Kyrgyzstan

GDP (US$ Billion)

7.16 (2017)

World Ranking 148/192

GDP Per Capita (US$)

1,144 (2017)

World Ranking 161/192

Economic Structure

(in terms of GDP composition, 2018)

Services
(49.79%)
Industry
(27.46%)
Agriculture
(11.65%)

External Trade (% of GDP)

108.7 (2016)

Currency (Period Average)

Kyrgyzstani Som

68.87 per US$ (2017)

Political System

Republic

Overview

Kyrgyzstan is a land-locked, lower-middle-income country that has rich endowments, including minerals, forests, arable land and pastures, and there is significant potential for the expansion of its agriculture sector, hydroelectricity production and tourism industry. Following peaceful elections in November 2017, the coalition government (which is accountable to the parliament) embarked on an ambitious reform agenda. However, the economy is vulnerable to external shocks owing to its reliance on one gold mine, Kumtor, which accounts for about 10% of GDP, and on worker remittances, equivalent to about 27% of GDP in 2018.

Sources: World Bank, Fitch Solutions

 

Major Economic/Political Events and Upcoming Elections

December 2016

Kyrgyzstani voters approved a raft of constitutional changes in a referendum which strengthened prime ministerial powers.

 

October 2017

Sooronbai Jeenbekov was elected president.

 

April 2019

The Asian Development Bank approved financing worth USD100 million for the modernisation of the Uch-Kurgan hydropower plant installed along the Naryn River cascade in Kyrgyzstan. Ageing equipment would be upgraded under the project. The project would restore full operation of all four generating units of the plant to increase the capacity from 180MW to 216MW. The scheme also entailed reinforcing hydraulic steel structure and dam infrastructure of the plant, while making all eight bottom outlet gates operational. Work also includes the removal of undertake silt and sedimentation to help restore proper operation of the plantˈs hydro-mechanical equipment. ADB would also administer a USD45 million loan from the Eurasian Development Bank for the modernisation.

 

August 2019

Activity at the Zhong Ji Mining company gold mine was suspended following clashes between local residents and mine workers in the central Naryn province.

 

October 2019

Canadian firm Centerra, owner of Kumtor – Kyrgyzstan’s only commercial gold mine – announced that gold production increased by 64% during the first half of the year.

 

Sources: BBC Country Profile – Timeline, ADB, Fitch Solutions

Major Economic Indicators
External Trade

Merchandise Trade

Trade in Services

Trade Policies
  • Kyrgyzstan joined the World Trade Organization (WTO) in 1998.
     
  • Kyrgyzstan's trade profile received a significant boost when the country ascended to the Russian-led Eurasian Economic Union (EAEU) single market trading bloc in 2015. It is a member along with Russia, Belarus, Kazakhstan and Armenia. The EAEU single market provides for the free movement of goods, people, capital and services between member states, with a common external tariff regime.
    ​​​​​
  • Various anti-dumping measures were imposed on products from Ukraine, autos parts and steel products from Mainland China, and autos from various countries. The country is highly dependent on imports for consumer and industrial needs. This makes accessing them from non-EAEU markets significantly more expensive. Given that Mainland China is Kyrgyzstan's neighbour, this has significantly impacted trade flows between the two countries. In October 2019 Ukraine initiated dispute complaints against Kyrgyzstan and Armenia to challenge anti-dumping duties imposed by on steel pipes originating from Ukraine.
     
  • The country's landlocked status has meant that in the past it has largely traded with its immediate neighbours, such as Russia and Mainland China. Trade with Russia has benefitted from Kyrgyzstan's accession to the EAEU.
     
  • Mainland China has become Kyrgyzstan's most important source of goods. Mainland China is the source of nearly two-fifths of all goods brought into Kyrgyzstan. Machinery, clothing goods and other manufactured products make up the bulk of the basket of items bought by Kyrgyzstan from Mainland China.
     
  • Kyrgyzstan has double taxation treaties with over 20 countries including Armenia, Austria, Belarus, Canada, Mainland China, Finland, Germany, India, Iran, Kazakhstan, Lithuania, Malaysia, Moldova, Mongolia, Pakistan, Poland, Russia, Switzerland, Tajikistan, Turkey, Ukraine, and Uzbekistan.

