Kyrgyz Republic WT/TPR/S/170/Rev.1 
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I. ECONOMIC ENVIRONMENT 
(1) INTRODUCTION  
1. The Kyrgyz Republic, formerly a centrally pl anned economy, began transition to a market-
based economy in 1993, soon after independence in  1991.  Landlocked in Central Asia between 
China, Kazakhstan, Uzbekistan, and Tajikistan, it has a population of 5.1 million (Table I.1).  
Infrastructure, including transport and communicati ons, is underdeveloped.  It depends critically on 
mining, agriculture, and services, especially electri city, much of which is exported, including as 
countertrade.  Gold, while fluctuating, usually accounts for well over one third of exports.  Harsh 
climate and lack of suitable arable land, due to the highly mountainous terrain, are major natural 
production constraints, and agriculture is mainly irrigation based.  The Kyrgyz Republic is ranked 
109th overall on the UN Human Development Index.  While half the population still lived in poverty 
in 2004, this has declined significantly due largely to economic growth.1  GDP per head rose to 
US$473 in 2005, up from US$381 in 2003.   
Table I.1 
Main social and economic indicators, 2004 
Land area 0.2 million km2 Urban share of population  35.0% 
Population 5.1 million Nominal GDP (current market prices) (2005) Som 100.1 billion 
US$2.4 billion 
Annual population growth  1.1% GDP per capita  US$473 
UN human development index  GDP per capita  average growth rate (2003-05) 15.6% 
- Overall ranking 
- Category 
 
- Ranking within category 
 
 109th 
Medium human 
development 
52nd 
 
 
 GDP shares 2005 (nominal GDP at current 
prices, 2001 shares in brackets): 
- Primary 
 - agriculture, hunting and forestry  - mining and quarrying 
- Manufacturing 
- Services  - wholesale and retail trade 
 - transport and communications   
 
35%  (38%) 
34%  (37%) 1%  (1%) 
14% (19%) 
51% (43%) 20%  (13%) 
8%  (5%) 
Life expectancy at birth Infant mortality rate per '000 
Adult literacy 68.2 years 
58.4 
98.7% Enrolment ratios in education 
- primary 
- secondary - tertiary  
98.0% 
88.0% 39.7% 
Source:  World Bank, World Development Indicators ; United Nations Development Programme, Human Development 
Report 2005;  and IMF, Second Review Under the Three-Year Ag reement Under the Poverty Reduction and 
Growth Facility , April 2006.  
2. Sweeping reforms on transition were implem ented speedily, including land reform, farm 
privatization and price deregulation,  financial sector liberalization, a nd significant divestment of state 
entities (Table I.2).2  Laws and regulations were changed to  create a legal framework supportive of a 
market economy.  Despite impressive progress in economic and political transition, the economy has 
suffered setbacks, aggravated by several natural disasters and exogenous developments, such as the 
Soviet Union's collapse and termination of aid, an d the Asian/Russian economic  crises in 1997-98.  
Although faced with substantial social and political unrest, culminating in a political crisis in 2005 
with the ousting of the founding president and the collapse of the previous government, the 
administration has remained committed to democracy and to dismantling the command economy;  
however, priorities have been variable and structur al reforms have been "stop go" and ineffectively 
                                                      
1 Kyrgyz Government (2006), p. 7.  
2 At end-2005, the Kyrgyz Republic had a transition score of 2.96 (an average of 9 EBRD transition 
scores) out of a maximum of 4.33. WT/TPR/S/170/Rev.1 Trade Policy Review 
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implemented.  While tariffs remain relatively low,  and the Government has generally resisted sectoral 
protectionist pressures, there is no longer a uniform  10% rate, which has undesirable implications for 
economic efficiency.  Encouragingly, recent proposal s to apply export taxes on construction materials, 
to control rising domestic prices caused by Kazakhstan's building boom , have been dropped. 
Table I.2 
Indicators of progress in transition, 1996-05  
 1996 1998 2000 2001 2003 2004 2005 
Private sector share of GDP (%)a 50 60 60 60 65 75 75  
Private sector share of 
employment (%) 72.5 76.2 78.2 79.1 80.3 .. .. 
Enterprisesb        
Large-scale privatization 4 3 3 3 3 3+  3+ 
Small-scale privatizati on 4 4+ 4+ 4+ 4+ 4+  4+ 
Enterprise restructuring 2 2 2 2 2 2  2 
Markets and tradec        
Price liberalization 4+ 4+ 4+ 4+ 4+ 4+  4+ 
Trade and foreign exchange  4 4 4+ 4+ 4+ 4+  4+ 
Competition policy 2 2 2 2 2 2  2 
Financial institutionsd        
Banking reform and interest 
rate liberalization 2 2+ 2+ 2+ 2 2  2 
Securities markets and non-
bank financial institutions 2 2 2 2 2 2  2 
Infrastructure reforme 1+ 1+ 1= 1+ 1+ 1+  1+ 
Telecommunications 2+ 2+ 2 2 2 3 3 
Railways 1 1 1 1 1 1 1 
Electricity 2 2+ 2+ 2+ 2+ 2+ 2+ 
Roads 1 1 1 1 1 1 1 
Water and waste water 1 1 1 1 1 1 1 
.. Not available. 
a Mid-year estimates. 
b A "1" ranking signals little private ownershi p or progress while a "4+" signals standards and perfor mance typical of advanced  
industrial countries. 
c A "1" ranking signals extreme controls while "4+" is typical of standards and performance of  advanced industrial countries. 
d A "1" ranking signals little progress while "4+" is typical of standards and performance of advanced industrial countries. 
e This rating is computed as an average of the reform process in telecommunications, electricity, water and waste water, roads,  and 
railways. 
Source:  EBRD (2006), Transition Report Update 2006 .  Available at:  http://www.eb rd.com/pubs/econo/series/tr.htm.  
3. Economic performance has improved, helped by  greater macro-stabilization and ongoing 
structural reforms.  However, the Kyrgyz Republic , like other transitional economies, experienced an 
initial "transformational recession".  Real GDP slum ped in the early 1990s, with output falling by 
over 50%.  Macro-stability was restored and growth  returned in 1996;  this continued until 2005.  
While aggregate real GDP rebounded to almost 60% above 1995 levels in 2005, it  remains some 13% 
below pre-transition (1991) levels.  The economy is  still fragile and faces sev ere economic challenges, 
but its transition and recovery was helped by its early market-oriented reforms, including moving to a 
relatively open trade regime as part of its WTO ac cession, and adoption of a new convertible currency 
in 1993 with a floating exchange rate. 
4. Economic reforms to promote grow th and alleviate poverty were central to the Government's 
Comprehensive Development Framework Until 2010 (CDF), and reinforced in the Medium-term 
Strategy for Poverty Alleviation Until 2005, both adopted in 2001.  As a first stage in implementing 
the CDF, the Government also adopted a Na tional Poverty Reduction Strategy (NPRS) in 
February 2003, to accelerate social, political, and economic reforms, including macro-stabilization and key trade and other structural reforms to improve efficiency and competitiveness.  Progress in achieving the NPRS was recently reviewed favourably , and it is being update d in consultation with Kyrgyz Republic WT/TPR/S/170/Rev.1 
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stockholders.3  The Government has adopted a new IMF Memorandum on Economic Policy for 
2005-07, focusing on enhanced macro-stabilization a nd key structural reforms, especially in the 
finance and energy sectors, under the IMF's Povert y Reduction and Growth Facility (PRGF), to help 
meet the 2015 Millennium Development Goals.4  The IMF concluded recently that the authorities had 
made commendable efforts to stick to the pr ogramme by observing all quantitative performance 
criteria for end-2005 and to safeguard macro-stability.5  The Economic Policy Council was 
transformed into the Supreme Economic Council in February 2006, and the Coordination Council for 
Macroeconomic and Investment Policies was established in March 2006 (Chapter II). 
5. Real GDP has grown virtually unabated since 1996, and averaged 4.0% during 2000-05.  
After stagnating in 2002, annual gr owth redounded strongly to 7% before  contracting by 0.6% in 2005 
(Table I.3).  Nominal GDP per capita, after falling significantly in the early 1990s, exceeded the 1995 
level in 2005 by 30% but remained well below the pre-transition (1991) level of US$572.  
Consumption growth, especially from private spending, has largely driven the recovery along with gold production (from 1997), a turnaround in agricu lture, and services.  Services have grown 
substantially, accounting for 51.1% of GDP in 2005  (up from 43.1% in 2001), and a large share of 
employment (Tables I.4 and I.5). 
Table I.3 
Selected macroeconom ic indicators, 2000-05 
 2000 2001 2002 2003 2004 2005a 
National accounts (Percentage change, unless otherwise indicated)  
Real GDP growth (constant prices) 5.4 5.3 0.0 7.0 7.0 -0.6 
Private consumption -4.6 4.4 6.8 5.2 11.2 14.6 
Government consumptionb 7.0 -9.3 -0.7 4.7 0.1 0.8 
Gross fixed capital formationc 23.2 11.8 1.7 10.9 11.4 6.0 
Exports of goods and non-factor services 10.5 -3.2 7.3 9.5 22.2 -8.2 
Imports of goods and non-factor services 0.5 -9.9 19.6 11.8 26.0 14.4 
Unemployment rate (%)d 7.5 7.8 8.6 8.9 9.0 9.2 
Productivitye (Percentage change)  
Total labour productivity  5.2 4.2 -3.9 .. .. .. 
Total factor productivity (1990 = 100) 4.3 3.7 -3.6 .. .. .. 
Prices and interest rates  (Per cent)  
Inflation (CPI, 1994=100) 18.7 6.9 2.1 3.1 4.1 4.3 
Commercial bank loan interest rate (US$)f 31.9 27.5 24.5 19.6 19.4 17.7 
Commercial bank deposit interest rate (US$)g 7.8 5.4 4.3 3.1 3.5 3.5 
Central bank (3-month Treasury Bill)h 33.6 17.9 9.1 7.3 4.0 4.3 
Money and credit (end period)  (Percentage change, unless otherwise indicated)  
Broad money supply (M2) 11.4 17.1 34.2 33.5 22.4 17.6 
Broad money supply (M2X)i 12.1 11.3 34.1 33.5 33.6 25.5 
Credit to private sector 9.5 3.8 11.4 26.4 19.4 11.4 
Dollarization indicator (asset dollarization)  (per cent) 68.6 56.9 57.9 61.1 72.1 72.6 
Exchange rate  (Percentage change, unless otherwise indicated)  
Soms per US$ (period average)  47.7 48.4 46.9 43.7 42.7 41.0 
Nominal effective exchange rate -8.2 7.7 7.7 3.0 -1.7 2.5 
Real effective exchange rate -3.5 4.5 1.8 -0.7 -3.2 1.2 
Government policy  (Per cent of GDP)  
Overall primary fiscal balance (excludes grants)j -6.9 -3.3 -3.8 -4.3 -3.5 -2.8 
Current revenue (including grants) 14.2 16.1 17.8 22.2 23.1 24.3 
Tax revenue 11.7 12.4 13.9 17.7 18.3 20.2 
     Table I.3 (cont'd) 
                                                      
