October 28, 2016: Political stability

Kyrgyz Republic

Generated on January 23rd 2017

Economist Intelligence Unit 20 Cabot Square

London E14 4QW United Kingdom

Резюме

Редактор: Алекс Ницца

Дата закрытия прогноза: 12 декабря 2016 г.

Перспективы на 2017-18 годы

Социал-демократическая партия Кыргызстана (СДПК), остающаяся ведущей партией в правящей коалиции после парламентских выборов в октябре 2015 года, вероятность реформы политики в 2017-18 гг. Низка.

Частые протесты, связанные с такими вопросами, как межэтническая напряженность и иностранная собственность на основные экономические активы, будут по-прежнему подчеркивать слабые места в центральных государственных учреждениях.

Усилиям по стимулированию инвестиций будут мешать представления о политической нестабильности и растущей враждебности к иностранной собственности.

После слабой инфляции в этом году, оцениваемой в 0,4%, ценовое давление в 2017 году увеличится, чему способствовало бы умеренное восстановление внутреннего спроса и повышение цен на сырьевые товары.

The Economist Intelligence Unit оценивает реальный рост ВВП на уровне 3,1% в 2016 году. Рост будет немного расти, в среднем до 3,6% в 2017-1918 годах, при условии умеренного восстановления в России.

Сом будет немного дороже по отношению к доллару США в 2017 году, чему способствует укрепление курса рубля, с которым движение валюты сильно коррелирует.

Дефицит текущего счета резко сократился в 2015 году, что эквивалентно примерно 11% ВВП из-за более низких объемов импорта и стоимости. Мы прогнозируем средний дефицит текущего счета в размере около 8,1% в 2017-1918 годах.

Обзор

26 октября СДПК покинул правящую коалицию, что привело к отставке правительства. 3 ноября СДПК сформировал новую правительственную коалицию с партией Кыргызстан и партией «Бир-Бол».

11 декабря в ходе всенародного референдума были одобрены поправки к конституции, которые перекладывают полномочия от президента на парламент и премьер-министра.

14 ноября службы безопасности опубликовали документы

Связывая трех видных членов оппозиционной партии «Ата-Мекен» с коррупционными преступлениями.

По предварительным данным, реальный ВВП вырос в январе-октябре на 2,7%. Без учета добычи на Кумторском руднике реальный ВВП за тот же период вырос на 3,3%.

Основные данные

Общая площадь

198,500 sq km

Население

5.9m (end-2015 official estimate)

Основные города

Численность населения в тыс. Человек (оценки конца 2011 года)

Г. Бишкек (столица): 937 Ошская область: 1,228

Джелалабадская область: 1,122

Чуйская область: 870

Климат

Континентальная высокая гора

Languages

Kyrgyz and Russian are the official languages

Weights and measures

Metric system

Currency

The som was introduced on May 10th 1993

Time

Five hours ahead of GMT

Fiscal year

Calendar year

Public holidays

January 1st (New Year's Day), January 7th (Orthodox Christmas), February 22d (Defenders’ Day), March 8th (International Women’s Day), March 21st23rd (Noruz), May 1st (Labour Day), May 5th (Constitution Day), May 9th (Victory Day), July 6th (end of Ramadan), August 31st (Independence Day), September 11th (Feast of Sacrifice), November 7th (October Revolution Day)

Political structure

Official name

Kyrgyz Republic

Form of state

The Kyrgyz Soviet Socialist Republic declared its independence in August 1991 and changed its name to the Kyrgyz Republic. A constitution was approved on May 5th 1993. The president’s powers were enhanced by referendums held in February 1996, February 2003 and October 2007. The provisional government held a referendum on a new constitution restoring powers to parliament in June 2010; parliamentary elections under this new constitution were held in October 2010 and October 2015. A referendum in December 2016 approved constitutional amendments that shifted significant powers from the presidency to parliament and the prime minister

National legislature

The Jogorku Kenesh is a unicameral chamber elected for a five-year term. Changes approved by referendum in June 2010 increased the number of seats in the legislature to 120, from 90

