The International Monetary Fund expects Kyrgystan’s economy to return to growth in 2021, but warned that uncertainty remains high as the country faces risks from the effects of the COVID-19 pandemic.
“The economy is projected to grow by 3.8 percent in 2021 and by 6.4 percent in 2022, underpinned by the more favourable global outlook, higher gold production, and a gradual rebound in tourism, transportation and related services,” the IMF said in a statement.
“The level of uncertainty, however, remains high,” it added.
The Fund said that a slow rollout of vaccines, or the emergence of new COVID-19 variants might delay the recovery to 2022 or beyond, while lower gold prices or weaker remittances could weaken the balance of payments.
It said that more depreciation due to external pressures would further raise public debt while financing constraints could limit fiscal room for countercyclical 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, the IMF said.
“Advancing structural reforms would be critical to improve the business climate and strengthen market confidence,” the IMF said.
Kyrgyzstan’s economy was severely hit by the COVID-19 pandemic. Real gross domestic product (GDP) declined by 8.6 percent in 2020 due to significant contraction in exports, gold mining, industry, tourism, transport, and construction. Headline inflation rose to 9.7 percent in 2020, primarily because of imported food price inflation and the exchange rate pass-through, while public debt increased by 16.5 percent of GDP to 68 percent.
The authorities’ crisis mitigating measures, amounting to 7.2 percent of GDP, included emergency health spending, a food security programme, temporary tax deferrals and subsidised loans to small and medium enterprises, liquidity support to banks, deferrals of loan payments, and the temporary relaxation of capital and loan provisioning norms.
The IMF forecast that annual inflation will remain elevated in the coming months but will gradually return to the central bank’s target range of 5–7 percent. The current account deficit is projected at about 6 percent of GDP in 2021 and in the medium term, driven by a recovery in imports and the opening of the borders.
The Fund said that fiscal policy should support the economy in the near-term but should aim to reduce public debt to below 60 percent of GDP by 2025.
It urged the government to reduce the wage bill, goods and services spending and energy subsidies, and improve revenue mobilisation and public financial management. Monetary policy should remain focused on price stability, the fund said.