank, Washington, DC, 2018-07)Economic growth was robust in 2017, above expectations. This was thanks to favorable external developments in the region, continued expansionary fiscal policy, and growth in the gold sector. Real GDP growth reached 4.6 percent in 2017, up from 4.3 percent in 2016, and the fastest rate since 2013. During the first 4 months of 2018, growth slowed to 1.3 percent, from a year earlier, as a result of the contraction in gold production; excluding gold, output grew at 2.5 percent, up from 2.3 percent over the same period in 2017. In short, the economy appears to have fully recovered from the recent shock brought about by the fall in oil prices. Investment and consumption drove output growth last year. Sources of growth appear to have been balanced. Growth was mainly driven by consumption and investment, with: private consumption growth returning to positive territory, after two consecutive years of contraction and high rates of public and private investment. Net exports also made a positive contribution, thanks to robust export growth. With the regional downturn now over, it is time the authorities should seize the opportunity for fiscal reform. First and foremost, action is required on the fiscal side to increase discipline and policy quality, transparency and consistency. In the past years, the authorities have deliberately delayed planned fiscal consolidation to accommodate the external shocks. As a result, public debt has remained elevated and fiscal buffers have been depleted. Moreover, fiscal discipline (in the context of relaxed targets) has been achieved at the cost of ad hoc measures, which entail reduced spending efficiency. It is now time to reverse this trend through implementing the recently adopted fiscal rule, tax administration reform and concrete measures to contain recurrent spending (to preserve room for investment). Additional steps to improve spending quality, include ensuring that planned amendments to the Public Procurement Law safeguard best international practice and that steps are taken to improve public investment management. In the long run the core challenge is to increase overall productivity in the economy. Creating and preserving fiscal space for investment in infrastructure is key, including via reforming energy tariffs. Significant long-term payoffs can also be expected from implementing the ambitious digital agenda under the Taza Koom flagship program. The Special Focus section of this report highlights the main challenges the country will face in this regard.Publication Kyrgyz Republic Economic Update, Spring 2016(World Bank, Washington, DC, 2016-06-01)The Kyrgyz economy has remained resilient in the face of continued significant external head winds in 2015, but sources of vulnerability have increased.While overall Gross Domestic Product (GDP)growth is estimated to have slowed to 3.5 percent in 2015, this deceleration was mostly on accountof lower gold production. Non-gold output growth remained robust at 4.5 percent (essentiallyunchanged from 2014), although with significant shifts in drivers. The policy stance was broadly appropriate.Looking forward to 2016 and beyond, economic activity is expected to slow down,with significant downside risks.With gold production expected to decline in coming years, andagricultural output growth returning to historical averages, overall growth is projected to moderate to 3.4 percent and 3.1 percent in 2016 and 2017 respectively. For public policy, the main challenge will be to reconcile the objective of supporting economic activity with principles of prudent management.Indeed, while the Kyrgyz Republic’s debt path remains sustainable, there are good reasons to be concerned over risks of debt distress. The Special Focus section of this Economic Update analyzes the features of the Kyrgyz Republic’s public debt and explains the factors behindthe recent deterioration of the debt sustainability outlook. It concludes by pointing out some of the policy steps that ought to be taken in response.Publication Kyrgyz Republic Economic Update No. 8, Fall/Winter 2018(World Bank, Washington, DC, 2019-02-07)Real GDP growth slowed to 3.1 percent in January-November 2018 from 3.7 percent in the same period of 2017. This deceleration was the result of slower growth in both gold production and non-gold industry. Export performance remains weak, largely on account of a sharp slowdown in gold exports, and in spite of trade opportunities within the Eurasian Economic Union. Attracting private investment remains a challenge. Recent developments point to limited progress in addressing structural issues over the past few years. While the Kyrgyz Republic was able to avoid an external shock