FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ANNUAL REPORT APRIL 2009
KYRGYZ STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
Although the Kyrgyz Republic will remain
vulnerable to the risk of unrest, the prospects
for political stability seem brighter than in
recent years. The extra-parliamentary
opposition is likely to continue to mount
occasional public protests, but the tenor of the
opposition’s discourse has become much less
confrontational than previously. Nevertheless,
the sidelining of the opposition by the
presidential administration in the parliamentary
election in December 2007–a poll that was
criticized by international observers, and the
full results of which have still not been officially
released–will continue to cast doubt on the
legitimacy of the parliament. Furthermore,
there is no coherent opposition represented in
parliament.
One of the main foreign policy issues for the
Kyrgyz authorities will be how to pursue a
multi-vectoral foreign policy–that is, one that
seeks to maintain good relations with all main
powers in the region–in the face of an
increasingly assertive Russia. This involves,
more specifically, the question of the US
military presence at Manas International
Airport, which provides the Kyrgyz Republic
with much-needed foreign-exchange income.
The Kyrgyz government has often
encountered pressure to terminate the
agreement covering US use of the base, both
externally from Russia and internally from
parliament and the public. Despite their
occasional promises to re-examine the
agreement, the Kyrgyz authorities are unlikely
to respond to such pressure in the near term.
Heavily reliant on multilateral funding, the
Kyrgyz Republic has a strong incentive to
maintain good relations with international
financial institutions such as the IMF, but the
goal of meeting the Fund’s criteria will have to
be balanced against preventing a rise in social
instability, particularly in the context of the
sharp rise in inflation and concerns over wheat
shortages. Although the prospects of
lessening political instability have improved in
the light of the adoption of a new constitution
in October 2007, progress on implementing
the structural reform agenda is likely to
continue to be impeded by a combination of
political divisions within the country, social
concerns and vested interests.
Economic Performance
Growth in two of the Kyrgyz Republic’s most
important economic partners, Kazakhstan and
Russia, is expected to slow in 2008-09 relative
to 2007, especially given the impact of the
global financial turbulence since mid-2007
and the ensuing effect on global growth.
Nevertheless, average annual growth in these
two countries should remain fairly strong in
2008-09. Prices for gold, the country’s main
export commodity, are also expected to
remain historically high.
Growth in private consumption and fixed
investment will suffer from the sharp rise in
inflation, as well as a likely tightening in credit
conditions owing to problems at the parent
banks of Kazakh investors in the financial
sector. GDP growth will also be hampered by
a crisis in the electricity-generating sector, with
economic activity already constrained by the
sporadic institution of power cuts in the first
half of 2008.
A further increase in the cost of gas imports in
2008 will exert upward pressure on prices. In
2009 the authorities’ measures, in conjunction
with the high base period, are expected to
lead to a fall in average inflation to 10%.
Trend of slow nominal appreciation will
continue, additionally supported by IMF
disbursements and lower debt repayments
resulting from the renegotiation of Paris Club
debt. As a result of rising domestic inflation,
the som is estimated to have appreciated in
real effective terms in 2007. Given the further
rapid escalation in inflation in the first half of
2008, the currency is also likely to appreciate
in real effective terms.
An expected increase in gas import costs in
2008-09 will exert upward pressure on the
current-account deficit, as will rapid increases
in the cost of food imports. However, this
should be mitigated by a slowing of domestic
demand for imports and higher exports from
the Kumtor gold mine-assuming that it fully
overcomes its recent operational difficulties.
The current-account deficit should additionally
be contained by steadily rising net transfers
and the successful renegotiation of Paris Club
debt.*
* The Economic Intelligence Unit Ltd. August 2008
Key Information Contacts
National Bank of the Kyrgyz Republic www.nbkr.kg
Ministry of Finance www.minfin.kg
The Service of Supervision and Regulations of Financial Market of Kyrgyz Republic www.nsc.kg
Ministry of Foreign Trade and Industry of the Kyrgyz Republic www.mvtp.kg
2007-ORIGINS OF GROSS DOMESTIC PRODUCT (%)
Services
Agriculture & forestry
2007-COMPONENTS OF GROSS DOMESTIC PRODUCT (%)
Industry
33.6
Private consumption
Change in stocks
120
100
Public consumption
Net exports
101.1
80
60
47.5
40
20
18.9
0
17.8
25.6
0.8
-20
-40
-60
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Gross fixed investment