National elections

Last elections: October 4th 2015 (parliamentary), October 30th 2011 (presidential); the next presidential election is due in 2017 and the next parliamentary election is scheduled for 2020

National government

If a party holds more than half of the seats in parliament it has the right to nominate the prime minister, who must then be approved by the president (if no party wins a majority, the president will entrust one of parliament’s parties with forming a coalition)

Head of state

Almazbek Atambayev won the election in October 2011 and took over from the interim president, Roza Otunbayeva, on December 1st 2011

Main political parties

Social Democratic Party of Kyrgyzstan (SDPK); Kyrgyzstan Party; Onuguu- Progress; Socialist Party Ata-Meken (Fatherland); Respublika-Ata-Jurt; Bir Bol; Ar- Namys (Dignity); Ak Jol (True Path); Azattyk; Aalam (party of non-party people); Zamandash (Contemporary); Uluu Kyrgyzstan; Meken Yntymagy (Fatherland Unity); Congress of the Peoples of Kyrgyzstan; Adilet (Justice); Progressive- Democratic Party Erkin Kyrgyzstan (ErK); Party of Communists of Kyrgyzstan (PKK); Protection Party; Republican People’s Party; Butun Kyrgyzstan (United Kyrgyzstan); Communist Party of Kyrgyzstan (KPK)

Government

Prime minister: Sooronbai Zheenbekov

First deputy prime minister: Mukhammetkaly Abulgaziev Deputy prime ministers:

Oleg Pankratov Cholpon Sultanbekova

Zhenish Razakov

Key ministers

Agriculture & land reclamation: Nurbek Murashev Economy: Arzybek Kozhoshev

Emergency situations: Kupatbek Boronov Finance: Adylbek Kasymaliev

Foreign affairs: Erlan Abdyldayev Health: Talantbek Batyraliev Interior: Ulan Israilov

Justice: Uran Akhmetov Transport: Zhamshitbek Kalilov

Speaker of parliament

Chynbai Tursunbekov

Chairman of the state committee for defence

Marat Kenzhesariev

Central bank chairman

Tolkunbek Abdygulov

State National Security Committee

Abdil Segizbayev

Economic structure

Annual indicators

2012a 2013a 2014a 2015a 2016a
GDP at market prices (Som bn)	310.5	355.3	400.7	423.6	480.2
GDP (US$ bn)	6.6	7.3	7.5	6.6	6.9
Real GDP growth (%)	-0.1	10.9	4.0	3.5	3.1
Consumer price inflation (av; %)	2.7	6.6	7.5	6.5	0.4
Population (m)	5.7	5.8	5.8	5.9	6.0
Exports of goods fob (US$ m)	2,514.7	2,757.2	2,380.1	1,752.5	1,631.9
Imports of goods fob (US$ m)	-5,096.6	-5,530.7	-5,203.6	-3,720.9	-3,344.6
Current-account balance (US$ m)	-1,025.4	-1,009.2	-1,301.0	-721.4	-657.8
Foreign-exchange reserves excl gold (US$ m)	1,903.2	2,098.6	1,804.8	1,633.9	1,766.7
Exchange rate (av) Som:US$	47.00	48.44	53.65	64.46	69.95

a Actual.

Main origins of gross domestic % of Main components of gross domestic % of product 2015 total product 2014 total
Agriculture & forestry	15.9	Private consumption	96.0
Industry	26.9	Public consumption	17.5
Services	57.1	Gross fixed investment	32.8
		Change in stocks	3.9
		Net exports	-50.2

Principal exports 2015 % of Principal imports 2015 % of total total
Precious metals & stones	45.5	Mineral products	20.0
Mineral products	7.2	Machinery & equipment	13.1
Textiles	4.7	Chemicals	9.1
Chemicals	1.6	Food, beverages & tobacco	7.4

Main destinations of exports 2015 % of Main origins of imports 2015 % of total total
Uzbekistan	27.3	Russia	35.1
Russia	23.6	Kazakhstan	20.4
Kazakhstan	21.8	China	17.9
China	5.1	Belarus	8.0

