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    Kyrgyz Republic Country Brief 2003
    Overview

    The Kyrgyz Republic is a low income country with Gross National Income (GNI) per capita of US$ 290. The country is landlocked and mostly mountainous, and is the smallest in Central Asia in terms of both area and population. It is also one of the poorest.The agricultural and industrial production base is small, leaving the country very vulnerable to natural disasters and external shocks. Gold (32.7%), hydro-power (4.4%) and agricultural products make up the bulk of the country’s exports.

    The country has made considerable progress in attaining macroeconomic stability in the past few years. Average GDP has grown at about 5 percent per annum since 1996, and the high rates of poverty have started to decline. The country has implemented broad systemic reforms to create the foundations of a market economy. Some 60 percent of land is now privately owned as a result of the generally equitable land reform agenda, and the economy is relatively open due to the liberalized foreign trade regime and the full convertibility of currency. Growth was slightly negative in 2002 due to the impact of a landslide at the Kumtor gold mine, and the reduced external demand for power. However, positive growth is expected to resume from 2003 onward.

    Although growth has been tangibly pro-poor in the past few years, the country remains one of the poorest in the world and 44 percent of the population still lives below the poverty line. Rural poverty remains significantly higher than urban poverty despite the recent growth in agriculture, and almost three quarters of the poor live in the rural and mountainous regions. Moreover, access to basic public services such as running water, public sewerage, health and education has deteriorated over the past decade. Reducing poverty will require strong and sustained economic performance with strong growth at the grass roots, especially in the rural areas. It will also require growth in small and medium enterprises, improved debt management, better social protection strategies, and good governance.

    Events since independence

    After the collapse of the Soviet Union in 1991, the country met the loss of Soviet subsidies by external borrowing, depletion of assets, a reduction in private consumption and increased government expenditures. As a result, between 1991 and 1995, GDP declined to 50 percent of the 1990 level. All economic indicators deteriorated, and hyperinflation, rising unemployment, and a reduction of real incomes led to a dramatic increase in poverty.

    Since 1993, a national currency has been introduced, prices liberalized, commercial legislation and agriculture reformed, assets privatized, and an open external trade regime adopted. As a result, the economy has begun to recover from 1996 onward.

    Recent economic performance

    During 2000-2001, real GDP grew, on average, at about 5 percent. Growth has been led by agriculture and services (including the service sub-sectors of transportation and trading), and the two major industrial sectors of gold mining and power. Inflation has declined to about 2 percent and the exchange rate has been relatively stable during the last three years.

    Notwithstanding the country’s measures to integrate into world trading arrangements by adopting a very liberal tariff schedule and acceding to the WTO in 1998, it has been difficult to attract foreign investment and boost exports. This has largely been due to the external barriers to regional trade that hamper the flow of goods, as well as to internal barriers such as the excessive regulatory system that hamper investment.

    Debt sustainability remains a key challenge. The net present value of public debt is over 180 percent of exports and over 370 percent of budget revenues – well above the Heavily Indebted Poor Countries (HIPC) threshold. In 2002, the Paris Club agreed on a debt rescheduling package that will reduce the country’s debt service burden in the next three years.

    Focus of World Bank Assistance

    The Kyrgyz Republic joined the World Bank and the International Development Association in 1992. The country has piloted the Comprehensive Development Framework (CDF) with an inclusive ten-year plan for 2001-2010 which provides the broad vision for its development. The National Poverty Reduction Strategy (NPRS) seeks to translate this vision into concrete measures. The World Bank is assisting the Government to reduce poverty by focusing on three key issues that correspond with the focus of the NPRS:

    Supporting private sector-led growth. Limits imposed on public investments by the high levels of external debt make private sector-led growth essential. The IDA and the IFC are helping the country to implement reforms and investments in the three key areas that drive private sector-led growth -- agriculture and agro-processing, energy and industry, and small enterprises. They are also seeking to create the conditions for local entrepreneurs to grow and diversify, and the IDA is helping develop plans to protect the country from natural disaster risks, which could derail growth.

    Providing essential services. Infrastructure and social service systems inherited from the Soviet era have slowly deteriorated. Selectivity and systemic reform are essential to rehabilitate critical infrastructure, and IDA is seeking to empower local communities to identify priorities, in keeping with the decentralized vision of the NPRS. IDA is also targeting social services where they are needed most, such as for education in the rural areas.

    Strengthening governance. Governance is one of the most important issues facing the country. The World Bank is seeking to help the Government to increase public sector accountability and transparency, as well as to strengthen public resource management. The World Bank is also helping the Government to decentralize by building local capacity.

    In addition, IDA focuses significant attention on providing the Government with a strong level of analytical work and capacity building, including preparing a Poverty Assessment, a Public Expenditure Review, a Financial Sector Assessment Paper, a Country Procurement Assessment, and a Country Financial Accountability Assessment.

    The Country Assistance Strategy is predicated on implementing recommendations from these efforts, as well as maintaining a robust package of non-lending services including policy notes, a fiduciary review, and IDF grants. The World Bank Institute has designated the Kyrgyz Republic as a focus country, and will provide increased support for capacity building and knowledge sharing.

    For further details please see the World Bank's Country Assistance Strategy for 2003-2006.

    Impact On The Ground

    Agricultural reform is transforming economy. Over 60,000 small, private farms have emerged as a result of the country’s well developed and largely equitable land reform program that was underpinned by Bank assistance under the Land Registration Project. Projects in irrigation, rural finance, and agricultural services have also played a key role in transforming the rural economy.

    Flood protection infrastructure upgraded. Some 16 villages are now protected against flood hazards as a result of flood protection infrastructure that has been upgraded on four rivers with Bank assistance. About 30,000 people have benefited. Moreover, water supply is now guaranteed to irrigation systems covering a total area of some 34, 552 ha., as a result of restored headworks.

