Being the fastest-growing economy in the Commonwealth of Independent States (CIS) which unites most former Soviet republics, Kyrgyzstan remains on the right track where it comes to keeping up the balance between public spending, maintaining national income and sustaining national productivity. These are the main observations made in the latest report on the state of the country’s economy by the Asian Development Bank (ADB). Social inequality, though, remains a pitfall.

“GDP rebounded by 10.5 per cent during 2013, driven mostly by a recovery in gold production that outpaced expectations,” the ADB report reads. “All sectors except agriculture showed robust growth as the private sector expanded. On the supply side, industrial output grew by 28.0 per cent, reflecting 45.4 per cent growth in manufacturing driven by a near doubling of gold output from the low base in 2012. Growth in other manufacturing subsectors slowed to 3.5 per cent from 6.1 per cent in 2012, dragged down by declines in textiles, utilities, and the production of minerals other than gold, as well as by somewhat slower growth in construction. Services, which provide about half of GDP, grew strongly for the third consecutive year, at 5.1 per cent. The strongest gains were in transportation (5.8 per cent), trade (7.0 per cent), and hotels and restaurants (11.1 per cent), in view of higher consumer demand and improved cross-border trade. Agriculture outperformed the meagre 1.2 per cent rise in 2012, expanding by 2.9 per cent as gains in grain and vegetable output outweighed a small decline in livestock production.”

Investment growth

As it appears, the Kyrgyz population has not hesitate, on seeing productivity rise and cash flows getting a bit more comfortable, to untighten its belts as much as could be afforded. “Private consumption [in 2013]  is estimated to have grown by 9.9 per cent, as higher employment, wage increases, and a rise in remittances boosted retail sales by 7.5 per cent,” the report continues. “Investment growth plummeted to 2.3 per cent from the 42.1 per cent recorded in 2012, as higher private investment was offset by a 14 per cent decline in government investment due to cuts in lower-priority spending. Annual average inflation rose to 6.6 per cent from 2.8% in 2012, mainly because nonfood prices climbed by 6.3 per cent, and utility charges by 6.8 per cent, while food prices rose by only 1.8 per cent. Inflation decelerated during the second half of the year, led by lower prices for wheat, which reduced the12-month (December over December) inflation rate to 4.0 per cent from 7.5 per cent during 2012.”

Excess volatility

The well-balanced looking parallel increase in production and consumption has also had a stabilising influence on the financial service sector. Banks, though insignificant in size and clout, remain healthy with minor outstanding loan risk exposure – in sharp contrast to neighbouring Kazakhstan where the banking sector’s bad loans make up for over one-third of the overall loan portfolio.

“GDP is expected to grow by 6.5 per cent in 2014 and 5.5 per cent in 2015,” the ADB forecasts. “This estimate assumes that gold production remains stable and that investments in energy and transport infrastructure projects, mainly from the Russian Federation and the People’s Republic of China, materialise as expected. The.projected growth slowdown in 2015 anticipates some slackening in the pace of investment projects during 2015. Government expenditures will remain a driver of economic activity amid gradual recovery in the private sector. Higher domestic demand, encouraged by greater political stability and an improved investment climate, should spur growth in the private sector unconnected to gold. Growth is expected to stabilise at about 5 per cent in the medium term, supported by infrastructure investments and continued increases in credit.”

Rising poverty rate

But the uneasy tandem between commodity output and sales depending on foreign capital and sales on one side, and domestic productivity and demand response, remains both Kyrgyzstan’s hope for a better future and reason to keep watchful. “On the supply side, services will remain the major source of growth, expanding by more than 5 per cent annually,” the ADB report reads. “Transportation and communications should perform well as major road networks and energy infrastructure are rehabilitated and communication networks are expanded. Industry is expected to grow by about 10% annually, with metals and metallurgy being the main drivers and gold remaining the principal output.”

Meanwhile, on the darker side of the picture, the weak spot in Kyrgyzstan’s struggle for economic survival is less macroeconomic than socioeconomic, the ADB report warns. And troubling signs are on the wall here. “The rising poverty rate in the Kyrgyz Republic, which climbed from 31.7 per cent in 2009 to 38.0 per cent in 2012, has shown how easily the poverty reduction achieved from 2005 to 2008 can be reversed,” the report’s conclusion reads. “Moreover, poverty rates vary significantly across the regions. They are relatively low in Bishkek city (at 21.4 per cent), the surrounding oblast of Chui (16.6 per cent), and Issyk-Kul oblast (28.1 per cent), but the other five oblasts have always been poorer, with poverty rates in some exceeding 50 per cent. Poverty rates are also volatile, and studies are examining why. The National Statistics Committee’s report on poverty for 2012 found that inflation strongly affects the poverty rate because it drives incomes of many near-poor people below the national poverty line. Inclusive growth, benefitting all regions and people, is thus an urgent priority and necessary for political and social stability and security.”