Economic Reforms - The Times Of Central Asia

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Economy

Kyrgyzstan Economy at Risk of Stagnation, Warns World Bank

The World Bank has released a new report on the economic development of Kyrgyzstan and the broader Central Asian region. While the report acknowledges that Kyrgyzstan’s economy is growing at a steady pace, it warns that this growth is insufficient to propel the country to the next stage of development. The report, prepared in collaboration with the Kyrgyz Ministry of Economy and Commerce, outlines a three-stage approach to advancing the national economy. According to David Knight, a leading economist at the World Bank, Kyrgyzstan should prioritize investment, the adoption of new technologies, and innovation. The World Bank also recommends that the government focus on improving education, strengthening the private sector, and reforming energy policy. "Kyrgyzstan's economy is currently showing strong indicators. However, these are not enough to facilitate a transition to the next level of development. As experience shows, it is only a matter of time before economic growth slows. The key question is whether the authorities can sustain momentum," Knight said. Ivaylo Izvorski, the World Bank’s Chief Economist for Europe and Central Asia, told The Times of Central Asia that Kyrgyzstan needs targeted investments — or "point injections" — in key sectors, particularly industry and energy. "Why is it so difficult to transition from middle-income to high-income status? One reason is that countries cannot simply shift from investment-driven growth to innovation-driven growth overnight. The right technologies must first be introduced into the economy, and only then can innovation take hold," Izvorski explained. The World Bank has also raised concerns about Kyrgyzstan’s energy sector, particularly its pricing policies. Despite recent increases in electricity and heating costs, World Bank experts argue that tariffs remain artificially low and heavily subsidized, which could hinder long-term development. "If electricity costs 10 cents per unit but consumers pay only 3 cents, it leads to waste and inefficiencies. State subsidies, the monopoly of state-owned enterprises, and market distortions continue to obstruct energy sector reforms," Izvorski said. The report also highlighted the need for education reform. The World Bank advises Kyrgyz authorities to raise educational standards, particularly in higher education, to support a more skilled workforce. To achieve this, universities and vocational schools should strengthen partnerships with industrial enterprises, while university funding should be tied to institutional performance.

Economy

Kazakhstan Introduces Tax Incentives to Encourage Business Lending

Kazakhstan's draft Tax Code, set to take effect in 2026, proposes a differentiated corporate income tax (CIT) rate for banks, aiming to encourage business lending by making it more financially attractive than consumer lending or government securities investments. The proposed changes were announced by Akylzhan Baimagambetov, Deputy Chairman of the National Bank of Kazakhstan, during a recent briefing. He explained that Kazakhstani banks currently derive income from three main sources: Government securities, whose earnings are currently tax-exempt. Consumer lending, taxed at 20% CIT. Business lending is also taxed at 20% CIT. As banks tend to prioritize consumer lending over business loans, monetary authorities are now restructuring tax incentives to alter this trend. “The proposed approach is as follows: investments in government securities will now be subject to corporate income tax while lending to businesses will be taxed at a lower rate - 20% CIT. Meanwhile, all other income, including government securities and consumer lending, will be taxed at 25% CIT,” said Baimagambetov. Possible VAT Increase to 20% Another major tax reform under discussion is an increase in value-added tax (VAT) from the current 12% to as high as 20%. “We have not yet finalized the VAT rate, but the proposed range is 16% to 20%. Our calculations show that a higher VAT rate would increase the average burden on businesses by just 4%, but the end consumer will certainly feel the price hike. Inflation may rise by up to 4.5%, and we need to mitigate this impact,” said Deputy Prime Minister Serik Zhumangarin. To counterbalance the inflationary effect, the government plans to expand targeted social assistance, adjust salaries in state institutions, and increase pensions. In addition, if VAT is raised to 20%, the government intends to reduce payroll taxes by 10% by eliminating the social tax and mandatory employer pension contributions. “If we are not permitted to reduce these expenses, we will not increase VAT significantly - it’s a matter of checks and balances. We plan to submit our VAT proposal to parliament in the second half of February,” Zhumangarin added. Lower VAT Registration Threshold and Expected Revenue Boost Another key tax reform under discussion is a reduction in the VAT registration threshold from 78.6 million tenge to 15 million tenge. The government expects this change to increase tax revenues by 5-7 trillion tenge. In 2024, Kazakhstan’s national budget collected 12.3 trillion tenge in taxes. As The Times of Central Asia previously reported, the new Tax Code will also introduce a luxury tax on high-value goods such as yachts and cigars.

