FEDERATION OF EURO-ASIAN STOCK EXCHANGES
ANNUAL REPORT APRIL 2011
KYRGYZ STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic performance
Economic downturns in Kazakhstan and the
Russian Federation (the major economic
partners) and the country’s power shortfalls
took economic performance in 2009 down to
2.3% from 8.4% in 2008. Their difficulties hit
the economy through reductions in three
channels: remittances from migrant workers
(which constituted around 20% of GDP in
2008); inflows of foreign direct investment;
and demand for exports.
GDP growth was driven mainly by a robust
performance of agriculture (due to favorable
weather conditions), which grew by 7.3%.
Construction increased by 6.3%, after a 10.8%
contraction the prior year, a rebound primarily
due to activity in the hydropower generation
and mining subsectors, rehabilitation and
construction of roads, and residential building.
However, industry overall declined by 3.4%
because of reduced output in the textile and
sewing industry, transport equipment, electric
energy, and gas and water distribution. Gold
production also declined.
The government forecasts its budget deficit at
5.1% of GDP in 2010. The widening deficit is a
result of the increased budgetary allocations
for the development budget (mainly
infrastructure projects), monetization of
benefits, higher pensions, and increased
compensation to vulnerable groups (to offset
an increase in electricity and heating tariffs).
The National Bank of the Kyrgyz Republic
(NBKR) followed an expansionary monetary
policy. It reduced banks’ reserve requirement
from 10% at the start of the year to 9.5% from
June; and lowered the discount rate from
14.4% in January to a record low 0.9% at year-
end. Although the commercial banks’ lending
rate remained almost unchanged (at about
20%), credit to the private sector surged by
46.5%. For the year, money supply rose by
20.4%, carried by increased net foreign assets
(reflecting the budget assistance) and the
expanded credit to the private sector.
Among financial reforms, a deposit insurance
scheme was launched in April 2009, covering
deposits up to Som100,000 ($2,290). All
banks are required to participate. A new law
under which agricultural land can be used as
collateral for loan receipts was adopted on 29
June 2009. In the energy sector, the
government believes that the new tariff will
bring the sector to cost-recovery levels and
attract private investment. It has no plans for
any further tariff increases this year. The PRC
made a preliminary agreement to grant a $342
million loan for a power transmission line,
which would help the country ensure energy
security. Construction is expected to start in
2011 and finish 2 years later.
In October 2009, the country embarked on a
government sector reform under which the
number of ministries and agencies has been
reduced. The reform also envisages cutting
the number of government employees by 30%
and aims to streamline the work of
government and cut other costs.
Economic prospects
GDP is projected to grow at 5.5% and 6.0% in
2010 and 2011, respectively. The expansion is
mainly due to the expected recovery of
Kazakhstan and the Russian Federation,
boosting demand for exports, foreign direct
investment inflows, and migrants’
remittances—the last of which will directly
bolster private consumption. Foreign-financed
hydropower projects should carry on
underpinning strong construction growth, but
until all those projects are brought into
commission (the first is scheduled for May),
power shortfalls will continue to hamper
manufacturing. The government will also
provide impetus to growth as it is planning to
raise spending on wages and pensions and
on infrastructure, the latter with financing
assistance from development partners.
The expected increase in global food and oil
prices will exert upward pressure on prices,
though the contracted import price for natural
gas will fall by about 10%, as will stronger
workers’ remittances. These forces will push
up inflation in 2010 and 2011, to 8.5% and
9.0%, respectively. Given the large import
share in the consumer basket, the NBKR will
use the exchange rate to mitigate inflation.
Credit growth will remain subject to the
bottlenecks that face Kazakh banks (which
account for half the banking sector) in
supplying capital to their subsidiaries in this
country. However, increased foreign exchange
inflows may allow the NBKR to adopt an
accommodative credit policy.
Information obtained from the Exchange.
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
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