RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/170 
4 September 2006  
 
(06-4122) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
KYRGYZ REPUBLIC 
 
  
 
This report, prepared for the first Trad e Policy Review of the Kyrgyz Republic, 
has been drawn up by the WTO Secretariat on its own responsibility.  The 
Secretariat has, as required by the Agreement establishing the Trade Policy 
Review Mechanism (Annex 3 of the Ma rrakesh Agreement Establishing the 
World Trade Organization), sought clarification from the Kyrgyz Republic on its 
trade policies and practices. 
 
Any technical questions arising from this report may be addressed to 
Mr. Mario Kakabadse (tel. 022 739 5172). 
 
Document WT/TPR/G/170 contains the policy statement submitted by the 
Kyrgyz Republic. 
 
 
 
Note: This report is subject to restricted ci rculation and press embargo until the end of the 
first session of the meeting of the Trade Po licy Review Body on the Kyrgyz Republic. Kyrgyz Republic WT/TPR/S/170 
 Page iii 
 
 
 CONTENTS 
 
  Page 
SUMMARY OBSERVATIONS vii 
  (1) E
CONOMIC ENVIRONMENT  vii 
 (2) T RADE POLICY REGIME  viii 
 (3) T RADE POLICIES AND PRACTICES BY MEASURES  ix 
 (4) T RADE POLICIES BY SECTOR  x 
 (5) O UTLOOK  xii 
I. ECONOMIC ENVIRONMENT 1 
 (1) I NTRODUCTION  1 
 (2) M ACROECONOMIC POLICIES  7 
 (i) Fiscal policy 7  (ii) Monetary and exchange rate policy 7 
 (3) S
TRUCTURAL POLICIES  9 
 (i) Fiscal, tax and public sector reforms 10  (ii) Banking system 10 
 (iii) State-owned enterprise s (SOEs) and privatization 11 
 (iv) Corporate governance and finance 11 
 (4) D
EVELOPMENTS IN TRADE  12 
 (i) Merchandise trade 12  (ii) Services trade 15 
 (5) T
RENDS AND PATTERNS IN FOREIGN INVESTMENT  16 
 (6) O UTLOOK  18 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 20 
 (1) I NTRODUCTION  20 
 (2) G ENERAL INSTITUTIONAL AND LEGAL FRAMEWORK  21 
 (3) T RADE POLICY FORMULATION AND IMPLEMENTATION  22 
 (i) Objectives 22 
 (ii) Institutional and legal framework 23  (iii) Main trade laws 26 
 (4) T
RADE AGREEMENTS AND ARRANGEMENTS  27 
 (i) World Trade Organization 27  (ii) Regional and other arrangements 30 
 (iii) Unilateral tr ade preferences 38 
 (5) F
OREIGN INVESTMENT REGIME  38 
 (i) Incentives and promotion 40 
 (ii) Bilateral investment treatie s and double taxation agreements 40 
 (6) T RADE -RELATED TECHNICAL ASSISTANCE  41 
III. TRADE POLICIES AND PRACTICES BY MEASURE 42 
 (1) I NTRODUCTION  42 WT/TPR/S/170 Trade Policy Review 
Page iv 
 