Economy

Tokayev Outlines Economic Reforms and Calls for Revised Energy Contracts

On January 28, Kazakhstan's capital Astana hosted an expanded government meeting led by President Kassym-Jomart Tokayev. The event focused on the country's socio-economic development in 2024, but this year’s discussion carried broader implications, addressing both domestic and international concerns. Addressing Budget Constraints From the outset, Tokayev made it clear that a key issue for his government is the state budget’s financial shortfall. Analyst Gaziz Abishev noted on his Telegram channel that the problem is not just a lack of funds but a long-standing habit - dating back to 2003 - of addressing challenges by simply increasing spending. “There is no longer an oil windfall to revitalize the dry economy as there was 20 years ago,” Abishev wrote. Adding to the uncertainty, Kazakhstan’s oil revenues face potential disruption from Donald Trump’s stated intention to drive down global hydrocarbon prices. Tokayev outlined a range of measures to fill budget gaps, urging his government to take bold, unconventional steps. He called on officials to act in the country’s best interests without fear of pressure from the Anti-Corruption Service or public opinion. He also stressed the importance of depoliticizing economic partnerships, particularly with Russia and China, cautioning against allowing Russophobic or Sinophobic rhetoric to interfere with business deals. “Money must be attracted from abroad, and this is more important than ever. Without investment, we cannot sustain ourselves. Money doesn’t smell, but it disappears. We need to attract investment from all sides - within the law - without falling into populism. The future of the national economy, and to some extent the country as a whole, is at stake,” Abishev commented. Public Reaction to Tax Reforms Although tax reform was only the sixth of eight key points in Tokayev’s speech, it quickly became the most widely discussed issue among the public. Kazakhstan’s value-added tax (VAT) is currently 12%, with a sufficiency threshold of 78 million tenge ($150,937). The government is considering raising the VAT rate to 20% and lowering the sufficiency threshold to 15 million tenge ($29,026). If implemented, nearly all small businesses would become VAT payers, while the increased tax rate is expected to drive inflation. The government maintains that inflation will not exceed 4.5%, but Tokayev’s mention of “belt-tightening” has already led many to expect rising retail prices. To offset the burden on businesses, the government proposes eliminating mandatory employer pension contributions and reducing the social tax. However, Tokayev himself expressed reservations about cutting the social tax, emphasizing that regional governors (akims) need financial incentives. “Think again. I believe it would be wrong to deprive akims of incentives, especially financial ones. After all, the regions are the country. Find a solution. We will meet again to discuss these issues,” he told the government. The tax reforms will also be debated in Parliament, where the lower house is currently reviewing the draft of the new Tax Code. The government will have to negotiate with members of the Majilis and Senate over the VAT rate, sufficiency threshold, and other sensitive issues. Messages to Foreign Partners...

Economic Reforms

Kazakhstan Plans to End State Regulation of Fuel Prices

Kazakhstan's Ministry of Energy is considering the phased liberalization of gasoline and diesel fuel prices as part of a broader reform aimed at addressing price disparities with neighboring countries and curbing illegal fuel exports. The proposed changes have been outlined in a draft document published on the Open NAP portal. The reform would gradually shift fuel pricing from state regulation to a market-based system. Since May 2024, Kazakhstan has implemented a differentiated pricing mechanism, but the Ministry of Energy acknowledges that state regulation has made Kazakhstan the country with the lowest fuel prices in the region. This disparity has incentivized “gray” fuel exports - illegal cross-border sales - and contributed to domestic shortages of petroleum products. Currently, a liter of AI-92 gasoline in Kazakhstan costs 205 KZT ($0.39), significantly cheaper than in neighboring countries: Russia: 288 KZT ($0.54) Kyrgyzstan: 385 KZT ($0.72) Uzbekistan: 489 KZT ($0.92) The price gap is similarly wide for diesel fuel: Kazakhstan: 295 KZT ($0.56) Russia: 355 KZT ($0.67) Kyrgyzstan: 427 KZT ($0.80) Uzbekistan: 528 KZT ($0.90) Price differences for gasoline range from 40% to 138%, while for diesel fuel the gap is between 20% and 79%. The Ministry of Energy emphasizes that this price liberalization is crucial for addressing the challenges caused by these discrepancies. According to the Ministry, the reform will help: Prevent illegal fuel exports. Ensure the economic viability of oil production projects. Enable expansion of refinery capacity from 18 million to 28 million tons per year. The modernization of the oil refining sector, spurred by market-based pricing, would also create new jobs and provide additional funding for government programs. “Phased liberalization of prices with priority support for socially vulnerable segments of the population is necessary. It will create a sustainable system for supplying the domestic market and ensure economic feasibility,” the Ministry’s explanatory note states. The Ministry has assured the public that the transition to market pricing will be gradual and carefully managed to avoid sharp or sudden price increases. Authorities also promise strengthened oversight of the fuel and lubricants market to ensure uninterrupted supply and compliance with legal standards. Agricultural producers, a key sector reliant on affordable fuel, will retain access to subsidized pricing under transparent mechanisms. Additionally, the government has pledged to implement social support measures to protect low-income and vulnerable populations from the financial impact of rising fuel prices. “Liberalization will ensure predictability of changes and create conditions for modernization of the industry. Social support will be prioritized, and agricultural producers will continue to benefit from structured access to fuel,” the Ministry emphasized. Kazakhstan’s plan to phase out state regulation of fuel prices marks a significant shift in the country’s energy policy. By transitioning to market pricing, the government aims to address long-standing challenges, including illegal exports and underinvestment in refinery modernization, while also ensuring social protections for vulnerable groups. The success of this reform will depend on how effectively the government balances economic modernization with public concerns over rising fuel costs.

