150 Asian Development Outlook 2021 Update

Kyrgyz Republic
The economy shrank by 1.7% in the first half of 2021 as
contraction since the second half of 2020 persisted in Table 3.1.5 S
 elected economic indicators in the
industry, and despite other sectors slowly starting to Kyrgyz Republic, %
recover. Industry retreated from scant 0.1% growth year 2020 2021 2022
on year in the first 6 months of 2020 to decline by 10.6% as ADO ADO
the production of pharmaceuticals and chemical products 2021 Update 2021 Update
and the processing of gold and other metals plunged by GDP growth –8.6 3.5 3.5 5.0 5.0
16.2%, though the mining subsector grew by 2.1% on gains Inflation 6.3 7.0 10.0 7.0 7.0
in output other than gold. Construction fell by 14.2% as CAB/GDP 5.2 –8.0 –8.0 –8.0 –8.0
combined public and private investment dropped by 11.8%. ADO = Asian Development Outlook, CAB = current account
Agriculture grew by 1.3% as livestock production rose balance, GDP = gross domestic product.
by 1.5%. Services expanded by 4.8% as trade recovered Sources: National Statistics Committee; National Bank of
the Kyrgyz Republic; Ministry of Economy; International
by 10.0% and transportation by 19.4%, while hospitality Monetary Fund staff report for the Article IV Consultation,
contracted by 5.0%. May 2021; Asian Development Bank estimates.
Growth is expected to recover in the second half of 2021
as mining, trade, and other services bounce back from last
year’s low base, given a favorable outlook in trade partners.
However, the adverse effects of COVID-19 are expected to
continue, as borders have not completely reopened, flights and
road traffic have not fully resumed, and business confidence
remains low. Any recurring pandemic waves or slow vaccine
rollout could derail growth. On balance, this Update keeps
growth projections unchanged for 2021 and 2022 (Table 3.1.5).
In the first half of 2021, average inflation nearly doubled
from 5.8% a year earlier to 10.8%. Food price inflation
remained high at 11.0% as supply chains were slow to recover
and pass-through continued from 20% depreciation of the
currency against the US dollar in 2020. To curb inflationary
pressure from currency depreciation and manage a floating
exchange rate, the National Bank of the Kyrgyz Republic, the
central bank, raised its policy rate by 1.0 percentage point to
6.5% in April 2021 and kept it unchanged in its June meeting.
This Update, expecting inflation in the second half of 2021 to
remain high with persistent and rapid food price increases,
substantially raises the inflation forecast for 2021. However, it
keeps the 2022 inflation forecast unchanged, assuming further
restoration of economic stability in 2022.
In the first quarter of 2021, the current account deficit
equaled 4.6% of GDP. Data for the first 6 months of 2021
showed the merchandise trade deficit widening by 21.9% from
a year earlier. Exports contracted by 9.5%, mainly from lower
exports of gold and other metals. Higher imports of machinery
and equipment, apparel, and sugar boosted total imports by
40.2%, enabled by remittances that were 41.0% above the
same period in 2020. As these developments align with earlier
forecasts, this Update leaves unchanged projections for current
account deficits in 2021 and 2022.