3 Kyrgyz Government  (2006). 
4 IMF (2006a). 
5 IMF (2006b). WT/TPR/S/170/Rev.1 Trade Policy Review 
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 2000 2001 2002 2003 2004 2005a 
Current expenditure 17.2 17.5 18.9 23.1 23.2 24.5 
Total expenditure (includes net lending) 25.9 23.5 25.4 27.4 27.2 28.3 
Total public sector debt 121.1 108.8 108.6 103.9 96.3 89.8 
Domestic 9.9 9.0 9.9 8.8 7.9 7.5 
Savings and investment  (Per cent of GDP)  
Gross national saving 15.7 18.1 17.8 16.4 17.5 13.7 
Gross domestic investment 20.0 19.6 20.3 20.5 20.9 21.8 
Saving-investment gap 4.3 1.5 2.6 4.1 3.4 8.1 
External sector  (Per cent of GDP, unless otherwise indicated)  
Current account balance (excluding transfers) -6.6 -1.6 -2.5 -2.8 -3.4 -8.1 
Net merchandise trade  0.3 0.9 -5.5 -7.0 -7.7 -17.8 
Exports 37.3 31.4 31.0 30.9 33.1 28.1 
Imports 37.1 30.5 36.5 37.8 40.8 45.9 
Services balance -12.5 -7.2 -3.7 -2.8 -1.0 -1.8 
Capital and financial account 4.7 -1.2 0.1 0.3 4.3 5.0 
Direct investment -0.5 -0.1 0.3 2.4 5.9 4.1 
Balance of payments  -1.2 -2.8 2.1 0.3 4.0 2.0 
Terms of trade (percentage change) 6.2 1.1 -0.6 2.7 0.5 -0.5 
Merchandise exports (percentage change) 8.6 -6.0 3.7 18.5 24.2 -6.4 
Merchandise imports (percentage change) -7.1 -13.1 26.0 23.2 34.3 22.3 
Service exports (percentage change) -4.8 29.9 77.5 9.2 34.8 22.5 
Service imports (percentage change) -3.6 -1.6 18.4 0.7 56.1 29.9 
Gross official reserves (US$ million)k 206 230 290 359 544 609 
(in months of imports of goods) 4.1 3.8 4.0 4.1 4.6 4.5 
Total external public debt (end period) 130.0 100.0 99.0 96.0 88.0 82.0 
(in US$ million) 1,520 1,522 1,587 1, 827 1,960 2,010 
Debt service ratiol (percentage of exports) 22.0 13.0 10.0 8.0 6.0 7.0 
.. Not available. 
a Preliminary. 
b Excludes non-commercial entities. c Including net acquisition of valuables. 
d Actual unemployment rate defined as the ratio of total unemployed to economically active population.  Substantially exceeds t he 
official unemployment rate, which is base d on official (registered) unemployed. 
e Estimates from IMF Working Paper WP/04/151, August 2004. 
f Weighted average annual rate on new loans granted for 1-3 months to all sectors. 
g Weighted average annual rate on new de posits by legal entities for 1-3 months. 
h Weighted average annual rate in the primary market. 
i M2 plus foreign exchange deposits. j National government and Social Fund fi nances, but excluding local governments. 
k Valued at end-period exchange rates. 
l Public and publicly guaranteed  debt, net of rescheduling. 
Source:  IMF (various years), Review Under the Three-Year Arrangement  Under the Poverty Reduction and Growth 
 Strategy , Staff Reports;  and IMF (2005), Statistical Appe ndix: Kyrgyz Republic, Country Report No. 05/31, 
 4 February. 
6. Investment has been low during the period under review.  Economic contraction in 2005 
resulted mainly from a temporary shortfall in gol d output (by almost 24%);  subdued agriculture 
output (falling by 4.2%) as bad weather and instability disrupted the Spring planting season;  a dormant manufacturing sector with large excess capac ity;  and political uncertainty, especially until a 
new President and government were elected in August 2005.
6  Merchandise export growth, while 
substantial in recent years has generally lagged behind imports, and contracted in 2005 by 6.4% when 
imports surged by 22%.  Inflation, reduced to singl e digit levels from 18.7% in 2000, rose slightly to 
4.1% in 2004 and 4.3% in 2005.  Actual unemploym ent reached 9.2% in 2005 (three times official 
levels).   
                                                      
