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

Following peaceful elections in November 2017, the new coalition government (which is accountable to the parliament) has embarked on an ambitious reform agenda. In 2019, the economy is set to gain traction on buoyant gold mining production, aided by new investments. 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 derailing remittances and volatile commodity markets. Indeed, the country's reliance on one single commercial gold mine, Kumtor, means that it is exposed to volatility from external demand for this key commodity.

Sources: World Bank, Fitch Solutions

 

Major Economic/Political Events and Upcoming Elections

December 2016
Kyrgyz voters approved a raft of constitutional changes in a referendum which strengthened prime ministerial powers.

 

October 2017
Sooronbai Jeenbekov was elected president.

 

April 2019
Asian Development Bank (ADB) 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 included removal of undertake silt and sedimentation to help restore proper operation of the plant's 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.

 

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

Major Economic Indicators

Chart: Kyrgyzstan real GDP and inflation
 
Chart: Kyrgyzstan real GDP and inflation
 
Chart: Kyrgyzstan GDP by sector (2018)
Date last reviewed: August 9, 2019
Chart: Kyrgyzstan GDP by sector (2018)
Date last reviewed: August 9, 2019
Chart: Kyrgyzstan unemployment rate
 
Chart: Kyrgyzstan unemployment rate
 
Chart: Kyrgyzstan current account balance
 
Chart: Kyrgyzstan current account balance
 

e = estimate, f = forecast
Sources: IMF, World Bank, Fitch Solutions
Date last reviewed: August 7, 2019

External Trade

Merchandise Trade

Chart: Kyrgyzstan merchandise trade
 
Chart: Kyrgyzstan merchandise trade
 
 

Sources: WTO, Fitch Solutions
Date last reviewed: October 30, 2019

Graph: Kyrgyzstan major export commodities (2018)
 
Graph: Kyrgyzstan major export commodities (2018)
 
Chart: Kyrgyzstan major export markets (2018)
 
Chart: Kyrgyzstan major export markets (2018)
 
Graph: Kyrgyzstan major import commodities (2018)
 
Graph: Kyrgyzstan major import commodities (2018)
 
Chart: Kyrgyzstan major import markets (2018)
 
Chart: Kyrgyzstan major import markets (2018)
 

Sources: Trade Map, Fitch Solutions
Date last reviewed: August 17, 2019

 

Trade in Services

Chart: Kyrgyzstan trade in services
 
Chart: Kyrgyzstan trade in services
 
 

e = estimate
Sources: WTO, Fitch Solutions
Date last reviewed: October 30, 2019

Trade Policies
  • Kyrgyzstan joined the 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 antidumping 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 both Kyrgyzstan and Armenia on steel pipes originating from Ukraine.

  • The country's landlocked status has meant that, in the past, that it has largely traded with its immediate neighbours, such as Russia and China. Trade with Russia has benefitted from Kyrgyzstan's accession to the EAEU.

  • Switzerland is Kyrgyzstan's biggest export destination, receiving up to 45.5% of all goods (in USD terms). Gold is virtually the only kind of product which Switzerland imports from Kyrgyzstan.

  • China has become Kyrgyzstan's most important source of goods. China is the source of 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 China over 2017.

  • Kyrgyzstan also has double taxation treaties with 27 countries including China, India, Pakistan, Russia and Ukraine.

Sources: WTO - Trade Policy Review, Fitch Solutions

Trade Agreement

Trade Updates

The EAEU-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.

 

Multinational Trade Agreements

Active

  1. Commonwealth of Independent States (CIS) Free Trade Agreement (FTA)(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: January 2006): Kyrgyzstan mainly imports fruits, nuts and tobacco from Tajikistan. Kyrgyzstan's exports to Tajikistan include coffee, tea and milk, preparations of cereals, spirts and vinegar.

  3. EAEU, comprising Kyrgyzstan, Russia, Kazakhstan, Armenia, and Belarus: While opening up markets in major trade partners Russia and Kazakhstan, the deal increases trade barriers with neighbouring China.

  4. EAEU-Vietnam FTA: Vietnam is not a major export or import partner of Kyrgyzstan's. However, the promulgation of this FTA in October 2016 does provide another tariff-free market for Kyrgyzstani exports, and may allow Vietnam to overtake some of China's dominance in the textiles and manufactured goods markets.
Under Negotiation

EAEU-Singapore FTA: The EAEU and Singapore agreed to begin negotiations for the FTA in December 2016 and have concluded five negotiation rounds to date. The FTA 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

Chart: Kyrgyzstan FDI stock
 
Chart: Kyrgyzstan FDI stock
 
Chart: Kyrgyzstan FDI flow
 
Chart: Kyrgyzstan FDI flow
 

Sources: UNCTAD, Fitch Solutions
Date last reviewed: October 30, 2019

 

Foreign Direct Investment Policy

  1. Kyrgyzstan attracts quite significant inward Foreign Direct Investment (FDI) flows in 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. Foreign land ownership: 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 the Kyrgyzstan law.

  3. Resource nationalism: The Kyrgyzstan government, Centerra Gold (which operates the largest gold mine in the country) and Kumtor were involved in court battles regarding the government participation in the mine.

  4. Regulatory uncertainty: 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 which apply to instances which happened many years prior, licensing and/or permit disputes, or have additional local workforce hiring requirements imposed on them.

  5. Legal risk: Investors face significant barriers from the high levels of corruption and weak protection of intellectual property rights in Kyrgyzstan.

  6. Foreign exchange restrictions: Since 2016, all local transactions for payment of goods and services has to be made in the local currency.

