Kyrgyz Republic Monthly Economic Update

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The country is going through a third wave of the COVID-19 pandemic. The daily cases of newly infected have started to increase since early March (around 45 cases, measured as 7-day moving average) and peaked to 353 cases as of May 11.

On average, the number of new daily cases was above 300 people in May (measured as 7-day moving average). The total number of infected people since the outbreak of the pandemic has reached 105,111 and death toll 1,815 people as of May 31, 2021.

Real GDP contracted by 3.4 percent, year on year, in January-April 2021. This was driven by a fall in gold production by 34 percent while non-gold output grew by 1.1 percent. Positive non-gold output growth was registered for the first time since the country was hit by the COVID-19 pandemic.

Sectors such as non-gold manufacturing, trade, transportation and communication are showing signs of recovery with positive growth after almost a one-year period of contraction. At the same time, other sectors - construction, hotels and catering - remain depressed.

The trade deficit is estimated to have widened to 33 percent of GDP in the first quarter of 2021 from 29 percent a year ago. This mainly reflects a decline in exports by 9 percent in US dollar terms because of a fall in gold exports. Imports in US dollar terms dropped by 2 percent mainly reflecting a decline in consumer goods.

Remittances - which are not part of the trade balance, but which help finance imports of consumer goods - grew by almost 19 percent in US dollar terms owing to both the low base effect and growing economic activity in Russia.

Twelve-month inflation eased to 8.7 percent in April 2021 from 9.7 percent at the end of December 2020 as food price inflation moderated. Fuel prices rose by 19 percent year-on-year in April reflecting higher import prices.

Monetary policy has been further tightened in response to high inflation. The central bank raised its policy rate by 100 basis points to 6.5 percent in April. This was the second increase after a 50 basis points hike in February. Credit to the economy grew by 12.4 percent, year-on-year.

The nominal exchange rate has been stable broadly as the central bank has intervened in the foreign exchange market 6 times selling US$270 million since the beginning of the year. Foreign exchange reserves amounted to a solid 6 months of imports at the end of April 2021.

The fiscal deficit narrowed substantially in the first quarter of 2021 owing to higher revenues and despite a surge in spending. The general government budget deficit declined significantly to 1.9 percent of GDP in the first quarter of 2021 from 6.2 percent of GDP a year ago. Revenues rose to 38.4 percent of GDP from 31.4 percent a year earlier, reflecting improved tax collections owing to higher import prices (e.g. VAT on gasoline and food) and gold prices (mining companies' tax rate increases as gold prices rise).

Expenditures increased to 40.3 percent of GDP in the first quarter 2021 from 37.6 percent a year ago, driven by a higher wage bill, transfers and subsidies, and capital outlays. Public debt increased slightly to 70.2 percent of GDP as of February 2021 from 68.1 percent in December last year.

Overall, the banking sector remains resilient. The banking sector soundness indicators stand strong although the non-performing loans ratio increased, and the banks' profitability ratios declined. The capital adequacy ratio is at 22.9 percent as of end-March 2021, well above the 12 percent requirement level. The liquidity ratio is high at 65.5 percent, greater than the required 45 percent.

At the same time, the non-performing loans ratio increased to 11.2 percent from 8.1 percent and banks' returns to assets and to equity declined to 0.9 percent (from 1.3 percent) and 5.5 percent (from 8.4 percent), respectively.