6 Real output excluding gold grew by 1.4% in 2005.  Political uncertainty severely affected the 
economy in 2005, and uncertainties re main over political succession mechanisms  and unresolved social tensions 
(EBRD, 2006, pp. 15 and 52).  Kyrgyz Republic WT/TPR/S/170/Rev.1 
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Table I.4 
Share of GDP by sector, 1995 and 2001-05 
(Per cent) 
 Share of GDPa 
 1995 2001 2002 2003 2004 2005 
Agriculture, hunting and forestry 44.9 37.2 37.7 37.1 33.3 34.1 
Fisheries, fish-breeding - - - - - - 
Mining and quarrying 0.2 0.6 0.5 0.5 0.7 0.6 
Manufacturing 12.8 19.0 14.3 14.6 17.1 14.1 
Services .. 43.1 47.5 47.8 48.8 51.1 
Construction 6.6 4.1 3.7 3.2 2.7 2.8 
Electricity, gas and water .. 5.3 4.8 3.9 3.6 3.4 
Wholesale and retail trade, vehicle 
repairs , household appliances and items of personal use 11.9 13.1 15.6 16.7 17.8 19.9 
Hotels and restaurants .. 0.9 1.2 1.6 1.7 1.9 
Transport and communications 2.1 4.5 5.6 5.9 7.1 7.6 
Financial activities 2.0 0.4 0.7 0. 7 0.6 0.7 
Real estate 0.6 2.9 3.4 3.1 3.0 2.8 
Government management .. 5.5 5.7 5.1 5.1 4.8 
Education .. 3.4 3.7 4.4 3.9 3.9 
Public health and social work .. 1.7 1.9 1.9 2.1 2.0 
Communal, social and personal services .. 1.4 1.2 1.2 1.2 1.3 
.. Not available. 
- Negligible. 
a Nominal GDP (at current prices).  Shares do not add to 100 due to rounding. 
Source:  Bulletin of National Bank of Kyrgyz Republic.  Availa ble at:  http://www.nbkr.kg/bi luten/ii.pdf, and Kyrgyz 
authorities. 
Table I.5 
Share of employment by sector, 1995 and 2001-05 
(Per cent) 
 1995 2001 2002 2003 2004 2005a 
Employment (thousand persons) 1,642 1,787 1,807 1,837 1,880 1,934 
Agriculture, hunting and forestry 47.2 52.9 52.6 51.8 49.8 47.9 
Fisheries, fish-breeding 0.1 0.1 0.1 0.1 0.1 0.1 
Mining and quarrying 0.6 0.5 0.4 0.3 0.4 0.4 
Manufacturing 10.7 6.2 6.2 6.2 6.4 6.5 
Services 41.4 40.3 40.8 41.7 43.3 45.1 
Electricity, gas and water 1.4 1.2 1.2 1.2 1.3 1.3 
Construction 4.0 2.4 2.5 3.0 3.5 3.9 
Wholesale and retail trade, vehicle repairs, 
household appliances and items of personal use 6.8 10.9 11.1 11.2 11.4 11.9 
Hotels and restaurants 0.7 0.8 0.9 1.1 1.4 1.8 
Transport and communications 4.7 3.6 3.8 3.9 4.3 4.8 
Financial activities 0.4 0.4 0.4 0. 5 0.5 0.5 
Real estate 2.6 1.7 1.7 1.6 1.8 1.9 
Public administration and defence; compulsory 
social security  3.7 3.6 3.7 3.8 3.8 3.7 
Education 9.5 8.2 8.3 8.2 8.2 8.1 
Public health and social work 5.2 4.6 4.2 3.9 3.8 3.7 
Other 2.4 2.9 3.0 3.1 3.3 3.5 
Unemployed ('000 persons) 100 152 265.5 212.3 185.7 .. 
Labour force ('000 persons)b 2,408.8 2,701.3 2,2764.3 2,835.4 2,909.5 .. 
.. Not available. 
a Preliminary. 
b Economically active population . 
Source:  National Statistics Committee. WT/TPR/S/170/Rev.1 Trade Policy Review 
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7. The large shadow economy is estimated at around one half of GDP.  Despite recent reforms, 
high taxes, especially payroll taxes, widespread corruption, and heavy regulatory controls encourage 
informal activities, including in international trade,  with substantial import smuggling (e.g. fertilizers) 
and informal export sales (e.g. wool).  These undermin e formal markets, erode the tax base and create 
a cycle of high taxes, which in turn drives more informal transactions.  Reducing corruption and the 
shadow economy is a fundamental requisite for a functioning market economy, improving 
infrastructure, and sustaining economic growth.  Many informal and formal activities, including 
government transactions, also involve barter, which compounds the inefficiencies of the informal economy. 
8. With gross domestic investment significantly  exceeding gross national saving, the current 
account balance is in substantial deficit.  While im proving in the early 2000s, it deteriorated sharply 
from 3.4% of GDP in 2004 (excluding official transf ers) to 8.1% in 2005 when the merchandise trade 
deficit escalated from to 7.7% of GDP to 17.8%.  The relatively small services trade deficit also rose, to 1.8% of GDP in 2005 (1.0% in  2004), although it was still well down on earlier levels.  External 
deficits have been met by capital inflows, particul arly overseas aid, official loans from bilateral and 
multilateral donors, and more recently, rising fore ign direct investment and record remittances, 
especially from the Russian Federation and Kazakhstan.
7  International reserves accumulated 
continuously from 2000 to reach US$609.0 million in 2005 (4.5 months of merchandise imports).  
Rising external public debt remains high, at US$2. 0 billion in 2005, and while a significant risk to 
economic prosperity, has declined to 82% of GDP fr om 130% in 2000.  Public debt is almost totally 
held externally, and further restructuring of Pari s Club debt in March 2005 helped improve long term 
debt sustainability.  Even after this rescheduling, public debt accounted for over 90% of total external 
debt.  The authorities have also requested debt re lief under the IMF's Heavily Indebted Poor Countries 
(HIPC) Initiative's sunset clause and eventually under the Multilateral Debt Relief Initiative (MDRI).8   
The relatively low debt service ratio, which fell from 22% to 7% over 2000-05, reflects the increasingly high proportion of concessional debt. 
(2) M
ACROECONOMIC POLICIES  
9. The Government's macroeconomic programme includes continued fiscal prudence supported 
by a tightening monetary policy with greate r exchange and interest rate flexibility.9 
(i) Fiscal policy 
10. Fiscal consolidation and related reforms have  reduced the budget deficit, which fell from 
6.9% of GDP (primary balance excluding grants) in  2000 to 2.8% in 2005.  Deficit reductions have 
been achieved mainly by expanding tax revenues rath er than rationalizing expe nditure.  Tax revenues, 
while on the low side, expanded ahead of projections , from 11.7% of GDP in 2000 to 20.2% in 2005, 
largely due to improved administration.  In 2005 , VAT accounted for 35.1% of total tax revenue 
(down from 39.5%), income (personal and compa ny) tax 16.2% (up from 15.3% in 2004), customs 
duties 8.2% (up from 2.6%), and excise 5.7% (down from 7.2%).  Non-tax revenue and grants 
accounted for 16.9% of total government revenue in  2005 (20.6% in 2004).  Total expenditure rose 
                                                      