Quarterly indicators

Government finance (Som m)	4 Qtr	1 Qtr	2 Qtr	3 Qtr	4 Qtr	1 Qtr	2 Qtr	3 Qtr
Revenue & grants	33.0	23.6	36.3	30.0	38.2	32.3	29.4	25.9
Expenditure & net lending	25.7	23.0	32.2	31.5	47.8	29.6	44.5	20.6
Balance	-2.4	1.2	4.1	-1.4	-9.5	2.7	-15.1	5.4
Wages & prices
Monthly earnings (Som)	14,143.3	12,067.3	12,893.3	13,189.7	14,920.3	13,540.0	13,833.0	–
% change, year on year	12.7	6.0	4.9	7.6	5.5	12.2	7.3	–
Consumer prices (2010=100)	141.8	146.4	145.7	144.6	147.5	148.2	146.2	145.3
% change, year on year	9.8	10.3	6.1	5.7	4.0	1.2	0.3	0.5
Producer prices (2000=100)	114.2	118.4	120.4	121.5	129.3	131.3	128.7	132.7
% change, year on year	6.5	8.8	7.1	7.2	13.2	10.9	6.9	9.2
Financial indicators
Exchange rate Som:US$ (av)	57.0	60.8	60.5	64.2	72.3	74.2	68.4	68.2
Exchange rate Som:US$ (end-period)	58.9	63.9	62.1	68.8	75.9	70.0	67.5	67.9
Lending rate (av; %)	22.4	23.9	23.9	25.4	24.3	24.3	27.2	23.4
Money market rate (av; %)	18.5	15.0	18.0	–	11.6	13.3	7.8	4.1
M1 (national definition; end-period; Som m)
% change, year on year	-13.9	-19.0	-16.2	-7.0	12.7	35.6	41.3	44.3
M2 (national definition; end-period; Som m)
% change, year on year	-9.4	-13.3	-13.7	-5.8	-0.2	17.2	25.8	31.5
Foreign trade (US$ m)
Exports fob	595.7	417.2	325.5	316.1	412.7	278.5	–	–
Imports cif	1,741.8	915.1	1,080.7	1,084.7	988.7	777.0	–	–
Trade balance	-1,146.1	-497.9	-755.2	-768.6	-576.0	-498.5	–	–
Balance of payments (US$ m)
Merchandise trade balance fob-fob	-836.3	-333.3	-576.4	-606.1	-452.6	-385.3	–	–
Services balance	-115.7	-107.8	-55.1	69.0	-34.0	-95.8	–	–
Primary income balance	-113.8	-99.8	-74.5	-77.3	-6.2	-100.0	–	–
Net transfer payments	511.1	231.6	501.4	464.8	435.0	226.8	–	–
Current-account balance	-554.7	-309.3	-204.6	-149.6	-57.8	-354.2	–	–
Reserves excl gold (end-period)	1,804.8	1,594.8	1,809.2	1,645.4	1,633.9	1,773.3	1,814.8	1,787.6

Sources: IMF, International Financial Statistics; National Statistical Committee; National Bank of the Kyrgyz Republic.

Comparative economic indicators

Outlook for 2017-18

Political stability

The Kyrgyz Republic is characterised by significant political instability, driven by weak institutions, poor growth, anger at elite corruption and regional divisions. Revolutions in 2005 and 2010 led to the overthrow of the incumbent presidents, who subsequently fled the country. A new constitution was adopted following the revolution in October 2010, establishing a predominantly parliamentary system of government. In December 2016 amendments were approved by national referendum that shifted further powers from the presidency to parliament and the prime minister. The amendments prevent the president from dismissing the Jogorku Kenesh (parliament) or calling early elections. The amendments were opposed by the Ata- Meken (Fatherland) party and Onuguu-Progress, which accused Almazbek Atambayev, the president, of seeking to entrench his party's position in power and of planning to run as prime minister when his presidential term ends in 2017. Mr Atambayev denies that he intends to do so. The two parties quit the governing coalition on October 26th. The Social Democratic Party of Kyrgyzstan (SDPK), the party of Mr Atambayev, subsequently formed a new ruling coalition with the Kyrgyzstan Party and the Bir Bol party. Sooronbai Zheenbekov, who first became prime minister in April 2016, has retained his post. The constitutional changes have continued a trend of increasing efforts under Mr Atambayev's presidency to restrict the activities of the opposition and civil society. Attempts by Mr Atambayev and his party to monopolise the political system could increase the risk of civic unrest.

