FEDERATION OF EURO-ASIAN STOCK EXCHANGES
SEMI ANNUAL REPORT OCTOBER 2006
KYRGYZ STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
The political situation in the Kyrgyz Republic
shows no sign of stabilizing, and tensions
between the president, Kurmanbek Bakiyev,
and the prime minister, Feliks Kulov, remain
high. The strife between the factions allied to
the two men is not only creating political
incoherence but also fuelling accusations that
the political elite is co-opting criminal
elements. Further conflict can be expected
over constitutional reform, as Mr. Bakiyev and
Mr. Kulov each seek to strengthen their
respective posts at the expense of the other.
The government will continue with a "multi-
vectoral" foreign policy. This is a core principle
in the five former Soviet republics of Central
Asia, given these countries' paucity of
resources and need for foreign investment.
Although earlier in the year Mr. Bakiyev
publicly stated that the US should set a
timetable for the withdrawal of coalition troops
from Central Asia, the base at Manas
international airport provides the Kyrgyz
Republic with much-needed income.
Consequently, a US withdrawal is unlikely to
be a near-term proposition, as confirmed by
the fact that an agreement on the coalition
forces' continued use of the base, reached by
the two sides in October 2005, did not set a
fixed date of departure.
The IMF has favorably reviewed the Kyrgyz
Republic's progress under the three-year
poverty reduction and growth facility (PRGF)
signed in February 2005. Heavily reliant on
multilateral funding, the Kyrgyz Republic
clearly has a strong incentive to maintain good
relations with the IMF, but meeting the IMF
criteria will have to be balanced with
preventing a rise in social instability. This task
will be eased by the IMF's recognition of the
difficult circumstances in the country.
Nonetheless, the IMF has expressed grave
concerns over corruption and the large quasi-
fiscal deficits in the electricity sector; the
government will therefore seek to make
concrete progress in these spheres.
from annual average inflation of 4% in 2004,
largely attributable to the supply disruptions
resulting from the political upheavals in 2005.
As the economy stabilizes over 2006-07 and
returns to growth, inflation will trend upwards
towards the end of the two-year forecast
period, further boosted by rising inflows of
workers' remittances.
Strong Russian demand, largely attributable to
persistent high oil prices, is helping to support
growth in the Commonwealth of Independent
States (CIS). Although the rate of Russian real
GDP growth will trend downwards in 2006-07,
Russian import demand growth will stay
strong, ensuring that the country remains the
Kyrgyz Republic's most important destination
for non-gold exports. The Kyrgyz Republic is
also benefiting from strong growth in
neighboring Kazakhstan.
Economic Performance
Real GDP contracted by 0.6% in 2005,
according to the National Statistical
Committee. Falling output at the Kumtor gold
mine played a crucial role in the slowdown,
but output in other sectors also performed
poorly. The low base of comparison in 2005
will allow for a rebound in growth rates in 2006
to 3% of GDP. For 2007, we forecast GDP
growth is expected to be 4%.
The central bank will try to limit its
interventions on the foreign exchange market
to the minimum required to smooth daily
fluctuations and strengthen international
reserves. However, political uncertainty raises
risks to the conduct of exchange-rate policy,
as further turmoil could weaken the exchange
rate and force the bank to intervene more
heavily.
According to the central bank, the current
account posted a deficit of US$191m in
2005, roughly double that posted in 2004.
The government's efforts to bring the deficit
down will be helped in 2006-07 by steadily
rising net transfers and the successful
renegotiation of Paris Club debt, which will
bring about a significant reduction in interest
payments. The current account balance will
nonetheless remain negative, given rapidly
rising imports and moderating growth in
export revenue–itself caused by declining
output at the Kumtor gold mine.
* Economic Intelligence Unit Ltd., May 2006
Based on monthly data from the National
Statistical Committee (NSC), year-end inflation
in 2005 was 5.9%, resulting in an annual
average rate of 5.2%. This was an increase
Key Information Contacts
National Bank of the Kyrgyz Republic www.nbkr.kg
Ministry of Finance www.minfin.kg
State Commission on Securities Market www.nsc.kg
4.Ministry of Foreign Trade and Industry of the Kyrgyz Republic www.mvtp.kg
2004-ORIGINS OF GROSS DOMESTIC PRODUCT (%)
Services
Agriculture & forestry
2004-COMPONENTS OF GROSS DOMESTIC PRODUCT (%)
Industry
36.6
Private consumption
Change in stocks
80
Public consumption
Net exports
79.4
70
60
50
40
42.3
21.1
30
20
16.6
12.5
10
0
-10
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-2.5
-9.8
Gross fixed investment