7 From 1991 to 2004, net outward migration totalled almost 450,000 people.  In 2004, remittances of 
US$163.6 equalled about 8% of GDP, exceeded net FDI by 150%, and amounted to over 20% of export revenue 
(EBRD, 2006, p. 5).  Net remittances increased in 2005 to US$280.4 million (11.5% of GDP). 
8 The Kyrgyz Republic meets the eligibility criteria for debt relief under the HIPC Initiative, and on its 
completion would qualify for the MDRI.  HIPC assistan ce would total some US$450 million over 20 years.  
Subsequently, the MDRI introduced in 2005 will allow all outstanding IMF and World Bank IDA debt 
(disbursed before end-2004 and end-2003, respectively) to be cancelled (IMF, 2006b, p. 10). 
9 IMF (2006a), p. 4. Kyrgyz Republic WT/TPR/S/170/Rev.1 
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slightly from 27.2% of GDP in 2004 to 28.3% in 2 005, substantially higher than in 2000 and above 
official projections.  Expenditure pressures, especi ally on goods and services, pose ongoing threats to 
fiscal consolidation.  Budgeting is also comp licated by substantial non-cash (barter) government 
transactions.   
11. Quasi-fiscal electricity deficits are to be fu rther reduced from Som 7.6 billion in 2005 (7.6% 
of GDP) to Som 6.5 billion (5.9% of GDP) in 2006, by improving efficiency and gradually introducing cost recovery tariffs by 2010;  this commenced in April 2006 when household tariffs were 
unified at 0.62 per kWh, raising bill collections.   
12. The 2005 budget deficit was below the three- year rolling Medium-Term Budget Framework 
(MTBF) 2005-07 target of 3.1% of GDP.  However, while the MTBF aimed to reduce the deficit 
further in 2006 and 2007 to 2.9% and 2.6%, respectively, the 2006 budget forecasts a temporary rise 
to 3.3%.  Total expenditure is projected to remain at 27.1% of GDP in 2006 (capped at 27.5%), while tax revenues are forecast to fall to 19.2% (C hapter I(3)(i)).  Additional expenditure of 
Som 300 million planned on emergency preparedness in 2006, is to be funded largely from the sale of 
shares in Centerra, formed in 2004 to take over ow nership of the Kumtor gold mine (Chapter IV(3)). 
(ii) Monetary and exchange rate policy  
13. The National Bank of the Kyrgyz Republic (NBKR), the central bank, formulates and 
implements monetary policy by regulating reserve  money (broad money excluding foreign currency 
deposits, or M2), to achieve price stability.  It  formulates and implements monetary policy 
independently in coordination with the Govern ment, which according to the authorities is not 
empowered to interfere in its setting.
10  The NBKR reports to Parliament formally and presents its 
inflation and quantitative monetary targets a nnually in its Statement on Monetary Policy.11  T h e  
NBKR objective was to contain annual CPI infla tion in recent years to a maximum 4% (achieved 
from 2002-04), but this was belatedly raised to 4.7% for 2005 (actual rate of 4.3%).  Monetary policy 
was generally expansionary from 2002 (when inflation was at its low est of 2.1%) fuelling substantial 
liquidity accumulation through money supply and ba nk credit growth.  Monetary growth (broad 
money including foreign currency deposits, or M2X) accelerated from 11.3% in 2001 to well over 
30% in subsequent years but eased to 25.5% in 20 05.  Bank credit to the private sector also rose 
substantially, peaking at 26.4% in 2003 before slowing to 11.4% in 2005.  This also reflected restored 
financial intermediation and re-m onetarization of the economy, whic h is heavily "dollarized" (bank 
asset dollarization rose to 72.6% in 2005).   
14. The NBKR's initial inflation target of 4.5% fo r 2006, based on M2 growth of 14-16% and an 
optimistic real GDP growth forecast of 8%, was s ubsequently revised upwards to 5.7% based on a 
growth projection of 5% (Law on Budget for 2006) and M2 expansion of 17-19%.12  It has recently 
tightened liquidity conditions following the overrun in monetary growth and inflation.13  T h e  m a i n 
NBKR instruments are open market operations in state treasury bills, along with minimum mandatory 
reserve requirements, set at 10% since 2001.  "R epo" operations (purchase and sale of government 
securities between NBKR and commercial banks w ith reverse sale/purchase obligations) totalled 
Som 227.5 million in 2005.  The average annual yiel d on weekly auctioned NBKR notes has fallen 
                                                      
10 The NBKR Governor is appointed and terminated by  the President subject to parliamentary approval.  
Direct government borrowings from the NBKR to fund budget deficits were prohibited from 1 January 1998.  
11 This is based on the annual Main Directions of the Monetary Policy for the upcoming year, which is 
approved by the NBKR Board.   
12 The NBKR's initial targets were presented in its Main Directions of Monetary Policy for 2006, 
Resolution No. 39/1, 21 December 2005. 
13 Annual inflation rose to 6.7% at end-February 2006.  WT/TPR/S/170/Rev.1 Trade Policy Review 
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sharply since 2000, from 23.6% to 4.3% in 2005.  The NBKR is more actively using indirect 
monetary control instruments to curb liquidity.   
15. The Kyrgyz Republic has a managed floating exch ange rate system for the som with no pre-
announced exchange rate path.14  The NBKR publishes the exchange ra te daily against the U.S. dollar, 
which is set in the interbank market.  Following the Russian crisis, the som depreciated rapidly by 
40% nominally in 1998 and overall by 60% by end-1999.   In the early 2000s, the exchange rate was at 
times de facto pegged to the U.S. dollar or to a b asket of currencies to maintain stability when faced 
with volatile international deve lopments.  However, exchange rate flexibility has since been 
increased, and the NBKR intervenes in the forei gn exchange market only to smooth out abrupt 
currency fluctuations, to offset speculative pressure s or to support a "proper" level of international 
reserves aimed at, inter alia,  financing the country's external debt liabilities.15  The som has nominally 
depreciated steadily against the U.S. dollar since 2000, depreciating by almost 0.8% in 2005.  The nominal effective exchange rate of the som appr eciated by 20.4% from 2000 to 2005.  However, in 
real terms, while still 27.4% below 1995 levels, it appreciated mildly (3.4%) during this period 
(depreciating in 2003-04, appreciating again by 1. 2% in 2005).  The impact of capital inflows, 
especially aid, other official transfers, and remitta nces, on the real exchange rate appear minor.  
Continuing to avoid significant real currency a ppreciation is important to maintain Kyrgyz 
international competitiveness in foreign and domestic markets.  Foreign exchange transactions are 
unrestricted (1995 Law on Operations in Foreign Exchange).
16 
(3) STRUCTURAL POLICIES  
16. Government policy is aimed at further trad e and other structural reforms to improve 
efficiency and international competitiveness.17  To foster private-sector-led growth, structural 
bottlenecks are to be removed, en trenched corruption decisively combated, the legal and regulatory 
framework strengthened, and government direct intervention minimized.18  Total factor productivity 
(TFP) growth, a key determinant of the economy' s performance, comes from technological progress 
and various sources, and is important in improvi ng labour productivity.  TFP growth estimates may 
also indicate the extent to which structural reforms have raised the efficiency with which factors of 
production are used.  Evidence suggests that average TFP and labour productivity in the Kyrgyz Republic declined sharply from 1991 to 1995 (-15.7% and -11.4%, respectively) but was positive from 1996 to 2002 (2.7% and 3.0%, respectively).
19  However, export competitiveness 
continues to be eroded by relatively high unit labour  costs compared with other CIS countries, due to 
                                                      