The most pressing challenge facing the government in 2017-18 will be dealing with the ramifications of the regional slowdown of 2014-16 and a weak medium-term economic outlook. In this context the government is unlikely to be able to lower the high level of poverty in the country—a potential source of social unrest.

Nationalism is an important factor in Kyrgyz politics, and perceptions that Kyrgyz sovereignty or the rights of ethnic Kyrgyz population are being circumscribed have the potential to trigger protests and instability. This has significant implications for major investors in the country. In the first half of 2016 there was another escalation in the dispute with Centerra Gold (Canada), the country's largest foreign investor, regarding ownership of the Kumtor gold mine. The government finally granted the company its 2016 operating permit in late June. Many other disputes between Centerra and the govern ment remain unresolved, however, and The Economist Intelligence Unit expects disagree ments regarding ownership to continue to exacerbate political instability. Internal disagreements about the mine led to the break-up of the governing coalition in March 2014 and forced the resignation of the then prime minister, Djoomart Otorbaev, who was seen as having failed to negotiate sufficiently good terms with Centerra for the ownership structure of the gold mine.

On August 30th a suicide bomber drove a van into the Chinese embassy in Bishkek, the Kyrgyz capital. The attacker was killed and three embassy employees (all Kyrgyz nationals) were injured. On September 6th the Kyrgyz authorities identified the suicide bomber as a Uighur member of the East Turkestan Islamic Movement holding a Tajik passport and said that the attack was planned by Uighur terrorist groups fighting in Syria. Terrorist attacks remain rare in the Kyrgyz Republic, and the risk of terrorist activity is no higher than in western Europe.

Election watch

A parliamentary election was held in October 2015. International observers were largely positive, with the Organisation for Security and Co-operation in Europe (OSCE) stating that the election had been "competitive and provided voters with a wide range of choice". Six parties passed the 7% electoral threshold; nonetheless, concerns were raised about the use of administrative resources. The next parliamentary election is scheduled for 2020.

Mr Atambayev won the 2011 presidential election but has said that he will not seek re-election in 2017, in line with the constitutional changes following the 2010 revolution. The amendments adopted in December include a reduction in the executive's powers, with the aim of making a full tran sition to a parliamentary system. Although it is not our core scenario, it is possible that Mr Atambayev will seek the position of prime minister in the next parliamentary election.

International relations

As a small state in Central Asia the Kyrgyz Republic is vulnerable to the influence of its larger neighbours. Its strategy has been a multi-vector approach, balancing dependence on China, Russia and the US. Under Mr Atambayev’s presidency the Kyrgyz Republic has moved back into Russia’s sphere of influence. In May 2015 the country joined the Russian-led Eurasian Economic Union (EEU), which allows for the free move ment of labour, goods, services and capital within the bloc. Russia is providing financial assistance through the Kyrgyz-Russian Development Fund, worth US$1bn, to help with accession.

Increasingly, however, Russia’s main rival for influence in Central Asia is China. In late May the Kyrgyz minister of economy said that construction of a new artery of the Central Asia-China pipeline, which was meant to take gas from Turkmenistan to China, in part across Kyrgyz territory, had been postponed indefinitely. It is possible that the Kyrgyz Republic will turn to China for financial support in developing its hydropower sector after parliament voted in January to cancel deals with Russia to build five hydropower plants. China collaborates with the Kyrgyz Republic in the fight against terrorism, and the attack on the Chinese embassy in Bishkek could lead to closer security co-operation. This could provoke wider geopolitical tensions with Russia and a backlash from the local population.

Kyrgyz-US ties have weakened since the US exited the Manas Air Base in 2014. In October 2015 the US secretary of state, John Kerry, visited the Kyrgyz Republic as part of his tour of Central Asia. While he was there Mr Kerry did not unveil any substantial plans to deepen political or economic co-operation with the Central Asian states. In contrast, during the visit of the Japanese prime minister, Shinzo Abe, in October 2015, Japanese firms and the government pledged to invest about US$1bn in the Kyrgyz Republic. For Japan, the move represents an attempt to create construction and export opportunities for Japanese firms rather than to set itself up as a regional player to rival China or Russia.