 
  Page 
 (2) M EASURES DIRECTLY AFFECTING IMPORTS  43 
 (i) Customs procedures 43 
 (ii) Tariffs 45  (iii) Other import charges 53 
 (iv) Customs valuation, minimum import prices, and preshipment inspection 54 
 (v) Rules of origin 55  (vi) Import prohibitions and sanctions 55 
 (vii) Import quotas and licensing 55 
 (viii) Contingency measures 58  (ix) Government procurement 59 
 (x) State trading 60 
 (xi) Standards and other technical requirements (including SPS) 61  (xii) Countertrade 66 
 (3) M
EASURES DIRECTLY AFFECTING EXPORTS  67 
 (i) Transit arrangements 67  (ii) Taxes, charges, and levies 68 
 (iii) Prohibitions, restrictions, and licensing 68 
 (iv) Tax incentives, subsidies, free zones, and export-performance requirements 69 
 (v) Promotion and marketing assistance 70 
 (4) M
EASURES AFFECTING PRODUCTION AND TRADE  71 
 (i) Legal business framework, including licensing and registration 71 
 (ii) Budgetary support and tax concessions 72 
 (iii) State-owned enterprises and privatization 73  (iv) Competition policy and price controls 75 
 (v) Intellectual property rights 77 
IV. TRADE POLICIES BY SECTOR 83 
 (1) I
NTRODUCTION  83 
 (2) A GRICULTURE AND RELATED ACTIVITIES  84 
 (i) Policy framework and developments 87  (ii) Main subsectors 89 
 (iii) Forestry 91 
 (3) M
INING   91 
 (4) E NERGY   94 
 (i) Electricity 94 
 (ii) Petroleum and petroleum products 95  (iii) Coal 96 
 (iv) Gas 97 
 (5) M
ANUFACTURING  97 
 (6) S ERVICES (OTHER THAN ENERGY ) 100 
 (i) Financial services 101  (ii) Telecommunications 109 
 (iii) Wholesale and resale trade 112 
 (iv) Transportation 112  (v) Tourism 115 
REFERENCES   117 
APPENDIX TABLES  121 
 Kyrgyz Republic WT/TPR/S/170 
 Page v 
 
 
 CHARTS 
  Page 
 
I. ECONOMIC ENVIRONMENT  
I.1 Product composition of merchandise trade, 2000 and 2005 13 
I.2 Direction of merchandise trade, 2000 and 2005 14 I.3 Structure of inward FDI, 2000 and 2005 18 
 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES  
II.1 Main bodies involved in trade policy formulation and implementation, 2006 25 
 III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
III.1 Distribution of MFN tariff rates, 1999 and 2006  47 III.2 Applied MFN and final bound tariff averages by HS section, 2006 50 
III.3 Applied MFN tariff averages by HS section, 1999 and 2006  51 
III.4 Tariff escalation by 2-digit ISIC industry, 1999 and 2006 52 
 
IV. TRADE POLICIES BY SECTOR  
IV.1 Interest rate spreads of commercial banks, 2001-05 104 
  
TABLES 
 
I. ECONOMIC ENVIRONMENT 
 
I.1 Main social and economic indicators, 2004 (unless otherwise indicated) 1 I.2 Indicators of progress in transition, selected years, 1996-05 2 
I.3 Selected macroeconomi c indicators, 2000-05 3 
I.4 
Share of GDP by sector, 1995 and 2001-05 5 
I.5 Share of employment by sector, 1995 and 2001-05 5 
I.6 Trade in services, 2000-05 15 
I.7 Inward FDI, by source, 2000-05 17 I.8 Inward FDI, by sector, 2000-05 17 
 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
 
II.1 Main trade-related legislation, 2006 26 II.2 Latest notifications by the Kyrgyz Republic under WTO Agreements, March 2006 28 
 
III. TRADE POLICIES AND PRACTICES BY MEASURE  
III.1 Structure of MFN tariff in the Kyrgyz Republic, 1999 and 2002-06 48 
III.2 
Goods subject to import licensing, 2005 57 
III.3 Countertrade, 2000-05 66 
III.4 Goods subject to export licensing, 2005 68 
III.5 Privatization by sector and type, 1999 and 2001-04 74 III.6 Kyrgyz membership of international treaties on intellectual property, 2005  78 
III.7 Intellectual property statistics, 2001-05  78 
 WT/TPR/S/170 Trade Policy Review 
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   Page 
IV. TRADE POLICIES BY SECTOR 
 
IV.1 Agricultural production, 2001-05   85 IV.2 Exports and imports, 2001-05   86 
IV.3 Extraction of fuels and minerals, 2000-05 96 
IV.4 Manufacturing (excluding mineral processing) state-owned enterprises, 2006  97 IV.5 GDP and employment shares for major manufacturing activities, 2001 99 
IV.6 Non-mining industrial production, 2000-05 99 
IV.7 Indicators of the banking system's financial strength, end-2000-05 102 IV.8 Telecommunication licences, 1998-05 110 
IV.9 Tourism indicators, 2000-05  116 
  