14 From the adoption of the new currency in May 1993 until July 1998, the U.S. dollar exchange rate 
was established by NBKR auctions.  Since then, and following the introduction of the Trade and Information 
Electronic System (TIES), the U.S. dollar exchange rate has been determined by quotations in the interbank foreign exchange market. 
15 NBKR intervention increased sharply from US$39.2 million in 2004 to US$71.3 million in 2005.  It 
also intervened substantially in early 2006 in an attempt to forestall the som's appreciation (IMF, 2006b, p. 5). 
16 The Kyrgyz Republic joined the IMF on 5 August 1992 and accepted the obligations of Article VIII, 
Sections 2, 3 and 4 on 29 March 1995.  Its exchange rate system is free from restrictions on payments and 
transfers for current international tran sactions, except for those maintained for security reasons that have been 
notified to the IMF.   
17 The Kyrgyz Republic was ranked second to last of the 117 countries in the World Economic Forum's 
Growth Competitiveness Index (GCI), and ninth from last in its Business Competitive Index (BCI) for 2005 
(http://www.weforum.org).  The GCI measures are ba sed on the quality of a country's macroeconomic 
environment and public institutions, and the level of technological readiness.  The BCI focuses on the micro-economic factors that contribute to a country's sust ainable levels of productivity and competitiveness.     
18 IMF (2006a), p. 4. 
19 Loukoianova and Unigovskaya (2004).  The other CIS-7 countries are Armenia, Azerbaijan, 
Tajikistan, Georgia, Moldova, and Uzbekistan. Kyrgyz Republic WT/TPR/S/170/Rev.1 
 Page 9 
 
 
a comparatively high wage-labour productivity ratio.  This implies that Kyrgyz low nominal wages 
are high relative to labour productivity, and that its  low labour cost advantage compared with other 
CIS countries is being eroded by its re latively larger productivity disadvantage.20  Labour-market 
rigidities contribute to this and while recent refo rm of the Labour Code in 2004 provided limited 
added flexibility, such as reduci ng the period of notice from two months to one for dismissal of 
employees, more is needed and planned. 
17. Ongoing trade and other structural reforms s hould help improve export performance, which is 
needed for sustainable growth.  As recognized by  the Government, these include streamlining public 
sector operations and enhancing fiscal sustainability , modernizing the financial system, creating a 
regulatory and legal environment c onducive to private sector development, combating corruption, and 
strengthening tax administration, involving passing of key legislati on in these areas.  Unlike domestic 
production, which is markedly dispersed across  a large number of activities, especially in 
manufacturing, exports are increasingly heavily concentrated, even though the number of export products is large.
21  Gold, mineral oil, cotton, tobacco, elect ricity, light bulbs, and raw hides account 
for some three-quarters of merchandise exports (60% of total exports).  The dispersion in domestic 
production may undermine specializ ation and economies of scale, contributes to excess capacity, and 
indicates further economic restructuring is needed.  Non-gold exports performed poorly in the early 
2000s, but have shown stronger growth recently , although the non-mineral manufacturing sector 
continues to under-perform. 
(i) Fiscal, tax and public sector reforms  
18. An action plan for public financial manageme nt is being prepared to strengthen budget 
credibility, accountability and transparency, includ ing monitoring and reporti ng of poverty-related 
expenditures, and budgetary implemen tation without political interference.  The MTBF was also to be 
revised in May 2006, its implementation improved, and coverage expanded to include social benefit 
payments currently channelled through the Soci al Fund and extra-budgetary operations.  These 
measures are aimed at strengthening public sector  governance along with improving efficiency and 
performance.  All ministries will  be required to prepare budgets  using programme and forward 
estimate techniques.  The public pension system (Social Fund), which runs at substantial losses, 
equivalent to over 1% of GDP annua lly, and requires large net budgetary tr ansfers, is to be reformed.  
The Government resisted parliamentary pressure to  lower the retirement age, and raised pension 
benefits by 10% in 2006.  Civil service reforms include rationalizing the number of ministries and 
agencies, and reducing the number of government  employees (currently 25,000) by 10% over 
two years, after average salary rises of 15% in 2005.22   
19. The 2006 Budget capped expenditure at 27.5% of GDP but tax revenue is expected to fall to 
19.2% due to implementation of overd ue tax reforms.  It included a contingent social safety net of 
0.2% of GDP to facilitate electricity tariff rises  from 2006.  The payroll tax rate was reduced from 
31% to 29% from 2006 (21% paid by the employer), a nd is to be progressively lowered to 25% in the 
medium term.  This is part of a new tax refo rm package to be applied retrospectively from 
January 2006.  It reduced company tax rates fro m 20% to 10% (from 2007 fo r natural and permitted 
monopolies), and introduced a flat rate personal inco me tax rate of 10%.  The number of inefficient 
local taxes is to be reduced from 16 to 6.  Such re forms are to be financed by increased motor vehicle 
taxes and excise on alcohol, and a possible rise in the land tax.  A new Tax Code submitted to 
parliament in March 2006 underpin s improved tax administration to encourage compliance and 
                                                      
20 World Bank (2005a), pp. 7-8.  
21 World Bank (2005a).  
22 Performance-based competitive salaries are to be introduced for key personnel in 2006;  while the 
wage bill will rise by 10%, it will be kept broadly co nstant as a share of GDP over the medium term. WT/TPR/S/170/Rev.1 Trade Policy Review 
Page 10 
 
 
reduce evasion, including raising the coverage of the large taxpayer unit from 40% to 60% by 
end-September 2006.  Many of these tax reforms are aimed also at curbing the informal economy.  The Government also intends to eventually re-i ntroduce the suspended VAT on farm output, and to 
eliminate VAT refund arrears by end-September 2006.
23 
(ii) Banking system 
20. Efforts to restructure the banking sector durin g the 1990s had limited success, and several 
banking crises resulted in bank closures requiring injec tions of public funds (Chapter IV).  However, 
since 2000, financial sector reform has progressed, esp ecially bank restructuring and privatization.  
Only one state bank remains, and foreign participati on in banks has increased substantially.  Financial 
intermediation, while still shallow, has deepen ed, and the sector's performance has improved, 
generating renewed confidence in ba nks.  However, financial intermed iation remains expensive, with 
wide interest rate spreads, an increasingly high " dollarized" sector, and bank credit consists mainly of 
heavily collateralized short-term loans.  While  non-performing loans have fallen, and the NBKR 
continues to improve supervisory and prudential requirements, includi ng detection and compliance, to 
meet the Basel Core Principles for Effective Bank ing Supervision, prudential challenges remain.  
Minimum bank capital requirements have been rai sed progressively.  A deposit insurance scheme is 
currently under development and is sche duled to be implemented by 2008.   
(iii) State-owned enterprises (SOEs) and privatization 
21. Improved SOE efficiency is a government pr iority, including enhanced management and 
accountability, commercialization, and eventual priv atization (Chapter III).  While substantial 
privatization has occurred, with the private sector accounting for some three-quarters of GDP, 
government still has an active industrial developmen t role in several sectors, especially public 
utilities.  Large SOEs undermine competition and bur den public finances.  On-going fiscal reforms 
are needed to reduce substantial o ff-budget items and quasi-fiscal deficits of state-owned enterprises.  
Off-budget operations and extra-budgetary funds exc eeded 14% of GDP in 2001, and accounted for at 
least 15% of total government funds.24 These include the State Social Fund, Privatization Fund, 
Economic Development State Fund, and State Material Reserve Fund.  Quasi-fiscal  deficits especially 
in the power sector but also in gas remain substa ntial.  Other SOE losses are also poorly accounted for 
but are thought to be substantial.  SOEs account fo r about one third of the country's external public 
debt and almost all of its domestic public debt.25   
22. Privatization stalled in the la te 1990s, but was re-started with  new legislation in 2002 and the 
start of two-year programmes.  Most SOEs are majo rity state owned:  while over 70% of SOEs have 
been privatized, the most significant, and politically  more difficult, remain.  Recent programmes have 
listed for privatization tourism fac ilities and "strategic" enterprises;  sev eral SOEs were privatized in 
2005.26  However, parliament halted several key g overnment privatizations, such as the major 
electricity distribution company, Severelectro, and Kyrgyztelecom, although these have been 
renewed.  Privatization of certain activities is prohibited for reasons of safety and security, health, 
social development, environmental protection, or  to secure state monopolies.  Up to July 2005, 
privatization receipts totalled Som 1.6 billion. 
                                                      
