The Economist Intelligence Unit (EIU) forecasts a slowdown in real GDP growth to 4.5% in 2009, from an estimated 6% in 2008, the November report of the organization read.
Heavily reliant on multilateral funding, the Kyrgyz Republic has a strong incentive to maintain good relations with international financial institutions such as the IMF, but the goal of meeting the Fund!s criteria will have to be balanced against preventing a rise in social instability, particularly in the context of high inflation. Although the prospects of greater political stability have improved in the light of the adoption of a new constitution in October 2007, progress on implementing the structural reform agenda is likely to continue to be impeded by a combination of political divisions within the country, social concerns and vested interests, the organization said.
The government’s attempt to maintain a relatively tight fiscal policy stance will come under pressure over the forecast period. The EIU expects the target for a deficit of 2.2% of GDP to be met comfortably in 2008. The latest available data indicate a budget surplus in January-August, but a traditional surge in spending in the final quarter will push the budget into deficit, estimated at 0.7% of GDP, by year-end.
“Real GDP growth slowed from 8.2% in 2007 to 6.6% in the first nine months of 2008, partly in response to the sharp rise in inflation since late 2007. Despite continuing discord between the administration and opposition groups, business sentiment will benefit from greater political stability than in recent years. However, slowing expansion in Russia and Kazakhstan will have a knock-on effect on growth in 2009, in terms of lower demand for Kyrgyz exports and a fall in inflows of remittances to fund private consumption. A deepening of financial sector problems in Kazakhstan will have a detrimental effect on the Kyrgyz construction sector and on the availability of credit for investment, as most Kyrgyz banks are owned by Kazakh parents. Growth in private consumption and fixed investment will also suffer from the sharp rise in inflation seen in 2008. Industrial output is likely to be hampered by continuing problems in the electricity-generating sector, with economic activity already constrained by the frequent institution of power cuts in 2008. The EIU therefore forecasts a slowdown in real GDP growth to 4.5% in 2009, from an estimated 6% in 2008. A recovery in the Kyrgyz Republic!s main trading partners in 2010will lead to an acceleration to 6.3% growth in that year,” the organization said.