WTO

Uzbekistan Completes Bilateral WTO Talks with U.S.

Uzbekistan has successfully concluded bilateral negotiations with the United States as part of its efforts to join the World Trade Organization (WTO), according to Azizbek Urunov, Special Representative of the President of Uzbekistan for the WTO. Urunov announced the milestone on his LinkedIn page. “Uzbekistan and the United States signed today, on December 19, 2024, the Protocol on the completion of the bilateral market access negotiations within Uzbekistan’s WTO accession,” Urunov wrote. The protocol was signed by Deputy Prime Minister Jamshid Khodjaev and U.S. Trade Representative Katherine Tai. Urunov described 2024 as a “historic year” for Uzbekistan’s WTO membership process, noting significant progress achieved by the end of the year. Expressing gratitude, Urunov commended the U.S. negotiating team for its constructive engagement and lauded the dedication of Uzbekistan’s negotiators. He emphasized the country’s commitment to finalizing its WTO accession by 2026, under the leadership of President Shavkat Mirziyoyev. In addition to the United States, Uzbekistan has also concluded bilateral negotiations with China, signaling accelerated efforts to meet its WTO membership target.

Government

Kyrgyzstan Unveils Ambitious Growth Plans at People’s Kurultai

On December 20, Bishkek hosted the third People’s Kurultai (Congress), a platform for direct dialogue between representatives of local communities from across Kyrgyzstan and the country’s top leadership. The event featured opening remarks by President Sadyr Japarov and a detailed address by newly appointed Chairman of the Cabinet of Ministers, Adylbek Kasymaliyev, who outlined the government’s economic priorities and strategic plans for the future. Japarov set the tone for the event by sharing his vision for Kyrgyzstan’s development priorities. He announced that construction of the long-anticipated China-Kyrgyzstan-Uzbekistan railway will commence on December 27. Kasymaliev, in his address, emphasized Kyrgyzstan’s ability to sustain economic momentum, citing the country’s 9% annual GDP growth rate over the past three years. He highlighted key initiatives aimed at transforming Kyrgyzstan’s economic landscape, including: Strategic Infrastructure Projects: Kasymaliyev underscored the significance of the China-Kyrgyzstan-Uzbekistan railway, which is expected to create new economic centers and logistics hubs, effectively positioning Kyrgyzstan as a "land port" in the region. Hydropower and Renewable Energy: As a reliable partner in Central Asia’s hydropower sector, Kyrgyzstan will continue collaborating with Kazakhstan and Uzbekistan on the flagship Kambarata-1 hydroelectric power plant. Kasymaliyev also announced plans to expand solar and wind energy, eliminate state monopolies in the energy sector, and create conditions to attract private investment. Agriculture and Food Security: The government will prioritize agricultural processing to add value to raw products, ensuring food security and bolstering rural economic development. Construction as an Economic Driver: With construction contributing 7.4% of Kyrgyzstan’s GDP - a tenfold increase since 2013 - Kasymaliyev called the industry a vital indicator of economic growth. He noted that construction has significantly improved citizens' well-being over the past three years. Government’s Strategic Goals Kasymaliyev laid out an ambitious roadmap for the Cabinet of Ministers, aiming for the following by 2030: Economic Growth: Maintaining a GDP growth rate of 9% and achieving a GDP of $30 billion. Income Growth: Raising GDP per capita from $2,500 to $4,000. Economic Transition: Shifting from a services-oriented economy to an industrial-agrarian model. Support for Small and Medium Businesses: Increasing their share in GDP from the current 40.5% to 50%. Poverty Reduction: Lowering the poverty rate to 17%. Education Expansion: Ensuring 80% of preschool-age children have access to kindergarten. Kasymaliyev’s address underscored the government’s commitment to comprehensive economic reforms and regional cooperation. His plans reflected an optimistic vision for Kyrgyzstan’s development while addressing key challenges in energy, infrastructure, and social services.