Country Report Kyrgyzstan May 2009

Outlook for 2009-10

The Kyrgyz Republic will be 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 expects the president, Kurmanbek Bakiyev, to benefit from the administrative resources at his disposal to ensure his re-election in the presidential poll to be held in July 2009. Fiscal policy will face challenges over the forecast period, owing to the poor macroeconomic environment. However, financial support from Russia will enable the government to run larger budget deficits than originally planned in 2009-10. We have again revised downwards our forecast for real GDP in 2009, and now expect a contraction of 3%, following growth of 7.6% in 2008. The economy will continue to contract in 2010. 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 demand for Kyrgyz exports and a fall in remittance inflows, the current-account deficit will narrow as a share of GDP as domestic demand slows.

The political scene

The presidential administration looks more assured after securing a package of financial support from Russia. An early presidential election has been called for July 23rd. The opposition has failed to agree on a unified candidate in the election, limiting its chances of ousting MrBakiyev. Popular support for opposition demonstrations against the government appears to be waning.

Economic policy

A financial aid package from Russia, to support budgetary expenditure and to invest in the hydropower sector, will offset to some extent the impact that the global downturn has on the Kyrgyz Republic. The som has depreciated against the US dollar by 20% since September 2008. The authorities have continued to intervene to support the som, but are becoming reluctant to deplete the stock of foreign-currency reserves further.

The domestic economy

Real GDP growth slowed to only 0.2% in the first quarter of 2009. Industrial output contracted by almost 20%. Consumer prices fell in March, for the first time since August 2008, but inflation remains high, at 13.6% year on year.

Foreign trade and payments

Exports fell by 12.3% year on year in the first quarter, but imports fell more rapidly, by 18.9%. The trade deficit therefore narrowed, to US$404m, compared with US$518m in the year-earlier period.

This report covers the following industry codes:
SIC Code: 60;49;79;70
NAICS Code: 52;22;71;72