Sources: WTO – Trade Policy Review, Fitch Solutions

Trade Agreement

Trade Updates

The EAEU-Mainland China agreement was signed on May 29, 2018. The EAEU and Iran signed an interim agreement on a free trade zone in May 17, 2018, during the Astana Economic Forum. Two years of negotiations resulted in a three-year arrangement to reduce import customs duties on approved goods.

Active

  1. Commonwealth of Independent States Free Trade Agreement (CISFTA): Most of Kyrgyzstan's main trade partners are now included in the EAEU, which has somewhat superseded the CISFTA.
     
  2. Kyrgyzstan-Tajikistan (effective date from January 2006): Kyrgyzstan mainly imports fruits, nuts and tobacco from Tajikistan. Kyrgyzstan's exports to Tajikistan include coffee, tea and milk as well as preparations of cereals, spirts and vinegar.
     
  3. EAEU (Kyrgyzstan, Russia, Kazakhstan, Armenia and Belarus): While opening up markets in major trade partners Russia and Kazakhstan, the deal increases trade barriers with neighbouring Mainland China.
     
  4. EAEU-Vietnam FTA: Vietnam is not a major export or import partner of Kyrgyzstan. However, the promulgation of this FT  in October 2016 provides another tariff-free market for Kyrgyzstani exports and may allow Vietnam to overtake some of Mainland China's dominance in the textiles and manufactured goods markets.
    ​​​​
  5. EAEU-Singapore FTA: The EAEU and Singapore agreed to begin negotiations for an FTA in December 2016 and concluded five negotiation rounds. The two parties signed the FTA on October 1, 2019. The agreement aims to strengthen collaboration between the two parties in areas such as trade and investment, intellectual property rights protection, customs cooperation and competition enforcement.
Investment Policy

Foreign Direct Investment

  

 

Foreign Direct Investment Policy

  1. Kyrgyzstan attracts significant inward foreign direct investment (FDI) flows to the mining sector and has a clear and incentive-driven FDI legal framework. Significant hurdles have made foreign investors wary of the country as a destination for doing business. These include the inconsistent application of FDI laws by the Kyrgyzstani government, which has seen them involved in several large-scale international lawsuits with foreign mining companies; resource nationalisation in the mining sector; and significant limits on foreign ownership of land.
     
  2. Foreigners can neither own agricultural land nor own or use any land except residential land which has been foreclosed under a mortgage loan agreement under Kyrgyzstani law.
     
  3. The Kyrgyzstani government, Centerra Gold (which operates the largest gold mine in the country) and Kumtor were involved in court battles regarding government participation in the mine.
     
  4. Many high-profile mining companies have had to renegotiate their mining contracts, have had their mining licenses revoked or have been charged high penalties for alleged environmental policy non-compliance. Sectors which employ a large portion of the population or contribute significantly to tax revenue may find themselves subject to additional audits, fines applying to instances which happened many years prior, licensing and/or permit disputes or have additional local workforce hiring requirements imposed on them.
     
  5. Investors face significant barriers from the high levels of corruption and weak protection of intellectual property rights in Kyrgyzstan.
     
  6. Since 2016 all local transactions for payment of goods and services have had to be made in local currency.

Sources: WTO – Trade Policy Review, the International Trade Administration, US Department of Commerce, Fitch Solutions

 

Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive Programme

Main Incentives Available

Free Economic Zones (FEZs) located in Bishkek, Naryn, Karakol and Maimak

- Efficient transport connections
- Streamlined customs procedures
- No restrictions on capital repatriation
- Income tax exemption
- Exemption from customs duties and trade tariffs

Park of Innovative Technologies

- Exemption from profit tax
- Exemption from customs and value-added tax (VAT)
- Employees taxed at a reduced rate of 5%

Profit tax exemption

If profit earned by a resident company stems from own-produced or re-processed goods in Kyrgyzstan, while also only using equipment purchased after April 30, 2015, then the tax on profits is waived; however, companies need to fulfil one of the following criteria in order to be eligible for the exemption:

- Record an annual turnover exceeding KGS170 million
- Record monthly profit tax exceeding KGS150,000
- Be a charter capital of the local company, while also exceeding KGS10 million
- Cannot take part in the tobacco, mining, alcohol, retailing, and information technology sectors

Sources: US Department of Commerce, Fitch Solutions

Taxation – 2020
  • Value Added Tax: 12%
  • Corporate Income Tax: 10%

Source: State Tax Service under the Government of the Republic, Kyrgyzstan

 