APPENDIX TABLES 
 
I. ECONOMIC ENVIRONMENT 
 
AI.1 Merchandise exports by group of products, 2000-05 123 
AI.2 Merchandise imports by group of products, 2000-05 125 
AI.3 Merchandise exports by destinations, 2000-05 126 AI.4 Merchandise imports by origin, 2000-05 127 
 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
 
AII.1 Kyrgyz Republic's involvement in bilateral and regional trade arrangements, January 2006 128 
 III. TRADE POLICIES AND PRACTICES BY MEASURE 
 
AIII.1 Summary analysis of the Kyrgyz MFN tariff, 1999, 2002-03 and 2005-06 130 AIII.2 Applied tariff escalation and tariff ranges, 1999 and 2006 131 
 
IV. TRADE POLICIES BY SECTOR  
AIV.1 Commitments on se rvices under GATS 134 
 
 
 
 Kyrgyz Republic WT/TPR/S/170 
 Page vii 
 
 
 SUMMARY OBSERVATIONS 
 
(1) THE ECONOMIC ENVIRONMENT  
1. The Kyrgyz Republic is landlocked by 
Kazakhstan, Uzbekistan, Tajikistan, and 
China.  It has made impressive progress since its economic and political transition.  Some reforms have been implemented speedily, including farm privatization, price 
deregulation, financial sector liberalization, 
and significant state privatization.  Laws and regulations have been changed to create a legal framework supportive of a market economy.  Reforms have also helped the Kyrgyz Republic face various setbacks such as 
the Asian and Russian economic crises of the 
late 1990s.  Macroeconomic, trade and other structural reforms, introduced from 1991 as part of Kyrgyz Republic's transition to a market economy, were to some extent locked in 
by its WTO accession in December 1998.  
However, structural reforms remain unfinished, aggravated by "stop go" policies 
and poor implementation. 
2. Kyrgyz real GDP has grown almost 
unabated since 1996.  It averaged 4% 
annually during 2000-05, although it 
contracted by 0.6% in 2005 due mainly to falling gold output and political instability.  Growth has resumed in 2006 but official projections of 5% seem optimistic.  Growth, 
predominantly consumption led, also reflected 
the start of a major gold mining industry in 1997, a turnaround in agriculture and a buoyant services sector, including substantial electricity exports.  Services grew 
substantially, accounting in 2005 for 51.1% of 
GDP (43.1% in 2001).  Poverty, which exists mainly in rural areas, is being reduced and GDP per head rose to US$473 in 2005 from US$381 in 2003.  Growth has been accompanied by reduced inflation, down from 
18.7% in 2000 to an estimated 5.7% in 2006.  
However, unemployment has remained high, at an estimated 9.2% in 2005.  The large shadow economy is estimated to be around half of GDP.  3. Fiscal consolidation continues to 
contain the Kyrgyz budget deficit, but further reforms, particularly in revenue collection (which is being addressed) could help.  While 
falling from 6.9% of GDP in 2000 to 2.8% in 
2005, deficit reductions mainly reflect rising tax collection rather than rationalized expenditure.  The deficit is set to rise, albeit temporarily, to 3.3% in 2006.  The National 
(central) Bank has focused on price and 
exchange rate stability.  It has recently revised upwards its annual inflation target several times, from 4% to currently 5.7%, in the face of rising liquidity and cost pressures.  The National Bank is expected to continue to limit 
its interventions on the foreign-exchange 
market to the minimum required to smooth fluctuations and build up foreign reserves. 
4. Data on total factor productivity, a 
key indicator of efficiency and international 
competitiveness, suggest that it turned positive 
and rose from the mid 1990s as efficiency gains, induced by structural reforms and a more competitive economy, began to take hold.  However, export compe titiveness continues to 
be eroded by high unit labour costs relative to 
other CIS countries, largely due to a 
comparatively high wage-labour productivity ratio, exacerbated by labour market rigidities.    
5. With gross domestic investment 
significantly exceeding gross national saving, 
there is a substantial current account deficit.  
While improving as a share of GDP in the early 2000s, it deteriorated sharply from 3.4% (excluding official transfers) in 2004 to 8.1% in 2005, when the negative trade balance 
escalated from 7.7% of GDP to 17.8%.  
Services trade has cons istently had a negative 
balance but this improved from 12.5% of GDP in 2000 to 2% in 2005.  These deficits have been met by capital inflows, particularly aid, official loans from bilateral and multilateral 
donors, rising remittances, and limited foreign 
investment.  Foreign reserves rose steadily from 2000, to reach US$609 million in 2005 (equal to 4.5 months of merchandise imports).   WT/TPR/S/170 Trade Policy Review 
Page viii 
 
