The International Monetary Fund (IMF) has published a Kyrgyzstan country report, according to which the country’s economy grew steadily in 2023, mainly due to expansion of construction and trade. Collection of tax revenues has also improved, and inflation has decreased.

The IMF highlighted that due to the Covid-19 pandemic, rising global food and energy prices, exacerbated by the war in Ukraine, drove inflation in Kyrgyzstan to surge in 2022. From February 2020 to February 2023 inflation rose by 10 percentage points to 16.2%, which represented a ten-year peak for the republic.

However, authorities have now managed to tame the situation. “Inflation in Kyrgyzstan almost halved from 14.7 percent in December 2022 to 7.3 percent in December 2023, thanks to which food and fuel prices fell markedly,” the IMF said in its report.

The IMF expects production to grow in Kyrgyzstan in the near future — which will also have a positive impact on inflation. In the medium term, according to their data, the volume of production in the republic will grow by 4% per year. Despite weak performance in the sectors of agriculture and gold mining, the country’s economy continues to grow — and showed a growth rate of 5% at the end of 2023. The leading industries were trade and construction, followed by transportation and communications.

“An unexpected inflow of labor and income from Russia, as well as a significant increase in trade with that country — mainly re-exports of goods from China to Russia — has boosted domestic development and increased domestic demand for goods and services,” the IMF stressed.

Still, core inflation in the country remains high, which is one of the main drivers of poverty. According to official data, a third of the country’s population lives below the poverty line. Despite a strong recovery from the pandemic, poverty and inequality remain significant challenges for the Kyrgyz economy, which remains vulnerable to shocks, according to the IMF. Without higher and more inclusive growth, it will take decades for the republic to reach the income levels of Europe’s emerging economies, IMF specialists warned.

Meanwhile, IMF experts see headline risks for the Kyrgyz economy in further escalation of the war in Ukraine. Russia is currently Kyrgyzstan’s largest trade partner, alongside China. Exports of Kyrgyz goods to Russia account for half of the country’s foreign trade, and the Kyrgyz economy is heavily dependent on remittances from migrants working there. However, due to Western sanctions, the Russian economy may weaken, which will affect both remittances to Kyrgyzstan and bilateral trade — therefore delivering a harsh and broad impact to the entire Kyrgyz economy.