activity. The gold sector grew by 1 per- cent, and fewer pandemic restrictions KYRGYZ Key conditions and spurred economic activity and remittance inflows. However, in the first two months challenges REPUBLIC of 2022, annual growth slowed to 2 per- cent on lower gold production and weak- The economy remains heavily dependent er services growth. on gold production (about 10 percent of The 2021 current account deficit was Table 1 2021 GDP and 35 percent of exports), remit- about 3.3 percent of GDP against a 4.8 Population, million 6.7 tances (30 percent of GDP), and foreign percent surplus in 2020. The main driver GDP, current US$ billion 8.5 aid. The country has witnessed significant was a sharper trade deficit of 24.8 percent GDP per capita, current US$ 1275.9 a political and governance changes over the of GDP, compared to 18.5 percent in 2020. International poverty rate ($1.9) 1.1 a past two years, accompanied by policy un- Exports (in US dollars) rose 40 percent Lower middle-income poverty rate ($3.2) 16.2 a 58.1 certainty. Overall, the economic situation while imports climbed 49 percent, reflect- Upper middle-income poverty rate ($5.5) a 29.0 was further complicated by security con- ing higher imports of machinery, chemi- Gini index School enrollment, primary (% gross) b 102.6 cerns arising from border conflicts. cals, and textiles; and increased food and Life expectancy at birth, years b 71.6 Strong and sustainable growth needs a fuel prices. Total GHG Emissions (mtCO2e) 10.3 larger private sector, more international Inflation increased to 11.2 percent in De- Source: WDI, Macro Poverty Outlook, and official data. trade, and a conducive macroeconomic en- cember 2021 from 9.7 percent a year ago a/ Most recent value (2020), 2011 PPPs. vironment. However, large infrastructure but has since fallen to 10.8 percent in Feb- b/ WDI for School enrollment (2020); Life expectancy gaps, the weak rule of law and governance, ruary 2022. This was due to higher food (2019). a poor business environment, onerous reg- and fuel prices which grew by 13.3 and ulations, and financially unsustainable en- 74.8 percent, respectively in 2021. ergy sector policies are constraining In response to higher inflation, the central Spillovers from Russia’s invasion of growth. The poor condition of the energy bank raised its policy rate four times, by Ukraine are expected to reverse the sector - the result of below-cost recovery a cumulative 350 basis points, in 2021 and progress made by the Kyrgyz economy in tariffs that have endured for years - and early 2022, to 8.5 percent. To mitigate in- recovering from the COVID pandemic in noncompliance with WTO and Eurasian flation risks and smooth exchange rate Economic Union regulatory standards are volatility, the central bank sold $689 mil- 2021 when annual GDP growth was 3.6 especially binding constraints. lion in foreign reserves in 2021. percent. The economy is now projected to Following Russia’s invasion of Ukraine, contract by 5 percent in 2022, and infla- the som depreciated by 23 percent tion is likely to exceed 15 percent, creat- against the US Dollar but has since re- ing significant further pressure on fiscal Recent developments gained about half of its lost value. In March, the central bank raised its policy and debt management as well as pushing The Kyrgyz economy was hit hard by the rate twice more by a total of 550 basis more people into poverty. pandemic in 2020 but began recovering in points to 14 percent. Credit growth in 2021 as GDP grew by 3.6 percent. Strong the economy remained robust at 10 per- industry and services growth helped off- cent in December 2021, although slightly set subdued agriculture and construction slower than in 2020. FIGURE 1 Kyrgyz Republic / Headline, food and fuel FIGURE 2 Kyrgyz Republic / GDP growth and poverty rate inflation Percent Poverty rate, percent Percent 100 35 15 80 30 10 60 25 20 5 40 20 15 0 0 10 -5 5 -20 0 -10 -40 2007 2009 2011 2013 2015 2017 2019 2021 e 2023 f Jan-17 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Headline Food Fuel GDP growth, RHS $3.2/day PPP, LHS Source: Kyrgyz authorities. Sources: Kyrgyz authorities and World Bank staff. MPO 1 Apr 22 The government’s fiscal position improved outlook for the Kyrgyz economy, which alongside a recovering economy and a re- significantly in 