Business Taxes

Type of Tax

Tax Rate and Base

Corporate Income Tax

- 10% on profits

- 5% for leasing companies between January 1, 2017 and December 31, 2021

​​​​​- 0% for companies engaged in gold mining (also applies to some companies – domestic or foreign – associated with gold mining)

Gold Industry Exports Tax

Varies between 1-20% of revenues from sales of gold ore and alloys, depending on world prices

Real Estate Tax

0.8% for property used in business activities

Withholding Tax

10% on dividends, royalties and interest income paid to non-residents

Pension fund contributions

15% on gross salaries

Medical insurance contributions

2% towards medical insurance fund for employees

Health Fund

0.25% towards healthcare fund for employees

VAT

- 12% on sale of goods and services

- certain goods are exempt from VAT

Source: State Tax Service under the Government of the Republic, Kyrgyzstan
Date last reviewed: March 2, 2020

Foreign Worker Requirements

Localisation Requirements

The Kyrgyzstani government sets specific quotas for how many foreign workers can be employed. These quotas are set by the Ministry of Labour on an annual basis and differ from region to region within the country. In order to acquire a foreign worker permit, an employer must demonstrate that the skills needed for the specific position cannot be sourced within the domestic labour market.

 

Visa/Travel Restrictions

The country still has fairly low female workforce participation rates, estimated at around 48%. Significant cultural and religious barriers remain and women do not enjoy the same pay or career opportunities as men, further restricting the pool of talent to choose from.

 

Foreign Worker Permits

While citizens of other EAEU and Commonwealth of Independent States countries may be employed without obtaining a special work permit, this is not the case for foreign workers from countries outside these regional arrangements. In order to be legally allowed to employ foreign workers, a business must first obtain permission from the Ministry of Labour. In order to be issued a foreign worker permit (which usually takes around 35 days), the employer must demonstrate that the skills needed for the specific position cannot be sourced within the Kyrgyzstani labour market. Preference is usually given to granting foreign worker permits to highly skilled professionals

​​​​​Sources: Government websites, Fitch Solutions

Risks

Sovereign Credit Ratings


 

Rating (Outlook)

Rating Date

Moody's

B2 (Stable)

01/03/2019

Standard & Poor's

Not rated

23/09/2016

Fitch Ratings

Not rated

Not rated

Sources: Moody's, Standard & Poor's, Fitch Ratings

 

Competitiveness and Efficiency Indicators


 

World Ranking

2018

2019

2020

Ease of Doing Business Index

77/190

70/190

80/191

Ease of Paying Taxes Index

151/190

150/190

117/191

Logistics Performance Index

108/160

N/A

N/A

Corruption Perception Index

132/180

126/180

N/A

IMD World Competitiveness

N/A

N/A

N/A

Sources: World Bank, IMD, Transparency International

 

Fitch Solutions Risk Indices


 

World Ranking

2018

2019

2020

Economic Risk Index Rank

158/202

163/201

153/201

Short-Term Economic Risk Score

44.8

44.0

45.8

Long-Term Economic Risk Score

41.2

41.8

43.4

Political Risk Index Rank

176/202

176/201

176/201

Short-Term Political Risk Score

58.8

55.2

55.2

Long-Term Political Risk Score

43.8

43.6

43.6

Operational Risk Index Rank

128/201

121/201

121/201

Operational Risk Score

42.7

44.8

44.9

Source: Fitch Solutions
Date last reviewed: March 2, 2020

 

Fitch Solutions Risk Summary

OPERATIONAL RISK

Kyrgyzstan became an official member of the Kremlin-led EAEU in 2015. The EAEU comprises Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan. This will have major implications for Kyrgyzstan's prospects for economic development and diversification. For instance, Moscow has announced support for Kyrgyzstan's agricultural sector, which is expected to expand in the coming years as Russia will also benefit from cheap Kyrgyz food exports. In the near term the economy is set to gain traction on robust gold mining production, aided by new investments and a supportive commodities price environment. Despite a slowdown in global activity, the external sector is seen contributing positively to the print on a surge in export growth. Downside risks to this outlook stem from weakness in Russia, which could lower remittances and volatile commodity markets.   

