ANNUAL REPORT JUNE 2010
FEDERATION OF EURO-ASIAN STOCK EXCHANGES
KYRGYZ STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Economic and Political Environment
It is likely that the president, Kurmanbek
Bakiyev, will exploit the administrative
resources at his disposal to ensure his re-
election in July 2009. Opposition forces have
been unable to agree on a unified presidential
candidate, making Mr Bakiyev's re-election
more likely. The sidelining of the opposition by
the presidential administration in the election
in 2007—a poll that was criticised by
international observers—will continue to cast
doubt on the legitimacy of parliament, with the
pro-presidential Ak Jol (True Path) party
holding almost 80% of the seats. The
opposition will attempt to rally the public
behind it by concentrating on the resonant
issues of harsh economic conditions and
controversial privatisations. Public protests on
such issues are likely in the context of high
inflation and a forecast rapid slowdown in
economic growth, and will have an increasing
potential to turn violent as economic hardship
deepens. However, the government is likely to
be able to contain them.
The authorities have tended to try to pursue a
multi-vectoral foreign policy—that is, one that
seeks to maintain good relations with all the
main powers in the region. However, following
the announcement of the closure of the US
airbase at Manas, Russia has become a much
more prominent partner. Although the military
base provided the authorities with much-
needed revenue, this was dwarfed by a loan
package agreed with Russia in February.
Nevertheless, ties with the US will not suffer a
complete rupture, given that the uncertain
security situation in Afghanistan is expected to
lead to a certain degree of tolerance on the
part of Russia to a US presence in the region,
at least in the immediate term.
Policy trends in 2009-10 will be predominantly
based on limiting the impact of external
economic shocks. The Kyrgyz Republic has
developed a policy programme with the IMF,
having agreed an 18-month arrangement
under the Fund's exogenous shocks facility
(ESF). Nevertheless, the goal of meeting the
Fund's criteria will have to be balanced
against preventing a rise in social instability,
particularly in a context in which inflation is still
high and a rapid downturn in growth is
forecast. The government's medium-term
policy emphasis is on cutting inflation,
sustaining growth and reducing poverty.
Financial support from Russia will enable the
government to run larger budget deficits than
originally planned in 2009-10.
demand for Kyrgyz exports and a fall in
inflows of remittances to fund private
consumption.
Continuing power shortages and a doubling in
the cost of gas imports in 2009 will exert
significant upward pressure on prices. It is
forecast a sharp fall in international oil prices
in 2009, which will ease imported inflationary
pressures. Forecast falls of over 25% in
average food prices and over 40% in the
prices of industrial raw materials will also
contribute to a slowdown in Kyrgyz inflation
compared with 2008. A slowdown in
consumer demand will also curtail price
growth for domestically produced goods and
for services, although utilities prices are likely
to continue to rise. We now forecast average
annual inflation at 7.5% in 2009, compared
with 24.5% in 2008, and expect further
disinflation, to an average of 5.5%, in 2010.
Economic Performance
Expected that the economies of two of the
Kyrgyz Republic's most important economic
partners, Kazakhstan and Russia, to contract
in 2009, given the impact of global financial
turbulence and a slowdown in growth
worldwide. The two countries are important
destinations for Kyrgyz non-gold exports, as
well as the main host countries for Kyrgyz
migrant labour. In addition, Kazakh banks
control a significant proportion of the Kyrgyz
banking sector. Prices for oil will fall sharply in
2009, before increasing in 2010. This will help
to offset the impact on the Kyrgyz Republic's
import bill of a doubling in gas import prices.
Prices for other commodities and food are
also expected to decline markedly in 2009,
before recovering slightly in 2010. The price of
gold, the country's main export commodity, is
forecast to stabilise in 2009-10.
The som saw a sharp reversal in a trend of
slow nominal appreciation in September 2008,
and has fallen by around 20% since then, as
investors withdraw from perceived higher risk
in emerging-market currencies. The National
Bank of the Kyrgyz Republic (NBKR, the
central bank) has been selling foreign-
currency reserves to support the som, so that
foreign-exchange reserves, which had stood
at US$1.2bn at the end of 2008, had fallen to
US$1.05bn by end-March 2009.
The Kyrgyz Republic has been recalculating
its current-account data to take account of
unrecorded remittance inflows and shuttle
trade re-exports. Until this process is
complete, year-on-year comparisons will
remain problematic.*
Real GDP growth slowed from 8.5% in 2007 to
7.6% in 2008. A downturn in the Russian and
Kazakh economies will have a knock-on effect
on growth in 2009, in terms of reduced
* The Economist Intelligence Unit Limited, May 2009
Key Information Contacts
National Bank of the Kyrgyz Republic www.nbkr.kg
Ministry of Finance www.minfin.kg
The Service of Supervision and Regulations of Financial Market of Kyrgyz Republic www.nsc.kg
Ministry of Foreign Trade and Industry of the Kyrgyz Republic www.mvtp.kg
REAL GDP
(KGS millions)
CONSUMER PRICES (% CHANGE PA; AV)
(%)
35
25
30
20
25
20 15
15 10
10
5
5
0
0
2005
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