driven recession in 2014-15, the economy remains vulnerable to external economic shocks given its high dependence on an undiversified export base, workers’ remittances, and foreign aid.The fiscal position has improved with a strong tax revenue performance and cuts to capital outlays. This has helped keeping public debt under control following a sharp increase in 2014-15. With inflation pressures low, the monetary policy stance remains relaxed. The National Bank reduced its policy rate by 25 basis points to 4.75 percent in May 2018 to support economic growth and has maintained a managed float of the exchange rate.Going forward, real GDP growth is forecast to accelerate slowly to 3.9 percent by 2020 supported by all the major sectors – industry, agriculture, construction and services. On the demand side, growth is projected to be driven by private consumption, investment and exports. The economy will continue to benefit from large remittance inflows and firming external demand. Strong remittances will support average consumption growth of around 3 percent in 2018–20. However, the current account deficit is projected to remain elevated at about 9 percent of GDP, reflecting structural constraints, the significant import content of public investment, and an indirect feed-through effect of remittances via imports. To rebuild fiscal buffers, the authorities are committed to reducing the deficit to 3 percent of GDP by 2020.Publication Kyrgyz Republic Economic Update No. 1, Spring 2015(World Bank, Washington, DC, 2015-05)Growth in the Kyrgyz Republic slowed significantly in 2014, reflecting the deteriorating external environment and supply-side constraints. Economic growth fell to 3.6 percent in 2014 from 10.9 percent in the previous year, partly because exports to Russia and other neighboring countries plunged. Re-export businesses were affected as the Eurasian Economic Union (EEU) began to exercise stricter border control on goods imported from third countries. On the supply side, lower production at the Kumtor gold mine and a poor harvest due to adverse weather also depressed growth. The fall of the Russian ruble and the Kazakh tenge led to a significant depreciation of the Kyrgyz sum, which together with increases in energy tariffs drove inflation up from 4 percent in 2013 to 10.5 percent in December 2014. Although export growth was negative (–6.4 percent), imports declined even more (–7.2 percent), which, together with lower income outflows, helped to reduce the current account deficit from 15 percent in 2013 to 13.7 percent of GDP. The current account deficit was financed by borrowing and foreign direct investment (FDI). On the fiscal side, slower growth affected tax revenues, which were essentially flat at 25.3 percent of GDP but non-tax revenues went up by over a percentage point of GDP, to 6.7; together with grants, that brought total revenues to just under 35 percent of GDP. Meanwhile, a significant expansion of public investment spending brought the deficit to an estimated 4.1 percent of GDP in 2014, up from 3.9 percent in 2013, despite less spending on recurrent outlays. Higher spending and the depreciation of the sum translated into a significant increase in public debt, from 46.1 percent of GDP in 2013 to 53 percent for 2014. Job creation was stagnant. Poverty remained high: the most recent (2013) national estimates are absolute poverty 37.0 percent and extreme poverty 2.8 percent.Publication Kyrgyz Republic Economic Update No. 6, Fall/Winter 2017(World Bank, Washington, DC, 2017-12)The Kyrgyz economy appears to have recovered from the 2014-2015 external shocks. Over the first nine months of 2017, real Gross Domestic Product (GDP) expanded by five percent, year-on-year, thanks to improvements in the external environment and a continued expansionary fiscal policy, which were mirrored by a strong gold production and a strengthening in domestic demand. The Kyrgyz economy performed robustly over 2017. Macroeconomic policies were supportive to growth, but the fiscal stance has deteriorated significantly and inflation has tilted upwards. Growth is estimated to have decelerated toward the end of 2017, and expected to pick up in 2018. The economy is expected to remain dependent on remittances. Private inflows will continue to support household incomes and boost domestic demand, but they also come with challenges. The first part of this Economic update analyzes recent macroeconomic trends and presents an assessment of the country’s short- and medium-term outlook. The Special Focus section discusses recent trends in labor migration and the implications of remittance dependence for macroeconomic policies.
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