2021. The deficit fell to 0.3 is projected to contract by 5 percent vival in exports. percent of GDP from 4.2 percent in 2020 in 2022. This is mainly due to a fall The fiscal deficit is expected to widen to on improved revenue collection and re- in private consumption and investment 5.3 percent of GDP in 2022 as the govern- strained public spending growth. Total spending from an anticipated 33 percent ment increases spending to offset domestic revenues increased to 31.3 percent of GDP decline in remittance inflows. The fiscal spillovers from the war in Ukraine. Expan- from 27.7 percent in 2020 on a surge in deficit is expected to again widen to 5 sions of social spending and public wages import tax receipts, rebounding domestic percent of GDP in 2022, and external are expected to help offset the impact of activity, and improved tax administration. trade is expected to shrink. Forecasts of the remittance shock and weaker economic Public spending increased marginally to weak agricultural output in 2022 and activity. The deficit is expected to narrow 34.3 percent of GDP from 33.7 percent in continued uncertainties around gold to 3 percent of GDP over 2023-24 as condi- 2020, with an increase in capital spending production will further constrain tions improve. offsetting sharply lower recurrent spend- growth. Growth is expected to recover Lower remittances, high food prices, few- ing. The fiscal improvement reduced pub- to 3.2 percent in 2023 and 4.0 percent er job opportunities domestically and lic debt to 60.3 percent of GDP, from 67.7 in 2024, assuming a stabilization in the abroad, and economic contraction will percent at end-2020. conflict and continued public investment likely increase and deepen poverty in The COVID-19 pandemic increased the growth. These projections also assume 2022. The impact of sanctions on Russia poverty rate (US$3.2 a day, 2011 PPP) from domestic political stability and further may sever a vital lifeline for Kyrgyz 9.7 percent in 2019 to 16.2 percent in 2020. easing of pandemic conditions. Howev- households reliant on remittances from It is estimated to have slightly deteriorated er, risks remain high of the outlook fur- Russia. The government’s anti-crisis mea- further in 2021 due to higher food prices ther worsening. sures, such as increased pensions and and fewer job opportunities. Inflation will increase to about 18 percent wages for government officials and social by end-2022, from further food and fuel assistance, will partly soften the negative price increases, before moderating to 8 per- impact on the poor. cent by end-2023. The current account Outlook deficit in 2022 is projected to widen to 11 percent of GDP, reflecting drops in remit- The spillovers of Russia’s invasion of tances and gold exports. The deficit is ex- Ukraine have significantly worsened the pected to narrow over the medium-term TABLE 2 Kyrgyz Republic / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.6 -8.4 3.6 -5.0 3.2 4.0 Private Consumption 0.8 -8.3 2.4 -5.2 2.7 3.2 Government Consumption 0.5 0.9 1.9 1.7 0.3 0.3 Gross Fixed Capital Investment 7.1 -16.2 17.9 4.1 10.8 11.5 Exports, Goods and Services 16.2 -27.3 -1.4 1.1 8.0 7.2 Imports, Goods and Services 6.1 -28.0 11.1 9.0 11.3 10.5 Real GDP growth, at constant factor prices 3.6 -8.4 3.6 -5.0 3.2 4.0 Agriculture 2.5 1.1 0.0 -2.2 3.5 2.6 Industry 6.6 -7.5 -2.8 0.4 1.7 8.0 Services 3.2 -16.4 10.2 -9.9 3.6 3.5 Inflation (Consumer Price Index) 1.1 6.3 11.9 15.2 8.0 6.0 Current Account Balance (% of GDP) -12.1 4.8 -3.3 -11.4 -10.1 -10.0 Net Foreign Direct Investment (% of GDP) 3.8 -7.5 0.7 1.3 2.5 2.2 Fiscal Balance (% of GDP) -0.5 -4.2 -0.3 -5.3 -4.4 -3.0 Debt (% of GDP) 51.6 67.7 60.3 65.2 61.3 57.9 Primary Balance (% of GDP) 0.5 -2.9 1.3 -3.6 -2.9 -1.7 a,b International poverty rate ($1.9 in 2011 PPP) 0.6 1.1 1.1 1.1 1.1 1.1 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 9.7 16.2 18.3 28.7 27.7 26.7 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 52.6 58.1 58.7 56.7 57.2 58.0 GHG emissions growth (mtCO2e) -6.7 -20.1 -7.2 -4.8 -1.2 -0.6 Energy related GHG emissions (% of total) 71.7 64.4 61.3 58.1 56.3 54.6 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2017-KIHS and 2020-KIHS. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2017-2020) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 2 Apr 22