Tensions between the Kyrgyz Republic and its neighbours, Uzbekistan and Tajikistan, occasionally flare up over resources and border demarcations in the Ferghana Valley. The replacement of the late Islam Karimov by Shavkat Mirziyoyev as president of Uzbekistan in December 2016 has raised the possibility of a limited thaw in relations between Uzbekistan and the Kyrgyz Republic; in November the two countries signed a provisional agreement on the demarcation of borders.

Policy trends

The government's main policy challenges in the forecast period include the reduction of the country's high level of poverty, dealing with the aftermath of the regional economic downturn and weaker household income, and harnessing the potential of the country's natural resources.

The Kyrgyz Republic joined the EEU in mid-2015 in return for additional financial support from Russia. Institutional harmonisation will be limited in practice, although the Kyrgyz Republic's membership could complicate the development of further economic links with China. In the context of a weak rule of law the interaction of national and supranational regulatory bodies could further complicate the business operating environment and create regulatory uncertainty. The main economic impact of the Kyrgyz Republic's membership is through the simplification of procedures for Kyrgyz citizens to work in Russia—a major source of remittances and household income. However, the EEU has also complicated the re-export of goods from China to Kazakhstan and other countries in the region—a significant source of employment in the Kyrgyz Republic.

One of the most contentious policy issues remains the long-running ownership feud between the government and Centerra Gold concerning the Kumtor mine. Relations have deteriorated significantly since end-2015. So far this year Centerra's offices have been raided by the Kyrgyz authorities, and Centerra has been fined for environmental damages. The company only received approval for its 2016 annual mine plan on June 27th. Neither Centerra nor the state can afford a lengthy closure of the mine, and the increase in tensions appears to be an attempt by each side to secure better terms in an ownership restructuring deal. There is a possibility of social protests if the population believes that the mine's assets are not bringing sufficient benefits to the country, with the risk heightened by the poor economic prospects for 2016. The government's highly visible and long-running feud with the country's largest foreign investor negatively affects foreign investor sentiment.

Fiscal policy

In 2015 the budget deficit (excluding the Social Fund) widened to the equivalent of 1.5% of GDP. After widening to 5.3% of GDP in 2016, the deficit will narrow to 4.8% in 2017, when revenue will start to rise as the domestic economy improves. It will narrow further, to 4% of GDP, in 2018. The depreciation of the som has led to an increase in the debt to GDP ratio, which stood at 66% at the end of 2015, up from 52.3% at the end of 2014. In the event of financing difficulties we expect the authorities in the first instance to seek bilateral support from Russia rather than multilateral financial institutions.

Monetary policy

The National Bank of the Kyrgyz Republic (NBKR, the central bank) officially operates a free-floating exchange rate with inflation targeting. With regional currency depreciation pressures now abating, the bank lowered the policy rate by 200 basis points, to 6%, in May and by a further 50 basis points, to 5.5%, at the end of November. Inflation is currently low, estimated at just 0.4% in 2016, but is expected to pick up modestly in 2017 as oil prices rise. An expected tightening of US monetary policy in 2017 is likely to make the NBKR wary of cutting its policy rate further, although the Kyrgyz Republic's direct exposure to international capital flows is limited.

Adjustments to the policy rate will have only a limited impact, as the high dollarisation of the economy makes it difficult to control interest rates and inflation through monetary policy. In addition, bank lending plays a limited role in financing investment, which is largely made through retained profits.

The NBKR is taking steps to try to de dollarise the economy; in February 2016 it banned new mortgages and consumer loans in US dollars. The government has converted foreign-currency mortgages secured before July 1st 2015 into som. The authorities have also reduced the interest rate on deposits in foreign currency to less than that offered in som. The measures are starting to take effect; at end- October 2016 56.5% of total deposits were in foreign currency, down from 69.1% at end-2015. In early September the Ministry of Economy proposed amendments to the civil and administrative codes to fine individuals who conduct transactions only in dollars.