Sources: WTO – Trade Policy Review, ITA, 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 exempt; however, companies need to also fulfil one of the following criteria in order to stand 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 – 2019
  • 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: August 17, 2019

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. Moreover, 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 CIS 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 for 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 N/A

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

 

Competitiveness and Efficiency Indicators

  World Ranking
2017 2018 2019
Ease of Doing Business Index 75/190 77/190 70/190
Ease of Paying Taxes Index 148/190 151/190 150/190
Logistics Performance Index N/A 108/160 N/A
Corruption Perception Index 102/180 132/180 N/A
IMD World Competitiveness N/A N/A N/A

Sources: World Bank, IMD, Transparency International

 

Fitch Solutions Risk Indices

  World Ranking
2017 2018 2019
Economic Risk Index Rank N/A 158/202 160/202
Short-Term Economic Risk Score 43.3 44.8 43.5
Long-Term Economic Risk Score 38.9 41.2 42.4
Political Risk Index Rank N/A 176/202 177/202
Short-Term Political Risk Score 56.3 58.8 55.2
Long-Term Political Risk Score 43.8 43.8 43.6
Operational Risk Index Rank N/A 128/201 125/201
Operational Risk Score 44.2 42.7 43.6

Source: Fitch Solutions
Date last reviewed: August 15, 2019

 

Fitch Solutions Risk Summary

ECONOMIC 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 commodity 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.

OPERATIONAL 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, including heightened security risks, ranging from violent crimes to financial crimes such as money laundering and cybercrime. Businesses will also be hampered by the country’s poor logistics infrastructure largely due 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. Moreover, 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: August 18, 2019

 

Fitch Solutions Political and Economic Risk Indicies

Chart: Kyrgyzstan short term political risk index
 
Chart: Kyrgyzstan short term political risk index
 
Chart: Kyrgyzstan long term political risk index
 
Chart: Kyrgyzstan long term political risk index
 
Chart: Kyrgyzstan short term economic risk index
 
Chart: Kyrgyzstan short term economic risk index
 
Chart: Kyrgyzstan long term economic risk index
 
Chart: Kyrgyzstan long term economic risk index
 

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: August 15, 2019

 

Fitch Solutions Operational Risk Index

  Operational Risk Labour Market Risk Trade and Investment Risk Logistics Risk Crime and Security Risk
Kyrgyzstan Score 43.6 54.2 44.6 38.0 37.7
Caucasus and Central Asia Average 50.4 56.7 53.4 46.6 44.9
Caucasus and Central Asia Position (out of 8) 6 5 6 7 6
Emerging Europe Average 57.4 55.9 59.1 58.6 55.9
Emerging Europe Position (out of 31) 29 21 29 30 27
Global Average 49.6 50.3 49.8 49.0 49.2
Global Position (out of 201) 125 75 127 135 140

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

Graph: Kyrgyzstan vs global and regional averages
 
Graph: Kyrgyzstan vs global and regional averages
 
Country Operational Risk Index Labour Market Risk Index Trade and Investment Risk Index Logistics Risk Index Crime and Security Risk Index
Georgia 62.2 64.1 71.4 54.9 58.3
Azerbaijan 59.1 61.1 62.5 59.5 53.2
Kazakhstan 58.7 70.2 58.9 54.1 51.5
Armenia 55.2 58.2 58.6 49.9 54.2
Tajikistan 43.7 53.8 39.1 38.8 43.2
Kyrgyzstan 43.6 54.2 44.6 38.0 37.7
Uzbekistan 43.2 53.4 53.1 34.7 31.7
Turkmenistan 37.6 38.7 39.3 43.1 29.4
Regional Averages 50.4 56.7 53.4 46.6 44.9
Emerging Markets Averages 46.9 48.6 45.4 47.4 46.1
Global Markets Averages 49.6 50.3 49.8 49.0 49.2

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: August 15, 2019

Hong Kong Connection

Hong Kong’s Trade with Kyrgyzstan

Graph: Major export commodities to Kyrgyzstan (2018)
 
Graph: Major export commodities to Kyrgyzstan (2018)
 
Graph: Major import commodities from Kyrgyzstan (2018)
 
Graph: Major import commodities from Kyrgyzstan (2018)
 

Note: Graph shows the main Hong Kong exports to/imports from Kyrgyzstan (by consignment)
Date last reviewed: August 7, 2019

Chart: Merchandise exports to Kyrgyzstan
 
Chart: Merchandise exports to Kyrgyzstan
 
Chart: Merchandise imports from Kyrgyzstan
 
Chart: Merchandise imports from Kyrgyzstan
 

Note: Graph shows Hong Kong exports to/imports from Kyrgyzstan (by consignment)
Exchange Rate HK$/US$, average
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
Source: Hong Kong Census and Statistics Department
Date last reviewed: August 7, 2019

  2018
 
Growth rate (%)
Number of Kyrgyzstani citizens residing in Hong Kong 173 1.2

Sources: Hong Kong Tourism Board, Fitch Solutions

  2017 Growth rate (%)
Number of European residents visiting Hong Kong 1,929,824 -0.2

Sources: Hong Kong Tourism Board, Fitch Solutions
Date last reviewed: August 15, 2019

 

Commercial Presence in Hong Kong

  2016 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 China have a Bilateral Investment Treaty which came into force in September 1995.

Source: UNCTAD

 

Visa Requirements for Hong Kong Residents

HKSAR passport holders need a visa before travelling to Kyrzyzstan.

Source: Kyrgyztan Mission

Date last reviewed: August 7, 2019

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