Kyrgyz Economy Grew 9% Annually Since 2022: IMF

With headline inflation has returned to the central bank’s target range, and public debt declined to 36.6% of GDP in 2024, the Kyrgyz Republic has performed remarkably well amid a highly uncertain external environment and its economy grew by 9% annually since 2022., the International Monetary Fund (IMF) said on Wednesday.

Looking ahead, growth is projected to moderate to 6.8% in 2025 and converge to about 5.25% in the medium term as re-export trade moderates and domestic demand eased. Inflation is expected to remain broadly stable under the assumption of prudent monetary policy.

The large-scale public investments would widen the overall fiscal deficit, but public debt would remain contained under 42% of GDP thanks to robust GDP growth, the IMF said after concluding consultations with Kyrgyz officials in Washington.

In view of the heightened global uncertainty, medium term priorities include rebuilding policy buffers and advancing structural reforms to strengthen economy’s resilience to shocks and support higher and more inclusive growth, IMF said.

Executive Board Assessment

The Kyrgyz Republic has demonstrated remarkable resilience amidst global economic uncertainty. The economy has sustained robust growth supported by considerable expansion of external trade, inflows of remittances and labour, and resilient domestic demand.

Inflation has moderated to mid-single digits, though underlying demand pressures warrant vigilance to keep inflation within the central bank’s target range. Lower public debt provides the needed fiscal space for priority investment in public infrastructure, energy generation capacity and human capital development.

Looking ahead, economic activity is expected to moderate from the exceptionally high levels of the past three years as re-export trade normalised.

A further escalation of sanctions on Russia could weaken remittances and growth due to a depreciation of the Russian rouble and slower growth in Russia. Conversely, a lasting peace in the region could have the opposite impact, but may also unwind some of the trade and financial flows that have boosted growth in recent years.

In an increasingly uncertain world, the medium-term priority is to strengthen resilience of the Kyrgyz economy to future shocks by rebuilding policy buffers and enhance prospects for higher and more inclusive growth through structural reforms.

Public Debt Contained

Strong revenue performance and a prudent fiscal stance coupled with high GDP growth have contained public debt, IMF said.

To further strengthen fiscal sustainability and create fiscal space for large development needs, the authorities should enhance tax policy by reducing tax exemptions and special tax regimes, increasing progressivity of the Personal Income Tax, and further strengthening revenue administration. Containing the public wage bill and energy subsidies, channelling Kumtor gold mine profits to the budget, and privatisation of nonstrategic commercial SOEs would also contribute to fiscal sustainability and provide additional fiscal resources. Containing fiscal deficits would also limit borrowing and ease inflation pressures.

The IMF also said that preserving monetary policy independence is essential to contain inflationary pressures and maintain price stability. In view of robust domestic demand, further efforts were needed to ensure that inflation remains within the central bank’s target range.

Tightening of interest rates and liquidity conditions might be warranted, if inflation pressures persist or rise. Monetary policy effectiveness could be enhanced by lifting interest rate caps, extending instrument maturities, phasing out subsidized lending, and enhancing exchange rate flexibility.

Sustaining high growth rates requires structural reforms to increase productivity and improve the business climate. Priority reform areas include governance and SOE management, competition policies, labour markets, and climate adaptation.

If duly implemented, the authorities’ anti-corruption strategy could lay a solid foundation for a more resilient and dynamic economy. Strengthening the rule of law and protection of property rights, reducing the SOE footprint and enhancing competition are crucial for building trust in public institutions and improving the business climate to encourage private investment and innovation. Reforms aimed at increasing labour market flexibility, reducing gender gaps, and improving social safety nets would also support more inclusive economic growth, while investments in sustainable energy and infrastructure, and health and education remain vital to enhance resilience to climate risks, the IMF said.