International assumptions

International assumptions summary

(% unless otherwise indicated)

2015 2016 2017 2018 Real GDP growth
World	2.6	2.2	2.5	2.4
OECD	2.1	1.6	1.8	1.7
EU28	2.2	1.8	1.4	1.5
Exchange rates
Rb:US$	60.9	66.9	62.4	67.7
US$:?	1.110	1.109	1.055	1.065
SDR:US$	0.715	0.719	0.742	0.741
Financial indicators
¥ 3month money market rate	0.30	0.07	0.07	0.07
? 3month interbank rate	-0.02	-0.26	-0.15	0.00
Commodity prices
Oil (Brent; US$/b)	52.4	44.1	56.5	60.5
Gold (US$/troy oz)	1,160.7	1,256.3	1,325.0	1,352.5
Food, feedstuffs & beverages (% change in US$ terms)	-18.7	-3.4	1.5	0.7
Industrial raw materials (% change in US$ terms)	-15.2	-3.4	8.6	-1.9

Note. GDP growth rates are at market exchange rates.

Economic growth

In 2015 real GDP grew by 3.5% and gold production fell by 8.5%. The gold sector is an important element of the economy, accounting for 25% of industrial production and about 42% of exports in 2015. Excluding the Kumtor gold mine, real GDP grew by 4.5% in 2015, compared with 5% in 2014. The strength of the non-gold growth is surprising, as remittance transfers from migrant workers—which accounted for about 29% of GDP in 2014—fell by 25% in US dollar terms in 2015, according to NBKR data. However, export competitiveness will have been helped by the steep depreciation of the som, as well as the rechannelling of domestic demand to domestic products as a result of the same development.

According to preliminary official statistics, real GDP grew by 2.7% year on year in JanuaryOctober—a marked recovery after a yearonyear contraction in the first half of 2.3%. This was largely owing to higher output from Kumtor, which adds significant volatility to the growth figures. We estimate real GDP growth of 3.1% in 2016. We forecast average annual growth of about 3.6% a year in 2017-18.

Household income will be boosted by a return to modest growth in Russia and a mild appreciation of the rouble as a result of higher oil prices, which will boost the local currency value of remittance inflows. However, the recovery in private consumption is likely to be limited, as households have suffered a significant decline in living standards in 2015-16 as a result of currency depreciation. This is likely to depress household spending for several years. The weak institutional and business environment will continue to hold down investment, although infrastructure spending from China is likely to remain significant.

Inflation

The weakening of the som against the US dollar boosted inflation at the start of 2015, but inflationary pressures have eased in 2016 owing to low commodity and food prices, and weak domestic demand. Inflation is estimated at just 0.4% in 2016— a post-Soviet record low. Demand pressures are expected to remain relatively weak in 2017. A modest recovery in some commodity prices will add to import price pressures. We forecast annual average inflation of 3.9% in 2017. We expect the inflation rate to fall in 2018 owing to a forecast slowdown in China, which will reduce the cost of commodities and a number of manufactured goods.

Exchange rates

Between December 2014 and December 2015 the som depreciated by 22.4%, to Som75.9:US$1. This was triggered by the steep rouble depreciation towards the end of 2014. Movements in the rouble are important for the som, as Russia is a leading trade partner and a source of remittance flows. The som will average close to Som70:US$1 in 2016. Foreign-exchange reserves (including gold) stood at US$1.92bn in November, equivalent to more than six months of import cover. We forecast that the som will rise to an average of Som67.3:US$1 in 2017, helped by the appreciation of the Russian rouble. In 2018 a downturn in the Chinese economy will lead to a modest weakening of the rouble and thus the som, although lower commodity prices will provide a boost to the Kyrgyz Republic's terms of trade.