 

ECONOMIC RISK

Kyrgyzstan's small market size, limited industrial base and remote location has prevented it from developing into a major trading nation. The market exposes businesses to a number of operational risks. Businesses will also be hampered by the country’s poor logistics infrastructure, largely owing to the country’s underdeveloped transport network, which has been limited by its mountainous terrain. Labour risks are also elevated, with the largely low-skilled workforce on offer often necessitating the importation of labour; however, relatively light labour regulations reduce labour costs. The increased risk of clashes between mine workers and local residents is likely to dampen investor sentiment in the mining sector. On a positive note, Kyrgyzstan's government has established clear frameworks for foreign direct investment and low tax rates. In addition, bureaucratic procedures will potentially become more efficient as a result of e-government investments.

Source: Fitch Solutions
Date last reviewed: March 4, 2020

 

Fitch Solutions Political and Economic Risk Indicies

 

Fitch Solutions Operational Risk Index


 

Operational Risk

Labour Market Risk

Trade and Investment Risk

Logistics Risk

Crime and Security Risk

Kyrgyzstan Score

44.9

54.1

44.6

43.1

37.7

Caucasus and Central Asia Average

51.8

58.2

53.4

50.5

44.9

Caucasus and Central Asia Position (out of 8)

5

7

6

6

6

Emerging Europe Average

58.0

56.3

59.1

60.5

55.9

Emerging Europe Position (out of 31)

28

22

29

29

27

Global Average

49.7

50.2

49.8

49.3

49.2

Global Position (out of 201)

121

74

127

114

140

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

 

Country/Region

Operational Risk Index

Labour Market Risk Index

Trade and Investment Risk Index

Logistics Risk Index

Crime and Security Risk Index

Georgia

62.3

63.5

71.4

56.1

58.3

Azerbaijan

61.2

62.5

62.5

66.4

53.2

Kazakhstan

60.2

73.5

58.9

57.0

51.5

Armenia

56.8

60.5

58.6

53.9

54.2

Kyrgyzstan

44.9

54.1

44.6

43.1

37.7

Uzbekistan

44.7

54.8

53.1

39.2

31.7

Tajikistan

44.6

54.6

39.1

41.4

43.2

Turkmenistan

39.6

42.4

39.3

47.3

29.4

Regional Averages

51.8

58.2

53.4

50.5

44.9

Emerging Markets Averages

46.2

48.2

46.5

45.0

44.9

Global Markets Averages

49.7

50.2

49.8

49.3

49.2

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: March 2, 2020

Hong Kong Connection

Hong Kong’s Trade with Kyrgyzstan

Export Commodity

Commodity Detail

Value (US$ million)

Commodity 1

Telecommunications and sound recording and reproducing apparatus and equipment

29.6

Commodity 2

Photographic apparatus, equipment and supplies;  optical goods; and watches and clocks

3.1

Commodity 3

Office machines and automatic data processing machines

1.0

Commodity 4

Electrical machinery, apparatus and appliances; and electrical parts thereof

0.8

Commodity 5

Professional, scientific and controlling instruments and apparatus

0.2

Import Commodity

Commodity Detail

Value (US$ thousand)

Commodity 1

Telecommunications and sound recording and reproducing apparatus and equipment

770.1

Commodity 2

Sugar, sugar preparations and honey

15.7

Commodity 3

Miscellaneous manufactured articles

11.2

Commodity 4

Electrical machinery, apparatus and appliances; and electrical parts thereof

10.0

Commodity 5

Office machines and automatic data processing machines

4.6

Exchange Rate HK$/US$, average
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
7.77 (2019)

 


 

2019

Growth rate (%)

Number of European residents visiting Hong Kong

1,747,763

-10.9

Sources: Hong Kong Tourism Board, Fitch Solutions
Date last reviewed: March 2, 2020


 

2019

Growth rate (%)

Number of Kyrgyzstani citizens residing in Hong Kong

174

0.6

Source: United Nations Department of Economic and Social Affairs – Population Division
Note: Growth rate for resident data is from 2015 to 2019. No UN data available for intermediate years.
Date last reviewed: March 2, 2020

 

Commercial Presence in Hong Kong


 

2020

Growth rate (%)

Number of Kyrgyzstani companies in Hong Kong

N/A

N/A

- Regional headquarters

- Regional offices

- Local offices

 

Treaties and Agreements between Hong Kong and Kyrzyzstan

Kyrgystan and Mainland China have a Bilateral Investment Treaty which came into force in September 1995.

Source: UNCTAD Investment Policy Hub

 

Visa Requirements for Hong Kong Residents

HKSAR passport holders need a visa before travelling to Kyrzyzstan.

Source: Kyrgyztan Mission
Date last reviewed: March 2, 2020

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