23 IMF (2006a), p. 5. 
24 World Bank (2004b).  
25 World Bank (2004b). 
26 These include Kadamzhaiskii Sur'myanyi Kombinat (antimony producing plant), Chakan GES 
(electricity, gas and water), Naryngidroenrgostroi (construction), Erkin-Too (newspaper printing) and Tokmakskoe AP KSM (manufacturing) (EBRD, 2006, p. 22). Kyrgyz Republic WT/TPR/S/170/Rev.1 
 Page 11 
 
 
(iv) Corporate governance and finance 
23. Administrative barriers to doing business, incl uding excessive inspections from public bodies,  
impose substantial delays and added costs, and the business climate remains unfriendly to private 
economic activity (Chapter IV).  Business licensing and registration procedures are cumbersome and 
over-bureaucratic, impeding investment and ente rprise development, especially of small and 
medium-sized enterprises (SMEs).27  However, streamlined regist ration requirements have made 
starting businesses easier, and reduced the number of activities requiring a licence.  The 1998 President's Decree on Creation of a Stable System  of Corporate Governance is being implemented 
with support from the Asian Development Bank's cor porate governance and enterprise reform project.  
International accounting and auditing standards are being adopted.  However, administrative barriers 
and over-intrusive government intervention in business remain a severe problem;  this was highlighted 
at a recent Business Economic Forum.
28  Corruption indicators remain high, despite efforts to reduce 
public corruption, including in customs, and the weak  judicial system seemingly lacks impartiality.  A 
state strategy against corruption has been deve loped and a National Council against corruption 
established (President's Decree of 21 June 2005).  The Kyrgyz Republic also subscribed to the 
Istanbul Anti-Corruption Action Plan, establishe d in 2003 under the 1998 Anti-Corruption Network 
for Transition Economies. 
24. The largely embryonic capital market suffers fro m regulatory shortfalls below international 
standards.  The Government is revising the secur ities markets legislation to meet international 
requirements and making efforts to improve capital  market regulation.  Listing and disclosure 
requirements of the Kyrgyz Stock Exchange are also  being improved.  The State Agency for Financial 
Supervision and Reporting, an independent single  regulator of non-bank financial services (not 
regulated by the National Bank), was established in late 2005 to regulate the capital markets, 
including the stock markets (replacing the State Commission on Securities markets), investment and 
pension funds, and insurance.  
(4) DEVELOPMENTS IN TRADE  
(i) Merchandise trade 
25. Since 2000, the ratio to GDP of Kyrgyz e xports of goods and non-factor services has 
decreased from 41.8% to 38.6% in 2005.  Corresponding figures for imports are 47.9% and 58.2%.  Countertrade has declined substantially (Chapter III).  
(a) Composition of trade 
26. Some three quarters of exports are primary pr oducts, with gold representing over one third of 
total exports in 2005 (down from 38.7% in 2000) (Chart I.1 and Tables AI.1 and AI.2).  The share of 
non-gold mining exports, including mainly fuel, whic h includes electricity, fell from 23.2% in 2000 to 
15.5% in 2005 (fuels down from 16.4% to 11.7%) wh ile that of agricultural produce remained at 
around 19.0%.  Manufacturing exports rose substantially during the period, to 27.5%.  The main manufactured exports in 2005 were  semi-manufactured goods (11.6% ), and textiles and clothing 
                                                     
 
27 SMEs have undergone strong growth and are important to the economy.  They accounted for over 
43% of GDP in 2001 (up 6% from 2000) and almost 60% of the population are engaged in the sector. 
28 Resolution of the Removing Barriers to Business Economic Forum, 31 May 2006.  A joint Economic 
Forum on Removing Barriers to Business is to be held annually, and the Supreme Economic Committee is to 
monitor the implementation of this resolution, which calls, inter alia,  for liberalizing and deregulating the 
economy based on economic and administrative reforms to root out corruption and create a favourable climate for investment and entrepreneurship development.   WT/TPR/S/170/Rev.1 Trade Policy Review 
Page 12 
 
 
(5%).  However, the shares of other manufactured products declined over the same period, especially 
for machinery and for transport equipment.  Kyrgyz  exports remain heavily concentrated in a few 
items, namely gold, oil and oil pr oducts, non-metallic minera l products, cotton, electricity, machinery, 
clothing, sugar, fruit, and vegetables, which togeth er account for over three-quarters of merchandise 
exports.  Import composition has changed slightly  since 2000, with the share of manufacturing 
products falling from 59.1% to 52.1% in 2005, and that of fuels (including natural gas) rising from 23.2% to 28.9%.  The combined share of imports of non-electrical machinery and transport equipment 
fell from 19.3% in 2000 to 11.8% in 2005.  The main imports, i.e. oil and oil products, cars, machinery, natural gas, iron and steel, and pha rmaceuticals, together account for over 40% of 
merchandise imports.   
(b) Direction of trade 
27. The direction of trade, especially of e xports, has changed since 2000 (Chart I.2 and 
Tables AI.3 and AI.4).  While CIS countries remain by far the main Kyrgyz export markets (45.1% of 
total exports in 2005), the EC25 share fell sharply from 37.2% in 2000 to 3.7% in 2005.
29  The United 
Arab Emirates has overtaken the Russian Federation as the main destination, almost totally due to 
gold exports, increasing its share from negligible in 2000 to 25.8% in 2005.  Exports to Switzerland, 
the other major destination for gold, increased from 6.8% to 9.7%.  Within CIS countries, the major 
growth markets are the Russian Federation, Kazakhsta n, and Tajikistan, while the share of exports to 
Uzbekistan contracted sharply from 17.7% in 2000 to 2.5% in 2005.  The share of exports to China also fell over the period.  CIS countries have al so increased their share of Kyrgyz imports, from 
53.9% in 2000 to 61.9% in 2005.  The main CIS growth import sources are the Russian Federation 
and Kazakhstan, while the share from Uzbekistan fe ll sharply.  The main non-CIS source of imports 
in 2005 were EC25, China,  and the United States. 
28. The share of Kyrgyz trade with other EAEC  members (Russian Federation, Belarus, 
Kazakhstan, Tajikistan, and Uzbekistan) has incr eased.  Exports grew from 39.3% in 2000 to 43.4% 
in 2005, and imports from 48.8% to 56.7%.  The Russian Federation and K azakhstan have been the 
main growth countries for Kyrgyz exports and imports , while the share of trade with Uzbekistan has 
contracted substantially. 
 
                                                     
 
29 CIS countries account for normally 70-80% of Kyrg yz non-gold exports.  Kyrgyz Republic WT/TPR/S/170/Rev.1 
 Page 13 
 
 
Chart I.1
Product composition of merchandise trade, 2000 and 2005
2000 2005
(a)    Exports (f.o.b.)
Other consumer 
goodsb
3.5
Manufactures
18.3
Total:   US$504.5 million Total:  US$672.0 million  
(b)    Imports (c.i.f.)
Chemicals
12.0Iron & steel   
1.8Transport  
equipment
7.8Manufactures
59.1Non-electrical 
machinery
11.5
Electrical machines  
6.4
Textiles & 
clothing
5.5Other mining
  1.3
Fuels
23.2Electrical 
machines  6.2Other mining
3.8
Other semi-manuf. 
9.0
Transport  
equip. 3.8Chemicals
14.2
Manufactures
52.1Non-electrical machinery  
8.0
Total:   US$554.1 million Total:   US$1,107.8 million Per cent
Manufactures
27.5Transport equip.  2.9Machinery a
6.2
Other 
consumer 
goods   5.0Mining 
15.5Gold
38.7
Other
3.3Semi-manuf.  
11.6Machinerya
4.7
Agriculture
19.4
Source :  UNSD, Comtrade database (SITC Rev.3).Other  consumer
goods  6.0Mining
31.0Other consumer goods
3.4
Textiles & clothing  5.0Transport equip.   3.6
Semi-manuf.
5.0
Other mining
6.8
Other semi-manuf.
  8.1Mining
23.2
Agriculture
19.1
Agriculture
16.8Agriculture
16.4Mining
24.5Iron & steel
2.9Fuels
16.4Fuels
11.7Gold
34.3
Other 
0.7
Textiles &  
clothing  3.0Other mining
2.1
Fuels
28.9
a      Includes electrical and non-electrical machinery.
b      Includes textiles and clothing (1.5% of exports in 2000).       
 WT/TPR/S/170/Rev.1 Trade Policy Review 
Page 14 
 