External sector

The current-account deficit narrowed to 11% of GDP in 2015, from 17.4% in 2014. Currency depreciation and softer domestic demand, as a result of weaker remittance flows, chipped away at the trade gap in 2015, reducing import costs by almost 30%. However, this was partly offset by weak external demand. The secondary income surplus fell by about US$540m in 2015, to US$1.6bn, as remittances from Russia continued to contract. Lower personal disposable income, weak remittance flows and a more difficult environment for domestic firms have constrained import demand and current transfers in 2016, whereas a tough external environment held down exports. The current-account deficit is estimated at 9.6% of GDP in 2016. In 2017 a gradual recovery in household consumption will support import demand, opening up the trade gap. This will be partially offset by higher remittance inflows (although these will fuel import growth with a lag). We forecast a current-account deficit equivalent to 8.5% of GDP. A fall in import prices in 2018 will trim the deficit further, to 7.7% of GDP.

Forecast summary

(% unless otherwise indicated)

2015a 2016a 2017b 2018b
Real GDP growth	3.5	3.1	3.5	3.6
Exports of gold ('000 kilograms)	16.7	16.7	16.0	16.0
Consumer price inflation (av)	6.5	0.4	3.9	3.4
Lending rate	24.3	26.0	28.0	26.5
Government balance (% of GDP)	-1.5	-5.3	-4.8	-4.0
Exports of goods fob (US$ m)	1,753	1,632	1,712	1,747
Imports of goods fob (US$ m)	-3,721	-3,345	-3,511	-3,564
Current-account balance (US$ m)	-721	-658	-613	-562
Current-account balance (% of GDP)	-11.0	-9.6	-8.5	-7.7
Exchange rate Som:US$ (av)	64.46	69.95	67.26	68.67
Exchange rate Som:US$ (end-period)	75.90	69.11	66.27	68.51
Exchange rate Som:? (av)	71.53	77.60	70.96	73.13
Exchange rate Som:Rb (av)	1.06	1.05	1.08	1.01

a Actual. b Economist Intelligence Unit forecasts.

Recent analysis

Generated on January 23rd 2017

The following articles were published on our website in the period between our previous forecast and this one, and ser a review of the developments that shaped our outlook.

Politics

Forecast updates

Analysis

The SDPK led the four-party coalition with 38 seats (out of a total of 120), and the Socialist Party Ata-Meken (Fatherland) held 11 seats, Onuguu-Progress held

13 seats and the Kyrgyzstan Party held 18 seats. Intra-coalition tensions increased owing to opposing views over proposed constitutional changes and a referendum, set for December 11th, to approve the amendments. Ata-Meken strongly opposed the reforms and Onuguu-Progress also voiced concerns. If adopted, the changes would bolster the prime minister's powers and may make it easier for the government to target opponents. Opposition to the reforms argue that Mr Atambayev will run for prime minister when his current presidential terms ends and use the reforms to entrench himself in power.

SDPK members cited coalition members' opposition to the constitutional changes and the referendum as reasons for leaving the coalition. On October 24th the SDPK leader, Isa Omurklov, attributed the party's exit to coalition members, who he accused of colluding with the country's deposed former presidents, Askar Akayev and Kurmanbek Bakiyev. On September 15th Mr Atambayev asked the prosecutor- general to pursue these allegations against members of Ata-Meken and Onuguu- Progress. Omurbek Tekebaev, the leader of Ata-Meken, in response accused

Mr Atambayev of illegally purchasing land.

Mr Atambayev has three days to ask a parliamentary party to form a new coalition, and the SDPK is a likely choice; he led the SDPK before becoming the president. If Mr Atambayev asks the SDPK to form a government, it is very unlikely that Ata- Meken and Onuguu-Progress will be in the new coalition. It is possible that their withdrawal from the government will lead to street protests.

The position of Sooronbai Zheenbekov, the prime minister, is unclear. He is supported by the SDPK and may head a new government, which could be formed from a coalition of the SDPK, the Kyrgyzstan Party and Respublika-Ata-Jurt

(28 seats).

Impact on the forecast

The constitutional referendum is likely to go ahead. On October 19th the referendum date was moved from December 4th to December 11th with no clear explanation. The coalition's collapse, and the likely exclusion of Ata-Meken and Onuguu-Progress from the new coalition, increases the likelihood of street protests before the referendum.

