: / Strategies / Kyrgyz Republic Country Assistance Strategy (2003)

Kyrgyzstan Review, 10 years ago

II. Country Context

General Country Conditions

The development challenges facing the Kyrgyz Republic today must be considered against the background of a number of constraining factors:
Geography: The Kyrgyz Republic is land-locked with a small domestic market (5 million people, of which about half are below the poverty line). Most of its land is mountainous, making it difficult and expensive to develop infrastructure, including road and rail transport, and geographically dividing the country between the North and South. These conditions are exacerbated by the many tariff and non-tariff barriers to trade imposed by neighboring countries, although if such barriers could be addressed, and domestic and administrative weaknesses overcome, Kyrgyz Republic exports could benefit from the growing natural resource wealth of the region.
Loss of Soviet Trade and Subsidy: In 1990, Soviet subsidies accounted for about 10 percent of GDP and 30 percent of the budget in the Kyrgyz Republic. These subsidies translated into more or less basic but universal health care, education and employment, as well as basic investment in infrastructure. They were cut off with the break-up of FSU. Just as important, the Kyrgyz Republics exports, previously focused on the FSU, have declined to about one-eighth of their 1990 levels. As a result, GDP declined to about 50 percent of its 1990 level by 1995, although there has been a modest recovery in the past few years.
Low Public and Private Investments: Government utility pricing policies are distorted and the tax base and collection performance is weak. This has limited the capacity of the Government to adequately provide basic public services and financial support to the poorest in a targeted manner, and maintain basic infrastructure. Nearly all of the Public Investment Program (PIP) is funded by donors, which is increasingly under pressure given the need to control debt accumulation. Private (both foreign and domestic) investments are low and household savings have only started becoming significant recently, reflecting the poor investment climate and only gradually improving financial sector. These low levels of investment are below those needed just to maintain the basic infrastructure inherited from the Soviet Union.
Undiversified Economy: The agriculture and industrial production base is small and undiversified, which has left the Kyrgyz Republic very vulnerable to natural disasters or external shocks such as the 1998 Russian financial crisis, too much or too little rain, or the 2002 landslide affecting the Kumtor Gold mine. Much remains to be done to build on progress to date in diversifying the agricultural production base, following the introduction of land reform.
Continuing Wide-Spread Poverty: The level of poverty remains close to 50 percent, though some reduction (from about 55 percent to 48 percent) was registered from 1999 to 2001. Growth has been relatively pro-poor with poorer people increasing their income faster than average. Poverty is particularly entrenched in the rural and mountainous regions, like Naryn Oblast. Access to basic public services and infrastructure such as running water, public sewerage, health and education services has deteriorated. Most pensioners (10 percent of the population) live on less than US$10 per month.