Kyrgyz Government Responds to Growing Economic Gloom

The Kyrgyz government is under pressure to accelerate efforts to soften the impact of the ongoing economic crisis, as figures confirm the extent of the downturn.



When ministers met businesspeople at a conference on August 4-6 to discuss the next phase of the “anti-crisis plan” the government has been implementing since the start of the year, they agreed that speed was of the essence if Kyrgyzstan is to be steered through this period of global economic turbulence. The discussion centred on how the business sector believes banking, industry, agriculture and tourism should be supported.



“The country is currently experiencing a decline in production, trade and the service sector. Swift action is needed to stabilise the situation,” First Deputy Prime Minister Omurbek Babanov told a press conference a day after the meeting, which he chaired.



The idea of engaging the business community in taking the anti-crisis plan forward was announced by Prime Minister Igor Chudinov at a July 28 cabinet meeting.



Chudinov made it clear that current plans would have to be revised as the economic situation was worse than anticipated.



According to the national statistics agency, the economy grew by only 0.3 per cent year on year in the first six months of 2009, compared with 7.5 per cent in the same period last year. Industrial production fell by nearly 19 per cent, in part because of a slump in exports.



“The world financial crisis, which has impacted all world economies, has also affected our country,” Bolot Toksobayev, head of the department for macroeconomic analysis and forecasting at the Ministry of Economic Development and Trade, told IWPR. “Kyrgyzstan’s main trading partners, Russia and Kazakstan, reduced the volume of manufactured goods they buy from us. Falling domestic and external demand led to a decline in industrial production as enterprises can’t make a profit if they are producing just to stock the warehouse.”



Energy shortages, caused by low water levels in the Toktogul reservoir which powers the country’s biggest hydroelectric scheme, only compounded the problems facing industry.



Finally, the economy has also suffered from a decline in the amount of money sent home by the hundreds of thousands of Kyrgyz nationals working abroad.



Reflecting the continuing deterioration, the International Monetary Fund, IMF, has scaled down its growth forecast for the year from 3.7 to 0.9 per cent.



The IMF says external assistance, particularly a large Russian financial package approved earlier this year, is essential to helping the Kyrgyz economy weather the storm and keeping the government solvent afloat.



Current government policy includes efforts to boost budget revenues, build new industrial units and ensure a good harvest, while hoping that Kyrgyzstan’s trading partners begin to recover so that exports start rising again.



Toksobaev said money had been earmarked for a development fund that will be used to revive moribund industries and back major new projects, for example a new cement factory in Kyzyl Kiya in the southern Batken region and a metals plant in neighbouring Osh.



The obstacle to progress on these schemes, he added, was unnecessary levels of bureaucracy.



“We have to clear away the bureaucratic obstacles; it is these obstacles that are holding up the process of starting up plants which could even now be earning money for the national budget and providing people with jobs,” he said.



Analysts have welcomed the government’s determination to address the crisis, although they warn against depending on forecasts that the global economy will recover rapidly, helping Kyrgyz exports.



As Kairat Kasymaliev of the Bishkek-based investment company MGN Capital notes, “In March, the situation on world stock markets temporarily stabilised, triggering optimistic statements by some experts that the crisis was over. But then the situation got worse again. Now we’re again seeing an economic revival [in Kyrgyzstan], although it’s quite possible this is a temporary phenomenon.”



Toksobaev agreed that it was premature to be talking about a worldwide recovery.



“Currently, the crisis is being weathered because of the money countries have invested in addressing it, but when that has been spent, it is very possible the crisis could repeat itself,” he said.



In February, President Kurmanbek Bakiev secured a Russian pledge to invest 1.7 billion US dollars in a major hydroelectric scheme, a 300-million-dollar loan to support the government budget, additional financial assistance worth 150 million dollars and a write-off of 193 million dollars in sovereign debt, granted in exchange for a stake in a Kyrgyz defence plant.



Analysts agree with the IMF view that support from Russia and other donors and lenders will help cushion the economic impact of crisis.



Nurbek Elebaev, who chairs the board of Kyrgyzstan’s stock exchange, says it would be worth seeking more loans on soft terms from countries like China, as long as the authorities ensure the money is properly invested in short-term that will bring swift and productive returns that benefit the country.



Another prediction on which the authorities are pinning their hopes is that the harvest will be a good one, ensuring the country has adequate stocks of food to take it through next winter. The agriculture ministry is forecasting a grain harvest of 642,000 tons, a 14 per cent increase on last year.



As analysts like Kasymaliev point out, hoping for the best is not enough. Better planning, led by the agriculture ministry, is needed to avoid unnecessary shortfalls in the production of particular foodstuffs, he says.



At the same time, Kasymaliev dismisses fears of major food shortages.



“The situation last year, when the harvest was destroyed by an unusually severe drought, could be described as a shock, but this year we haven’t had anything of this kind,” he said.



Bakay Junushev, director of the iCap Investment financial services firm, adds a note of sobriety, noting that Kyrgyzstan has experienced crises of one kind or another for the three years. The likelihood is that people will endure this year’s hardships as well.



Asyl Osmonalieva in an IWPR-trained journalist in Kyrgyzstan.