Country Report Kyrgyzstan February 2009

Outlook for 2009-10

The Kyrgyz Republic will remain increasingly vulnerable to the risk of unrest, possibly violent, over the forecast period. The opposition will continue to mount public protests, but the authorities will deal robustly with dissent. The Economist Intelligence Unit's baseline scenario is that the president, Kurmanbek Bakiyev, will remain secure in office at least until the presidential election due in 2010. Fiscal policy will face challenges owing to the macroeconomic environment over the forecast period, with the budget deficit set to expand beyond the government's target in 2009. We have again revised downwards our forecast for real GDP growth in 2009, to 1%, following growth of 7.6% in 2008. Despite further increases in gas import prices, inflationary pressures will abate owing to lower global prices for food, fuel and other commodities. Despite a downturn in import demand in important trading partners and a fall in remittance inflows, the current-account deficit will narrow slightly as a proportion of GDP as domestic demand slows.

The political scene

Mr Bakiyev has made an extensive reshuffle of his cabinet, perhaps in an attempt to put an end to factional rivalries at a time when the administration needs to develop a concerted response to the opposition. The opposition continues to suffer harassment, but is unifying into a broad anti-presidential coalition. The government has announced the closure of the US airbase at Manas, in a move that suggests that it is drawing closer to Russia.

Economic policy

In December 2008 the IMF approved a loan to the Kyrgyz authorities under the Fund's exogenous shocks facility. The IMF has approved the government's policy reformulation to attempt to contain the effects of external shocks on the economy. The government has drawn up fiscal plan for 2009 that envisages a moderate loosening compared with 2008. Tax rates have been cut.

The domestic economy

Real GDP grew by 7.6% in 2008, a slowdown compared with 2007. Growth was boosted by a rapid expansion in the final quarter of the year, largely owing to a better than expected performance at the Kumtor gold mine. Inflation rose again in the final months of the year, and reached 20% by year-end.

Foreign trade and payments

The latest data show a trade deficit of US$2.2bn in the first 11 months of 2008, compared with US$1.1bn in the year-earlier period. According to preliminary data from the National Bank of the Kyrgyz Republic (NBKR, the central bank), the current-account deficit almost doubled in the first three quarters of 2008.

This report covers the following industry codes:
SIC Code: 10
NAICS Code: 212