BISHKEK (TCA) — Favorable conditions for business have been created in Kyrgyzstan, President Sooronbai Jeenbekov said at a news conference on the 2018 results.
New enterprises are exempt from inspections of fiscal authorities for three years. The registration procedure for entrepreneurs has been simplified, and it does not exceed three days now.
Kyrgyzstan has the most liberal tax regime in Central Asia. The total tax rate is 29% in Kyrgyzstan while it is 32.1% in Uzbekistan, 67.3% in Tajikistan and 29.4% in Kazakhstan, according to the rating of Paying Taxes 2019 conducted by PricewaterhouseCoopers in collaboration with the World Bank.
Positive results
Chairman of the National Bank of the Kyrgyz Republic Tolkunbek Abdygulov is also optimistic about the 2018 results. The economy has positive trends in the main sectors of the economy, he said.
In January-November, Kyrgyzstan’s GDP increased by 3.1% compared to the same period of 2017.
The national currency, the som, remained stable throughout the year and the average annual inflation has not exceeded 2%.
The banking system’s work can be assessed by such key indicators as the volume of loans and deposits. The loan portfolio of Kyrgyzstan’s commercial banks has increased by 16.4% and amounted to 126 billion soms and the deposit base of the banks has increased to 131 billion soms (a 7.6% increase).
Remittances
Growing remittances from labor migrants give a serious boost to the economy, but they cannot give a push to its development. Remittances remain the main source of financing the trade deficit, the National Bank of Kyrgyzstan reported.
In January-October 2018, the remittances to the country increased by 4.6%, amounting $1.8 billion.
Poverty
Kyrgyzstan has been ranked among the ten poorest countries in the world. The Focus Economics Group has compiled a ranking of 127 countries, based on GDP per capita which is often considered an indicator of the standard of living of a given country, as it reflects the average wealth of each person residing in a country.
According to the analysts, Kyrgyzstan ranked the tenth with $1,222 GDP per capita in 2018, and the ninth with $1266 GDP per capita expected in 2019.
According to the National Statistical Committee of Kyrgyzstan, 25.6% of the country’s population is in the poor category. More than 28.4% of rural residents and 20.4% of urban ones remain poor.
The number of registered unemployed has increased by 10% in 2018. Of the total number of unemployed, 51% are women.
Public debt
Kyrgyzstan’s state debt was $4.4 billion for the first 10 months of 2018, of which the external debt was $3.8 billion, the Finance Ministry said.
In October, the external debt exceeded 55% of GDP. The Finance Ministry proposed to increase its threshold to 70% in 2020.
Every year, more and more budget funds will be spent for servicing the public debt. A fifth of the national budget will be allocated to pay the public debt in 2019, Prime Minister Mukhammedkaly Abylgaziev said.
In 2019, it will be 28 billion soms, in 2020 — 29.3 billion soms, and in 2022 — 36.5 billion.
“It is necessary to learn to live within our means and reduce the country’s shadow market, as well as to focus on grants and take fewer loans,” the Prime Minister said.
Loans and grants
Kyrgyzstan has attracted $9.8 billion in loans and grants over the years of independence since 1992. According to the Finance Ministry, 24.9% of those funds went to the transport projects, 21.7% — to the energy sector, 5.4% — to the social sector, and 3.6% — to agriculture.
The main donors of Kyrgyzstan are the Asian Development Bank, the World Bank, the Eurasian Development Bank, the European Bank for Reconstruction and Development, EXIMBANK (China), as well as Russia, Japan, and Turkey.
The external program assistance will decrease to 4.3 billion soms in 2019 compared to 6.4 billion soms in 2018, the Finance Ministry said.
Industrial production
The largest share in the GDP of Kyrgyzstan falls on the services sector (45%). The share of industry is about 1%. According to the State Property Management Fund, 701 enterprises stand idle in Kyrgyzstan.
The authorities pin high hopes on the development of the mining industry, but over the years of independence there have been no significant changes in this sector. The situation with the largest gold mines in the country, Kumtor and Jerooy, remains problematic. Works at Jerooy are behind schedule. Initially the gold mining was supposed to start operating this year.
The Kumtor Gold Company, which develops the largest Kumtor gold deposit in the Issyk-Kul oblast, remains the main support of the national budget. In the third quarter of 2018, the KGC’s tax payments to Kyrgyzstan’s budget exceeded 1.5 billion soms.
Meanwhile, Kyrgyzstan’s authorities and Canadian investors cannot reach a mutually beneficial agreement. A year ago, the Government approved a compromise version of the agreement, under which the mine was supposed to operate until the reserves are depleted.
However, negotiations between the investor and the Government were postponed indefinitely. The fate of Kumtor, despite its high significance for the country, remains unresolved, which reduces Kyrgyzstan’s investment attractiveness.
Shadow economy
It is very difficult to calculate how much money the state is not receiving due to the shadow economy.
According to the National Statistics Committee, the shadow economy in Kyrgyzstan is about 23-24% of GDP. According to former Finance Minister, MP Akylbek Japarov, it is about 50% of GDP. More than 60% of Kyrgyzstan citizens work without concluding labor contracts, he said.
In Russia, this figure is 38% and in Kazakhstan about 30%.
Investments
In the first half of 2018, the inflow of foreign direct investment decreased by 33.2% and amounted to $247 million in Kyrgyzstan.
According to the National Statistics Committee, the main investors were China, Russia, the Netherlands, Turkey, Switzerland, and Kazakhstan. Their share was 79%. The FDI decreased due to their decline from Canada (25.2-fold), China (1.8-fold) and the UK (6%).
In the total FDI received, the largest share was from China (35.7%). Over the first nine months of 2018, China invested $123.23 million in Kyrgyzstan.
Most of the FDI goes to the mining industry. But, according to experts, the recent conflicts with the local population in the south of the country — at the Makmal-Altyn factory in the Toguz-Toro district of the Jalal-Abad oblast, at the Shambesai deposit in the Batken oblast and at the mines in the Chatkal region of the Jalal-Abad oblast — had a negative impact on the investment climate in the country. The unstable situation around the Kumtor gold mine also discourages investors.
The investments outflow was $29.7 million in the mining in January-September.
There are no breakthrough projects focused on economic growth in the country, experts say. Investment projects are not designed for payback. As a result, the tax burden falls on the existing business. This situation implies additional difficulties for private businesses.
Large investors do not come to the country. Chinese investments are mainly aimed at infrastructure projects, the return on which is low and prolonged over time.
Kyrgyzstan’s authorities are faced with a difficult task to shift the focus from politics to economics. To resolve long-standing problems, they should improve the state administration system and find funds to implement priority tasks.