 
 6. External public debt, at US$2.0 billion 
in 2005, has fallen to 82% of GDP (130% in 2000), but remains a significant burden, with downside risk to economic  prosperity.  Further 
restructuring of Paris Club debt in March 
2005 improved long-term debt sustainability, and more is expected under the IMF's Heavily Indebted Poor Countries (HIPC) Initiative's sunset clause, and eventually under the 
Multilateral Debt Relief Initiative (MDRI).  
7. Foreign trade is important to the 
Kyrgyz economy.  Exports and imports were some 28% and 46% of GDP respectively, in 2005.  Exports grew strongly between 2001 and 2004 but contracted by 6% in 2005.  
Higher gold prices helped exports in 2005 but 
were offset by a one-quarter fall in gold output.  Gold receipts, which normally account for some 40% of exports, dropped almost one fifth to US$236.2 million.  Countertrade has 
diminished, and now applies mainly to 
electricity exports and natural gas imports.  The Government has, by and large, resisted protectionist pressures. 
(2) T
RADE POLICY REGIME  
8. While the main package of legal and 
institutional reforms was adopted upon WTO 
accession, ongoing legislative changes are helping to create a more stable and predictable trade regime in the Kyrgyz Republic.  The Government is 
attempting to promote good governance, 
improve the business climate, and strengthen the independence and consistency of the judiciary, which has been questioned internally.  The main ministry formulating 
trade-related policies is the Ministry of 
Industry, Trade and Tourism.  The WTO Inter-Departmental Commission coordinates multilateral issues, including implementation of trade-related agreements.  WTO Agreements are part of domestic law.  
9. The Kyrgyz Republic has one of the 
region's most open trade and investment regimes.  Its main trade policy objectives are achieving a more outward-oriented trade regime, greater market access for exports, and 
improved integration into the world economy.  The Government believes trade and investment liberalization will impro ve economic efficiency 
and promote export diversification.  
10. Kyrgyz multilateral trade policy has 
been focused on meeting WTO accession commitments in goods and services trade, the 
protection of intellectual property rights, and 
participating in WTO negotiations.  The 
Kyrgyz Republic is negotiating joining the plurilateral Agreements on Government Procurement and on Trade in Civil Aircraft.  In acceding to the WTO, it bound all its tariffs, generally at a 10% ceiling rate, and other 
import charges and agricultural export 
subsidies at zero, eliminated discriminatory excise taxes and applied the customs valuation provisions.  The Kyrgyz Republic grants at least most-favoured-nation treatment to all 
WTO Members; it has not been involved in any 
WTO disputes. 
11. The Government has actively pursued 
regional trade arrangements, largely with former soviet states, in the form of bilateral 
and regional free-trade agreements (FTAs) 
and customs unions.  Membership of multiple 
preferential trade agreements that have different rules, coverage, and implementation periods, may add uncertainty to the Kyrgyz trade regime, weaken transparency, and 
detract from multilateral liberalization goals.  
These regional agreements have sometimes been implemented poorly, especially in a customs, tariffs, other charges and fees, and transit arrangements.  The Kyrgyz Republic 
has a series of ongoing disputes with parties to 
such agreements, including Uzbekistan, but dispute settlement procedures seem to have been of limited benefit.   
12. The Kyrgyz Republic is a beneficiary 
of the European Union (EU), Japanese and 
U.S. preferential schemes under the 
Generalized System of Preferences.  The Kyrgyz Republic allows all imports from least developed countries to enter duty free. Kyrgyz Republic WT/TPR/S/170 
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 13. The 2003 Law on Investments, based 
