Economy of Kyrgyzstan in 2107 developed due to the service sector

12.02.2018

The sphere of services and commodity production accelerated the development of the economy of Kyrgyzstan. During the last two months of 2017, the republic managed to reverse the downward trend in the growth rate since the summer and start 2018 with unexpected figures for many experts.

The preliminary results of 2017 were firstly announced by the National Statistical Committee of the Kyrgyz Republic. According to the head of the department Akylbek Sultanov, the volume of GDP reached 493.3 billion som and increased by 4.5 percent. The tendency of a slowdown in the pace of development, according to his information, was possible to overcome in November.

“In 2017, the growth of the economy of the republic was driven by commodity production and the service sector which posted increases of 7 and 2.1 percent, respectively,” the National Statistical Committee explains.

The service sector stands out in Kyrgyzstan and accounts for almost 49 percent of GDP. The industry, by comparison, represents 18 percent of the gross domestic product, and agriculture approx. 13 percent.

"The growth in the service sector was achieved mainly due to an increase in the incomes of food enterprises. They account for 86 percent of the industry's output," Akylbek Sultanov stated.

The industry, in turn, also demonstrated enviable growth at 11.5 percent. Almost half of the industry's output is still related to gold mining and processing (43.7 percent). The precious metal remains the main commodity supplied abroad, and is the largest export item. The production of petroleum products increased by 25.9%, mainly due to the import of raw materials from Russia.

An important factor that influenced the development of Kyrgyzstan in 2017 was trade with the countries of the Eurasian Economic Union. Contrary to the pessimistic forecasts by opponents of integration, the republic's trade turnover and economic cooperation with its partners in the EEU are growing at a steady pace.

According to estimates of the National Statistical Committee, the volume of trade of Kyrgyzstan with other countries of the union exceeded $2.2 billion, or about a third of the total external trade turnover. Despite the fact that imports so far exceed exports, keeping the balance negative, the situation is gradually changing. Thus, through 2017 Kyrgyzstan managed to increase the supply of goods to the markets of the EEU by more than 25 percent. Import for the same time grew by only 11.2 percent.

Most of the exports within the framework of the EEU from Kyrgyzstan were sent to Russia. It accounted for almost 60 percent of the goods sold by Kyrgyzstan to the partner countries of the Eurasian Union. The second place in terms of trade turnover is occupied by Kazakhstan with 36.6 percent. It is assumed that its share will gradually increase. To begin with, the presidents of Kazakhstan and Kyrgyzstan Nursultan Nazarbayev and Sooronbai Jeenbekov agreed on this lately in Astana.

"Exports to Russia of knitted garments, dried fruits, butter, onions and garlic have increased, but the export of beans, vegetables and incandescent lamps has declined," Akylbek Sultanov said. “The export of goods to Kazakhstan of knitted garments, polished glass, ores and concentrates of precious metals increased. At the same time, there was a decrease in the export of plastic containers and dried fruit.”

From Russia to Kyrgyzstan, poultry meat and by-products from it, car tires, flour confectionery, chocolate and other food products topped the list of imported goods during the year. Kazakhstan stood out in sales of pasta and flour products, rice, sunflower oil, rolled steel, hard coal and margarine to Kyrgyzstan.

The development of Kyrgyzstan’s clothing industry has led to an increase in imports of half-fabricates from abroad to Kyrgyzstan. Purchases of synthetic material in 2017 increased by 5.5 and those of natural fibre by 3.1 times.

Import in total rose over the year by about 10.2 percent and reached four billion dollar. The overall turnover of foreign trade in 2017 is estimated at about $5.7 billion. The Republic still consumes more than it produces, and the the consumer market boost is supported in large part by money transfers from labour migrants working mainly in Russia. They transferred over two billion dollar to their homeland during the year.

However, there are several promising export items that are not dependent on supplies from abroad and fully depend on local resources. Over the past year, Kyrgyzstan has managed to multiply the supply of such goods to foreign markets. Outstanding here are polished glass (an increase by 1.9 times) and butter (1.5 times). By comparison, the export of dried fruits, which Kyrgyzstan is proud of, grew by 45 percent, precious metal ores and concentrates and industrial gold by 12.9 percent and 2.8 percent respectively.

The pace of economic development in Kyrgyzstan surprised, perhaps, even the optimists. The fact is that no one - neither in the government, nor in expert circles, nor in international financial institutions - predicted such growth. It was expected that the republic would finish in 2017 with an indicator slightly exceeding three percent.

Thus, the experts of the Eurasian Development Bank (EDB) warned about the emergence of new risks of reducing both foreign trade and production volumes. "It is likely that the slowdown in the intra-annual dynamics of GDP growth will be more significant than previously expected," it was noted in the EDB survey of the Kyrgyz economy.

The World Bank forecasted the growth of Kyrgyzstan's GDP in 3.5 percent. But at the same time it assumed that further down the line the gross domestic product would increase at a more significant rate. The International Monetary Fund expected that the rate of economic development would reach at least 3.2 percent. As explained by the head of the mission of the International Monetary Fund, who visited Kirgizstan, Edward Gemayel, it was assumed that the volume of trade with the main partners of the republic will grow more slowly.

The Ministry of Economy of the Kyrgyz Republic, surprisingly, looked to the future less optimistically. GDP growth in 2017, according to the estimates of the Ministry, could be three percent. The forecast was explained by the expectation of a decline in the volume of industrial output. The National Bank of the Republic believed that by the end of 2017 the economy would show growth of 3.5 percent. The government forecasted the same indicator, pinning its hopes on an increase in the revenues of the republican budget, tax and customs revenues and a parallel reduction in the expenditures of state structures.

According to Kyrgyz Prime Minister Sapar Isakov, in the medium term, Kyrgyzstan can maintain the achieved growth rates. The annual increase in GDP is projected to average 4.5 percent per annum up to 2020. Moreover, the development of the economy, in his opinion, will be facilitated by the implementation of large infrastructure projects, including the construction of the North-South highway, the rehabilitation of the Toktogul hydroelectric power station and the reduction of financial dependence on foreign aid and soft loans. The Cabinet of Ministers intends to avoid the need to raise funds from abroad due to a reduction of the shadow economy by introducing modern digital technologies and improving tax administration.

The World Bank believes that in 2018 the Kyrgyz economy could grow by 4.2, and in 2019 by 4.8 percent. The National Bank of the Republic agrees with part of this. The regulator is expecting an increase in GDP in 2018 by 4.7 percent.

The Kyrgyz Ministry of Finance has published a list of external and internal risks that may affect the development of the economy of the republic in the next three years. This list includes such factors as dependence on world prices for gold, energy and other raw materials resources, growth of production costs and a decrease in competitiveness for sectors of the economy with a high proportion of imported materials due to possible price increases, weak infrastructure, poor quality of products, preservation of individual customs barriers, delay in the opening of veterinary posts, incomplete accounting of movement of goods in connection with the opening of borders, high dependence of the industrial sector on the development of Kumtor, dependence of the domestic market on imports of food products (flour, vegetable oil, sugar, cereals, etc.), petroleum products, climate change, all of which may have a negative impact on the development of agriculture and energy sector, the openness of the economy, significantly affected by external shocks.

By Daniyar Karimov for the Rossiskaya Gazeta