 
Chart I.2
Direction of merchandise trade, 2000 and 2005
2000 2005
(a)    Exports (f.o.b.)
Total:   US$504.5 million Total:  US$672.0 million
(b)    Imports (c.i.f.)
Other  3.5China  6.6
EC25
13.6Russian Federation
23.9United States
9.7
EC25
10.8 Other CIS
2.4
Russian Federation
34.2United 
States  6.1
Total:   US$554.1 million Total:   US$1,107.8 millionPer cent
China  4.0
Uzbekistan
5.4Russian 
Federation
12.9
Ukraine
3.6Switzerland
9.7Other  1.3
Source :  UNSD, Comtrade database (SITC Rev.3).Kazakhstan
16.3Turkey
2.7EC25
3.7
Switzerland
6.8
 Middle East  2.9
Other  4.0 Other Asia  4.9EC25
37.2Other 
4.4China
8.7 Kazakhstan
6.6
Turkey
3.0Turkey
4.8Other Asia  3.9
Turkmenistan
      3.4
Other Asia  5.0Uzbekistan
13.5Other  CIS  
2.7
China  9.3United Arab Emirates
25.8
Other Asia  1.8
CISa
61.9CISa
53.9Kazakhstan
10.4CISa
41.1
CISa
45.1
Russian 
Federation
20.0Kazakhstan
17.3Tajikistan
1.5
Tajikistan  3.4Uzbekistan
17.7
Uzbekistan  2.5Other CIS
2.4Other CIS  1.9
America  3.8
a     Countries included in Commonwealth of Independe nt States (CIS) are listed in Tables AI.3 and AI.4.
 Kyrgyz Republic WT/TPR/S/170/Rev.1 
 Page 15 
 
 
(ii) Services trade 
29. The Kyrgyz Republic has consistently recorded  a negative services trade balance;  however, 
this fell from a deficit of 12.5% of GDP in 2000 to 2% in 2005.  Kyrgyz services exports reached 
US$255.5 million in 2005, while imports rose to US$305 million (Table I.6).  Travel has become the 
Kyrgyz Republic's main services export and trans port its main services import.  A major contributor 
to the overall services trade deficit is trans port services (US$65 million deficit in 2005), where 
deficits on rail and road transport exceeded surpluses on air services.30  Government services are in 
surplus (US$17.8 million in 2005), and there is a small surplus on travel services (US$6.5 million).  
Sizable deficits were recorded  on insurance services (US$14. 8 million) and on business services 
(US$4.3 million) in 2005.  
Table I.6 
Trade in services, 2000-05 
(US$ million) 
 2000 2001 2002 2003 2004 2005a 
E x p o r t s        
Commercial services 61.8 80.3 142.0 154.7 208.9 255.5 
Transport 16.6 20.4 37.5 41.9 50.8 60.5 
Rail   4.5 6.5 9.4 10.5 11.4 17.2 
Air 7.7 9.2 22.7 26.1 32.7 36.5 
Road 1.2 2.3 2.9 2.0 4.6 2.3 
Other 3.2 2.3 2.5 3.2 2.1 2.8 
Travel 15.3 24.4 35.7 47.8 75.6 70.5 
Business 6.6 10.5 15.3 20.5 32.5 .. 
Personal 8.7 13.9 20.3 27.2 43.1 .. 
Communications 9.3 8.7 8.9 8.7 8.0 6.4 
Construction 3.1 4.5 4.9 5.7 8.3 19.0 
Insurance 0.5 0.2 0.3 1.3 0.2 0.2 
Financial  1.0 0.6 3.6 0.6 1.9 3.8 
Computer and information 0.5 0.5 0.7 1.5 0.7 1.2 
Business 8.1 10.8 26.7 20.9 38.4 56.1 
Government services 4.9 6.9 21.9 21.2 16.4 22.0 
Other 2.5 3.3 2.0 5.3 8.6 15.7 
Imports       
Commercial services 148.8 125.9 148.5 151.3 231.1 305.0 
Transport 69.9 49.8 55.9 51.6 88.7 125.5 
Rail   29.9 24.8 30.9 29.1 49.0 74.2 
Air 15.8 13.6 14.7 12.0 16.7 27.9 
Road 12.8 7.8 7.8 6.4 13.6 17.4 
Other 11.4 3.5 2.5 4.1 9.3 2.7 
Travel 15.6 11.9 9.9 16.6 50.3 64.0 
Business 8.3 6.3 5.2 8.8 26.6 .. 
Personal 7.3 5.6 4.6 7.8 23.6 .. 
Communications 7.0 7.9 7.0 8.2 6.1 6.0 
Construction 6.0 6.7 8.5 2.7 1.3 2.1 
Insurance 8.0 7.5 8.8 14.5 12.7 15.0 
Financial  4.2 3.2 12.5 4.4 19.6 4.4 
Computer and information 0.9 1.0 1.8 3.5 3.3 2.2 
Business 30.4 32.2 40.1 44.0 38.1 60.4 
Government services 3.9 3.4 3.5 2.6 4.8 4.2 
Other 3.0 2.2 0.5 3.1 6.3 21.0 
.. Not available. 
a Preliminary. 
Source:  National Bank of Kyrgyz Republic, Balance of Payments of the Kyrgyz Republic , various issues.  
                                                      
30 There have been surpluses on air transport services since 2002.   WT/TPR/S/170/Rev.1 Trade Policy Review 
Page 16 
 
 
(5) TRENDS AND PATTERNS IN FOREIGN INVESTMENT  
30. Foreign direct investment (FDI) increased steadily from US$89.6 million in 2000 to 
US$210.3 million in 2005, an average annual rise of 27% (Table I.7).  FDI inflows as a percentage of 
GDP increased from 6.6% in 2000 to 8.6% in 2005.  Cumulative FDI inflows for 2000-05 amounted 
to US$828.3 million.  Almost half of FDI in 2005 went into manufacturing, followed by financial 
activity (19.5%) and mining (11.6%).31  FDI has come mainly from non-CIS countries (76.5% in 
2005, down from 85.4% in 2000).  Main investor c ountries are Germany (17.4% of total FDI in 2005, 
up from 10.6% in 2000), Great Britain (14% from 6.8% ), Canada (12.4% from 26.5%), Turkey (7.7% 
from 13.5%), United States (5.6% from 26.3%), and Cyprus (5% from 0.9%) (Table I.8).  The main 
CIS source of FDI in 2005 was Kazakhstan (19.2% of total FDI, up from 0.2% in 2000) followed by 
the Russian Federation (3.9%, down from 6%).  FDI in 2005 comprised "other capital" (69.7%), 
equity capital (15.7%), and re-invested profits (14.6%) (Chart I.3).   
Table I.7 
Inward FDI by source, 2000-05 
(US$ million) 
Country 2000 2001 2002 2003 2004 2005 
CIS 13.1 6.4 26.1 27.5 29.0 49.4 
Kazakhstan  0.2 0.1 6.3 13.2 15.6 40.3 
Russian Federation 5.4 3.0 17.1 11.1 11.9 8.1 
Ukraine 0 0 0.2 0.6 0.6 0.2 
Belarus 0.5 0.2 0.6 1.2 0.5 0.6 
Non-CIS    76.5 83.7 89.6 119.4 146.6 160.9 
Australia 0.4 0.1 5.8 0.2 3.1 4.9 
Great Britain 6.1 1.6 2.5 2.0 10.5 29.5 
Germany 9.5 22.4 9.0 6.0 8.5 36.5 
Israel 0.1 0.1 0.2 0.2 2.2 4.8 
Indonesia 0.1 1.5 0.8 0.4 1.5 .. 
Canada 6.8 13.0 12.7 31.1 46.5 26.1 
Cyprus 0.8 0.6 1.0 1.8 11.5 10.5 
China 0.9 2.5 8.6 14.6 6.8 4.5 
Republic of Korea  0.1 3.9 7.7 7.2 8.5 0.4 
UAE 0.6 0.8 1.1 6.8 1.6 1.1 
United States 23.6 17.5 20.1 9.9 14.0 11.7 
Turkey 12.1 16.3 13.4 25.3 23.1 16.1 
Total 89.6 90.1 115.7 147.0 175.6 210.3 
.. Not available. 
Source:  National Statistical Committee. 
31. The Kyrgyz Republic is classified by UNCTAD as an "under-performer" with deteriorating 
"low FDI potential and performance".  Its la test rankings out of 140 countries were 77th on the Inward 
FDI Performance Index and 111th on the Inward FDI Potential Index.32  The Kyrgyz  Republic was 
ranked second last (131st) in the Outward FDI Performance Index. 
                                                      