on national treatment, has strengthened the investment regime.  Foreign investors may operate either wholly overseas-owned or joint 
ventures with Kyrgyz or other partners.  All 
activities are generally open to FDI, and seemingly no foreign equity limits exist, except in air transport and production of alcoholic beverages. FDI incentives (e.g. tax holidays) 
have been rationalized, and ongoing efforts 
have been made to improve the investment and business climate, including use of ambitious (but not always implemented) annual government plans (matrixes). 
14. The Kyrgyz Republic's participation in 
trade negotiations and arrangements has been 
constrained by its lim ited human, technical, 
and financial resources.  Kyrgyz trade capacity has been assisted by various technical cooperation initiatives, including by 
the WTO.  The authorities consider further 
efforts are required, including training on implementing Kyrgyz commitments and applying WTO rules and regulations, especially in trade facilitation, SPS, services, and government procurement. 
(3) T
RADE POLICIES AND PRACTICES BY 
MEASURE  
15. The Kyrgyz Republic has substantially 
liberalized its formal trade regime by reducing tariff rates and eliminating most non-tariff 
barriers.  Import bans or licensing mainly 
protect human health and safety, national security, and the environment under international conventions.  Licensing has been reduced substantially, and where imposed, is 
generally "automatic".  Import quotas are 
applied only to alcoholic drinks. 
16. The tariff, the main Kyrgyz trade 
policy instrument, has been rationalized.  The simple average applied MFN rate is 4.9%, down from 5.2% in 2005 (8.7% in 1999).  However, while tariffs remain relatively low, 
with one third of imports subject to a rate of 
10%, the authorities have moved away from 
the pre-accession uniform 10% rate, largely in response to domestic protectionist pressures, 
with possible undesirable implications for economic efficiency.  Nevertheless, only few rates (7% of all lines) exceed 10%, and apart 
from rates of 20% and 30% on certain sugar 
items, the highest duty is 15%.  Twelve tariff bands in 1999 have been reduced to six.  Tariff averages are higher on agricultural (8.1%) than industrial goods (4.1 %).  Rate disparities 
and escalation are relatively low, with few 
domestic and international tariff peaks.  Only a few rates (1.3%) are non-ad valorem, thereby improving transparency, and only sugar imports have been subject to seasonal duties.  The relatively uniform tariff structure 
simplifies customs proce dures, reduces market 
distortions, and enhances transparency.  However, since the average bound rate of 7.7% exceeds the applied MFN rate, tariffs can be raised within existing bindings, thereby 
detracting from predictability.  The tariff 
structure and its economic effects are also complicated by substantial preferential 
imports and associated rules of origin. 
17. The Kyrgyz Republic uses the 
transaction value method (c.i.f.) for customs valuation, including, in principle, for second-
hand goods (but not for cars, where book 
values are seemingly substituted if higher).  No preshipment inspection is required.  Customs formalities and procedures, both formal and informal, restrict imports (e.g. through duplicative and excessive physical 
inspections).  Smuggling is substantial.  A non-
cost-based customs fee of 0.15% on the c.i.f. value of imports is to cover costs of providing 
customs services.  Foreign hauliers entering the Kyrgyz Republic without special permits or 
TIR carnets are charged a US$250 fee. 
18. Domestic commodity taxes (e.g. VAT) 
do not discriminate against imports.  No anti-dumping, countervailing or safeguard measures have been applied, although separate legislation exists for each type of 
contingency measure. 
19. Exports are largely unregulated.  
Except for non-ferrous metal fragments and WT/TPR/S/170 Trade Policy Review 
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 waste, licensing is mainly for public health 
