Kyrgyzstan - Economy

Economy

Kyrgyzstan was the second poorest country in the former Soviet Union, and is today the second poorest country in Central Asia. According to CIA World Factbook, in 2011, a third of the country's population lived below the poverty line.

Despite the backing of major Western lenders, including the International Monetary Fund (IMF), the World Bank and the Asian Development Bank, Kyrgyzstan has had economic difficulties following independence. Initially, these were a result of the breakup of the Soviet trading bloc and resulting loss of markets, which impeded the republic's transition to a demand economy.

The government has reduced expenditures, ended most price subsidies and introduced a value-added tax. Overall, the government appears committed to the transition to a market economy. Through economic stabilization and reform, the government seeks to establish a pattern of long-term consistent growth. Reforms led to Kyrgyzstan's accession to the World Trade Organization (WTO) on 20 December 1998.

The Kyrgyz economy was severely affected by the collapse of the Soviet Union and the resulting loss of its vast market. In 1990, some 98% of Kyrgyz exports went to other parts of the Soviet Union. Thus, the nation's economic performance in the early 1990s was worse than any other former Soviet republic except war-torn Armenia, Azerbaijan and Tajikistan, as factories and state farms collapsed with the disappearance of their traditional markets in the former Soviet Union. While economic performance has improved considerably in the last few years, and particularly since 1998, difficulties remain in securing adequate fiscal revenues and providing an adequate social safety net. Remittances of around 800,000 Kyrgyz migrants working in Russia represent 40% of Kyrgyzstan's GDP.

Agriculture is an important sector of the economy in Kyrgyzstan (see agriculture in Kyrgyzstan). By the early 1990s, the private agricultural sector provided between one-third and one-half of some harvests. In 2002, agriculture accounted for 35.6% of GDP and about half of employment. Kyrgyzstan's terrain is mountainous, which accommodates livestock raising, the largest agricultural activity, so the resulting wool, meat and dairy products are major commodities. Main crops include wheat, sugar beets, potatoes, cotton, tobacco, vegetables, and fruit. As the prices of imported agrichemicals and petroleum are so high, much farming is being done by hand and by horse, as it was generations ago. Agricultural processing is a key component of the industrial economy as well as one of the most attractive sectors for foreign investment.

Kyrgyzstan is rich in mineral resources but has negligible petroleum and natural gas reserves; it imports petroleum and gas. Among its mineral reserves are substantial deposits of coal, gold, uranium, antimony, and other valuable metals. Metallurgy is an important industry, and the government hopes to attract foreign investment in this field. The government has actively encouraged foreign involvement in extracting and processing gold. The country's plentiful water resources and mountainous terrain enable it to produce and export large quantities of hydroelectric energy.

On a local level, the economy is primarily kiosk in nature. A large amount of local commerce occurs at bazaars and small village kiosks in country regions. A significant amount of trade is unregulated. There is also a scarcity of common everyday consumer items in remote villages. Thus a large number of homes are quite self-sufficient with respect to food production. There is a distinct differentiation between urban and rural economies.

The principal exports are nonferrous metals and minerals, woolen goods and other agricultural products, electric energy and certain engineering goods. Imports include petroleum and natural gas, ferrous metals, chemicals, most machinery, wood and paper products, some foods and some construction materials. Its leading trade partners include Germany, Russia, China, Kazakhstan, and Uzbekistan.