Washington (IMF press service) – The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Kyrgyz Republic.

The Kyrgyz economy was severely hit by the COVID-19 pandemic, but the authorities reacted swiftly to protect public health and cushion the impact on the economy. Real GDP declined by 8.6% in 2020 due to significant contraction in exports, gold mining, industry, tourism, transport, and construction. Headline inflation rose to 9.7% in 2020, primarily because of imported food price inflation and the exchange rate pass-through, while public debt increased by 16.5% of GDP to 68%. The authorities’ crisis mitigating measures amounting to 7.2% of GDP included emergency health spending, a food security program, temporary tax deferrals and subsidized loans to small and medium enterprises, liquidity support to banks, deferrals of loan payments, and the temporary relaxation of capital and loan provisioning norms. Nevertheless, unemployment and poverty increased in 2020.

Growth is expected to rebound in 2021-22. The economy is projected to grow by 3.8% in 2021 and by 6.4% in 2022, underpinned by the more favorable global outlook, higher gold production, and a gradual rebound in tourism, transportation and related services. Annual inflation will remain elevated in the coming months but gradually return to the central bank’s target range of 5-7%. The current account deficit is projected at about 6% of GDP in 2021 and in the medium term, driven by a recovery in imports and the opening of the borders.

The level of uncertainty, however, remains high. An emergence of new COVID-19 variants may delay the recovery to 2022 or beyond, while lower gold prices or weaker remittances could weaken the balance of payments. More depreciation due to external pressures would further raise public debt while financing constraints could limit fiscal room for counter cyclical policies. While securing vaccines is a top priority to contain the pandemic, with macroeconomic buffers largely exhausted in 2020, policymakers will face tighter constraints with less room for policy flexibility. Advancing structural reforms would be critical to improve the business climate and strengthen market confidence.

For more information read the IMF Executive Board Assessment.