and safety, and environmental protection.  Exports are zero-rated for VAT (except gold, which is VAT exempt) and free of excise.  
Four free economic zones, with limited success 
in attracting investment and promoting exports, have encouraged tax evasion, and are being scaled down;  only the Bishkek zone is to be retained.  Transit restrictions by 
neighbouring countries, especially Uzbekistan 
and until recently Kazakhstan, impede Kyrgyz 
exports.  
20. Government procurement has been 
liberalized and is now used less frequently as a means of supporting domestic industry.  Despite improved legislation, price preferences apply (20% on goods and 10% on 
works) based on minimum local content of 
30%.  The Kyrgyz Republic is negotiating signing the WTO Government Procurement Agreement.  Farmers receive minimal financial support, but irrigation is heavily 
subsidized.  Budgetary loans have been 
eliminated, but many enterprises have large accumulated outstanding government debt, amounting to 15% of GDP in mid 2003.  No 
state-trading enterprises have been notified.   
21. The soviet-era standards system is 
being transformed to a market-based regime.  
Many of the 20,000 standards, which are to be 
fully reviewed by 2009, are inoperative.  Where feasible, standards are  being revised and internationally harmonized, but, with 38% currently harmonized, progress is slower than planned.  Certification and recognition of 
overseas testing results has improved and 
institutional arrangements are being reformed for standardization, conformity assessment, certification, and testing SPS requirements have been streamlined. 
22. Privatization, largely completed in 
manufacturing, is now aimed at significant and politically sensitive entities, especially in the energy and telecommunication sectors, still under state ownership.  Some sectors, such as 
gold and minerals, may not be privatized, in 
order to protect state monopolies.   23. Competition policy remains weak, 
reflecting the existence of many sanctioned monopolies (natural and authorized) and poor enforcement.  The autonomy of the 
Anti-monopoly Agency is uncertain.  Prices 
have been de-controlled apart from mainly utilities and transport, which are set by the Agency.  The legal business framework, including licensing and registration, has been 
simplified, but remains cumbersome. However, 
the Government is attempting to strengthen the institutions  tasked with fighting corruption, streamline regulatory bodies, and strengthen property rights.  
(4) T
RADE POLICIES BY SECTOR  
24. The Kyrgyz Republic's GDP 
composition has changed substantially under transition.  The services sector displaced agriculture in the late 1990s as the largest GDP contributor.  Agriculture's share 
declined from 44.9% in 1995 to 37.2% in 
2001, and fell sharply to 33.3% in 2004 before rising slightly to 34.1% in 2005.  Increased commercialization of agriculture during the 1990s, boosted by ac celerated land and 
market reforms, including price deregulation 
and removal of most subsidies, reversed the 
sector's declining production.  Agricultural productivity, still low by international standards, has improved.  High-cost and poorly developed marketing chains and other 
impediments, such as remaining land 
rigidities, farmers' limited access to credit, deteriorating rural infrastructure, declining investment, old equipment, and low mechanization, continue to penalize the sector.  
Research, farm extension services, land 
reform, and rural infrastructure are hampered by insufficient funding. 
25. Agricultural policy seeks to raise rural 
incomes and achieve food security by 2010.  This is to be achieved in wheat, poultry, eggs, 
dairy products, vegetables, lamb, beef and 
other meat, sugar, and vegetable oils.  However, care is needed that policies to further this goal, such as increasing the Government's role by setting production Kyrgyz Republic WT/TPR/S/170 
 Page xi 
 