31 The sectoral breakdown of FDI in 2000 was:  manufacturing (49.1%), services (45.6%), mining 
(5.1%), and agriculture (0.1%). 
32 The Inward FDI Potential Index is calculated as an unweighted average of the scores assigned to 
12 quantifiable economic and social f actors thought to affect an economy's attractivene ss to foreign investors 
(e.g. real GDP growth, GDP per capita, total exports , telephone lines, energy use, education, and R&D 
expenditure).  The Index is the ratio of a country's shar e in global FDI flows to its  share in global GDP and, 
therefore, ranks countries according to the FDI received relative to their economic size.   (UNCTAD, 2005). Kyrgyz Republic WT/TPR/S/170/Rev.1 
 Page 17 
 
 
Table I.8 
Inward FDI by sector, 2000-05 
(US$ million) 
Sector 2000 2001 2002 2003 2004 2005 
Agriculture, hunting and forestry 0.1 0.1 0.8 2.0 9.8 0.8 
Mining  4.6 4.3 5.1 12.3 10.0 24.3 
Manufacturing 44.0 50.9 52.8 7.3 93.0 94.8 
S e r v i c e s        
Energy, gas and water 0 0 0.1 0.3 2.2 0.1 
Construction 4.7 0.1 2.2 5.0 5.8 12.1 
Trade and repair of motor vehicles, 
household appliances and articles of 
personal use 14.7 23.3 19.7 22.6 24.6 21.8 
Hotels and restaurants 10.6 7.0 4.8 2.0 1.0 2.5 
Transport and communication 3.1 2.3 8.0 4.7 6.9 4.7 
Finance 1.6 0.5 6.0 4.0 10.8 41.0 
Real estate operations and re ntal 5.6 1.4 13.2 3.5 8.8 7.4 
Government management 0 0 0 1.4 0.7 0.1 
Education 0.1 0.1 2.6 9.3 1.0 0.0 
Health care and social services 0 0 0 5.3 0.8 0.0 
Housing. social and personal se rvices 0.7 0.1 0.5 1.3 0.4 0.7 
Total 89.6 90.1 115.7 147.0 175.6 210.3  
Source:  National Statistical Committee. 
 
Share capital 
(equity capital)
38.0Other capital
53.3
Re-invested profit
8.7Chart I.3
Structure of inward FDI, 2000 and 2005
Source:  National Statistical Committee.2000 2005
Total:  US$89.6 million Total:  US$210.3 millionPer cent
Share capital
(equity capital)
15.7Other capital
69.7
Re-invested profit
14.6
 
 WT/TPR/S/170/Rev.1 Trade Policy Review 
Page 18 
 
 
(6) OUTLOOK  
32. The Government's 2003-05 NPRS targeted real GDP annual growth of 5%.  While amply 
achieved in 2003 and 2004, growth was negative in 2005.  Latest IMF forecasts are for real growth of 
5.0-5.5% in 2006-07.33  The Kyrgyz President's assigned grow th rate for 2006 is still 8%, although the 
2006 Budget projected 5% growth.  Such growth ra tes would require a subs tantial turnaround on 2005 
performance and may be overly optimistic given uncer tainties over gold production, including at the 
main Kumtor mine and the licensing of ne w mines, as well as the political situation.34  Inflation is 
expected to rise to 5.7% in 2006, largely due to cost pressures (including from oil price rises and crop 
shortages), which the NBKR counteracted slowly, a nd accentuated by rising electricity charges, and 
to decline to the current target of 4.5% in 2007.  Monetary expansion (M2X) is forecast to contract to 
17.0% in 2006 and to 13.4% in 2007.  The overall primary budget deficit is expected to rise to 3.3% of GDP and to improve slightly to 2.9% in 2007.  Gross domestic investment  is forecast to rise 
slightly to 22%-23% of GDP in 2006-07 but due to a large expected rise in national savings (to 15.8% of GDP in 2006 and 17.4% in 2007), the savings gap is forecast to fall to 5.6% of GDP in 2007.  This 
is expected to improve the current account deficit to 6.8% of GDP in 2006 and to 5.6% in 2007. 
33. The Government recognizes the need for the Kyrgyz Republic to preserve macroeconomic 
stability and to accelerate structural reforms to  diversify the economy into manufacturing and 
services.  This would help to ease vulnerability due  to reliance on mining (gold) and agriculture, 
which depend heavily on world commodity prices and weather conditions.  A major immediate risk to 
the Kyrgyz Republic's outlook is political pressure to  adopt quick fixes or ad hoc sectoral incentives 
that would undermine structural reforms.
35  Despite agriculture's importance, including in alleviating 
substantial rural poverty, the policy challenge is to en sure that food self-sufficiency is not achieved by 
using protection to promote inefficient and costly  activities, which will only penalize poor consumers 
and the rest of the economy generally.  The Kyrg yz Republic's future economic performance will 
depend to a large extent  on external factors, such as the pace  of recovery in the world economy, 
including especially growth of its main regional ma rkets, such as the Russian Federation, Kazakhstan, 
and China.  However, of much greater importance to its longer-term growth prospects will be its own 
policy efforts to ensure macroeconomic stability and to implement struct ural and other economic 
reforms needed for sustainable growth.  This w ill require further improvements in the Kyrgyz 
Republic's capacity to attract FDI, open trade, in pa rticular resisting protectionist pressures to raise 
tariffs and re-introduce agricultural assistance, to  further strengthen the financial sector, and to 
improve the efficiency of customs services and tran sport both domestically a nd regionally.  It will 
then be able to seize the expanding trade and i nvestment opportunities arising both regionally and 
globally.  Sustainable growth will require priv ate, including foreign, investment, which will 
necessitate an improved business climate, including restored confidence in public institutions.36 
                                                      
33 IMF (2006b), p. 6. 
34 The average real GDP growth pr ojections of 13 for ecasters for 2006, incl uding the IMF and the 
EBRD, is 4%, with a range of 2.5 percentage points between the highest and lowest forecasts (EBRD, 2006, 
p. 19).  Inflation projections for 2006 by the same forecasters average 5.0%, with a range of 1.7 percentage 
points.  EBRD growth and inflation projections for 2006 are 5.2% and 5%, respectively. 
35 IMF (2006b), p. 3. 
36 EBRD (2006), p. 52.