    Agricultural production increased. Agricultural production has increased through better irrigation as a result of nine irrigation schemes rehabilitated with Bank assistance. Works on another eight irrigation schemes are on-going.




    Water User Associations improved. Training and support to Water User Association (WUA) members and staff under the On-Farm Irrigation Project has improved the managerial and financial conditions of WUAs across the country.

    Credit now widely available in rural areas. A sustainable rural financial system has been instituted through the Kyrgyz Agricultural Finance Corporation (KAFC), established with Bank assistance in 1996. Over 42,500 projects covering both on-and-off farm economic activities for nearly 2.75 billion KGS have been approved. Social collateral-based group lending has provided access to credit for those who have been unable borrow through commercial credit lines. The recovery rate on such lending is 96 percent.

    Safe drinking water and better sanitation reach rural areas. Safe and affordable drinking water is being made available to communities in the Issyk-Kul, Naryn and Talas oblasts under the Rural Water Supply and Sanitation Project. The Bank is working through Community Driven Development (CDD) initiatives to empower village and small town communities to select their own priorities under the project. >>More

    Urban roads rehabilitated. With the Bank’s assistance, 73 kilometers of urban roads in the cities of Bishkek, Osh and Jalalabad have been rehabilitated, improving the mobility of their people. The first steps are also being taken to develop a reliable source of financing for the maintemance and rehabilitation of urban roads.

    Healthcare revamped. Some 278 health facilities, including hospitals, primary health care centers, laboratories and training centers, have been rehabilitated and equipped with Bank assistance. More cost effective approaches to health care are also being piloted. While the Health I Project has helped to make medicines available, the Health II Project is helping to ensure the availability of good quality medicines at affordable prices. Training and re-training programs are also building the capacity of health personnel in family medicine as well as in health promotion and management.

    Challenges Ahead

    • Reducing poverty. With GNI per capita of US$ 290, the Kyrgyz Republic is the second poorest country in the former Soviet Union and one of the poorest in the world.
    • Reducing the country's heavy burden of external debt. The March 2002 Paris Club Agreement, although providing favorable debt service relief over the short-term, has not changed the stock of external debt. However, a goodwill clause allows for a potential stock reduction operation in the future, subject to progress in consolidating macroeconomic stability through further adjustment and reform. Increased access to grants and concessional financing is critical to reduced reliance on external financing.
    • Diversifying the economy. The agriculture, hydropower and mining sectors are vulnerable to weather-related developments and natural disasters. Medium-term reforms aimed at diversifying the economy and strengthening the private sector are therefore critical.
    • Strengthening governance. Ineffective governance and corruption are serious impediments to growth and poverty reduction. Reforms in the public sector will encourage the development of the private sector, and ensure that available public resources are targeted to the most vulnerable groups in the population.
    • Increasing regional cooperation on water, energy and trade. This is critical to achieving sustained growth and poverty reduction as the Kyrgyz Republic is a mountainous, landlocked country with limited access to world markets.

    World Bank Partners in the Kyrgyz Republic

    SECTOR LEAD NATIONAL AGENCYPARTNERS
    Poverty Reduction and Economic ManagementAdministration of the President
    Prime Minister’s Office
    Ministry of Finance
      EU (TACIS), UNDP, DFID
    Rural Development and EnvironmentMinistry of Agriculture, Water Resources and Processing Industry
    State Agency on Registration of Rights to Immovable Property
    Ministry of Ecology and Emergency Situations
    State Forestry Service
    Kyrgyz Agricultural Finance Corporation
      EU (TACIS), DFID, FAO, ADB,IFAD, USAID, Governments of Austria, the Netherlands, Sweden, Switzerland
    Human DevelopmentMinistry of Healthcare
    Ministry of Labor and Social Protection
    Social Fund
    Ministry of Education
      UN agencies, WHO, KFW, USAID, Government of Switzerland
    Financial Sector/ Private Sector DevelopmentMinistry of Finance
    National Bank of the Kyrgyz Republic
    Committee on State Property and Direct Investments
      ADB, IMF, EBRD, USAID
    Energy and InfrastructureMinistry of Transport and Communications
    Kyrgyztelecom
    State Energy Agency
    JSC “National Electric Grid”
    Committee on State Property and Direct Investments
      ADB, EBRD, DANIDA, DFID,
      Nordic Development Fund,
      Government of Switzerland
    CDF/ NPRSCDF Secretariat
    Ministry of Finance and other relevant line ministries
      IMF, ADB, UNDP, DFID
      Governments of Japan and
      the Netherlands


    World Bank Lending to the Kyrgyz Republic

    Total IBRD / IDA Commitments from FY93 to FY03: US$ 649 million
    (by fiscal year*, in nearest US$ millions)

    up to 1996
    1997
    1998
    1999
    2000
    2001
    2002
    2003
    Total
    Commitments
    313
    60
    65
    62
    34
    72
    15
    28
    649
    Disbursements
    172
    63
    46
    62
    43
    30
    33
    30
    479

    Total Commitments by Sector since 1993
    (in nearest US$ millions)



    * Fiscal year from July 1-June 30.

    For more information please contact:

    In Bishkek: Jyldyz Djakypova phone: + ( 996- 312 ) 610 - 650
    E-mail: jdjakypova@worldbank.org



    September 2003

About the Kyrgyz Republic


Population: 5 million

Population per sq. km 
25

Population growth 
1.2%

Life expectancy 
68.5 years

Population below national poverty line 
44 %

GNI per capita 
US$ 290

GDP 
US$1.6 billion

GDP Growth
5.3% (2001)
0.5% (2002)

2002 data
Sources: National Statistical Offices, IMF, IFS, WDI 2002 and Staff estimates


Map


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