 
 targets, providing support and protection, and 
directing farmers what to produce, do not encourage inefficient agriculture that would 
undermine rather than enhance food security 
(by, for example, raisin g food prices).  Such 
policies could hurt the poor most. 
26. While manufacturing's share in GDP 
dropped from 19.0% in 2001 to 14.1% in 2005, it rebounded temporarily to 17.1% in 
2004, and remains above the 1995 level of 
12.8%.  Its performance depends heavily on gold processing.  The non-gold-mining manufacturing sector, hard hit by transition and plagued by substantial excess capacity, has successful export segments.  
Manufacturing is widely dispersed across 
many small activities and relies on low-value-added agri-processing, machinery and equipment, and non-metallic products e.g. glass and light bulbs.  A government priority is 
to revitalize the textiles industry and to 
promote domestic agri-processing.  
27. The Government participates directly 
in the mining sector through equity holdings of the state-owned mining company, KyrgyzAltyn.  Its 66% equity in the Kumtor gold mine was 
reduced to 33.3% in 2005 and later to 15.7%.  
KyrgyzAltyn forms voluntary mining joint-ventures, especially with foreign companies.  The improved 1997 mining legislation allows the Government substantial discretionary 
authority and control.   
28. The energy sector is dominated by 
state-owned entities.  Restructuring of the highly unprofitable state monopolist, Kyrgyzenergo, started in 2001 when its 
operations were unbundled into state 
monopoly generation and transmission operations, and four distribution companies that were to be privatized.  Power reforms, including privatization, stalled but are again a government priority, and regulated electricity 
prices are to achieve cost recovery by 2010 to 
further reduce the sector’s quasi-fiscal deficit, estimated at 5.9% of GDP in 2006.  The State Energy Agency (SEA), created in 1997 to regulate the sector, was abolished in 2005  and its functions transferred to the Anti-
monopoly Agency in 2006.  The state gas monopolist, Kyrgyzgas, owns and operates the transmission and distribution network.  It is to 
be restructured into a separate transmission 
company, and several distribution firms, which are  to be privatized.   
29. Telecommunications was liberalized 
in line with WTO commitments from early 
2003 by ending Kyrgyztelecom's state 
monopoly on international and long-distance calls.  The regulatory regime has been strengthened to safe guard competition, 
administered by a more independent, regulator, the National Communications 
Agency.  However, many of these regulatory 
functions, including over prices, were transferred to the Anti-monopoly Agency in 2006, such that the agenc ies' respective roles 
appear  unclear.  Kyrgyztelecom is to be fully 
privatized. 
30. Restoring public confidence in banks 
after several crises in the 1990s has been a key government priority, including ongoing rationalization and strengthening of the financial and banking sectors.  While the 
health of banks, including the incidence of 
non-performing loans and profitability, has improved substantially, financial intermediation remains low and costly.  Prudential requirements, e.g. raising minimum 
capital levels and removing differences 
between local and foreign banks, along with National Bank supervision, are being strengthened, including improving institutional capacities and corporate governance, based 
on the Basel Principles.  There are no non-
prudential restrictions on foreign banks, or other financial institutions, including insurance companies, which are privately owned.  Only one state-owned bank remains, accounting for 5% of bank assets.  Foreign 
bank ownership is increasingly high at over 
60%.  The major non-bank financial institution, Kyrgyz Agricultural Finance Corporation (KAFC), is to be privatized by end 2006 and converted to a bank.  The capital 
market, including the stock exchange, is thin WT/TPR/S/170 Trade Policy Review 
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 and undeveloped.  The State Agency for 
Financial Supervision and Reporting replaced the State Commission on Securities Markets as regulator in 2005. 
31. Transport services, other than road, 
are heavily regulated.  Inter-city road transport is largely privatized.  The national air carrier and railways are state owned and only limited air transport and railway 
restructuring has occurred.  A new national 
airline is to be established.  Tourism, a priority sector, is mainly privately run, including with foreign participation.   
(5) O
UTLOOK  
32. The 2006 Budget projected 5% 
growth, a substantial turnaround on 2005 
performance.  However, it may be overly optimistic given uncertainties over gold production, including at the Kumtor mine, and the political situation.  As the economy returns 
to growth, inflation is moving upwards but is 
forecast to decline to 4.5% in 2007.  The worsening overall primary budget deficit in 2006 is expected to improve slightly to 2.9% in 2007.   
33. Preserving macroeconomic stability 
and accelerating structural reforms should 
help diversify the economy into manufacturing and services, and soften the country's 
vulnerable reliance on mining (gold) and agriculture.  This will require the Government to resist political pressure to adopt quick fixes 
or ad hoc sectoral incentives.  In agriculture, 
the policy challenge is to ensure that food self-sufficiency goals are not achieved by using protection to promote inefficient and costly activities, which will penalize consumers and 
the economy generally.   
34. The Kyrgyz Republic's future 
economic performance will also depend on external factors, such as the performance of the world economy, including especially of its main regional markets, like the Russian 
Federation, Kazakhstan, and China.  Of 
greater importance to its longer-term growth prospects, however, will be its policy efforts and economic management.  Further improvements should include opening trade, 
greater financial sector strengthening, and 
more efficient customs services and transport, both internally and regionally.  Only then will it be able to seize the expanding regional and global trade opportunities.  Sustainable growth will need private, including foreign, 
investment, which will also require an 
improved business climate, restored confidence in public institutions, and the curbing of entrenched and pervasive corruption.