Event

On November 3rd the Social Democratic Party of Kyrgyzstan (SDPK) formed a new government coalition with the Kyrgyzstan Party and the Bir Bol party.

Analysis

Both the Kyrgyzstan Party and the Bir Bol party are seen as allies of the SDPK and the president, Almazbek Atambayev. Mr Atambayev's decision to ask the SDPK to reform government was largely expected. The party presided over the previous coalition and was led by Mr Atambayev before he was elected president in 2011. The SDPK nominated Sooronbai Zheenbekov again for prime minister.

Mr Zheenbekov was nominated for prime minister by the SDPK in the previous coalition.

The new coalition ensures that both the SDPK and Mr Atambayev are in a strong position leading up to the constitutional referendum on December 11th. The referendum's proposed constitutional changes, which law-makers approved on November 2nd, will increase the prime minister's powers and make it easier for the government to target opponents.

We believe that the referendum will pass and that the SDPK will use the constitutional reforms to strengthen its position in government in the run-up to the 2017 presidential election. The reforms will increase the powers of Mr Zheenbekov, an SDPK nominee and ally of Mr Atambayev, and decrease those of the president.

Counterweights to the SDPK's influence in government have, in effect, been eliminated with the removal of Onuguu-Progress and Ata-Meken (Fatherland), two members of the previous coalition that opposed the constitutional referendum.

Should the SDPK nominate Mr Atambayev for prime minister following the end of his presidential term in 2017, as many suspect, his appointment would face little opposition within the current cabinet. (Mr Atambayev denies having any plans to run for prime minister after his presidential term ends, however.) We believe that the constitutional referendum and new coalition are attempts by the SDPK to consolidate power and ensure the continuation of their influence after the 2017 presidential election.

Impact on the forecast

We maintain our existing view that the constitutional referendum will go ahead on December 11th and will pass.

Analysis

Balancing act

Mr Mirziyoyev has a reputation as being pro-Russian, although there is no hard evidence to suggest that he will look more favourably towards Russian interests than did Mr Karimov. Mr Mirziyoyev offered Mr Putin a warm welcome that went beyond the demands of protocol, thanking him for lending Uzbekistan "the shoulder of a true friend" and pledging to continue Uzbekistan's "strategic partnership" with Russia. In a speech to parliament on September 8th Mr Mirziyoyev singled out maintaining good relations with Russia as a foreign policy priority. However, he also mentioned the US, China and Europe as priority partners, and told parliament that Uzbekistan would continue to reject membership of military, economic and political blocs. This is in line with our view that Uzbekistan is unlikely now to join any of the Russian-led regional integration bodies that it shunned under Mr Karimov, such as the Collective Security Treaty Organisation (CSTO, from which Uzbekistan withdrew in 2012) or the Eurasian Economic Union (EEU, which it has never professed any intention of joining). Mr Mirziyoyev also said that Uzbekistan would not allow foreign military bases on its territory, under a doctrine adopted in 2012. Uzbek suspicions of Russia's intentions have been heightened by Russia's efforts since February 2014 to undermine Ukrainian sovereignty, and this is likely to remain so under the new Uzbek leadership. However, there may be room for incremental improvements in Russian-Uzbek relations.

On September 6th Daniel Rosenblum, the US deputy assistant secretary of state responsible for Central Asia, visited Uzbekistan on a trip designed, he said, to demonstrate the US administration's "continued commitment to our partnership". Mr Rosenblum held talks with Abdulaziz Kamilov, the minister of foreign affairs, but did not meet Mr Mirziyoyev. The US enjoys limited leverage in Uzbek political circles, and is likely to continue to do so in the post-Karimov era. Relations were marred earlier in the current century by US criticism of Uzbekistan's human rights record, and in 2005 the Uzbek government expelled the US military from an airbase following US criticism of the killing a large number of protesters in the town of Andijan. In recent years, however, the US administration has refrained from criticising Uzbekistan publicly, and this is unlikely to change owing to the need to develop good relations with the new leadership to ensure Uzbekistan's continued co-operation over security issues. Although Uzbekistan will see this in its interests too, a substantive US-Uzbek rapprochement is unlikely to be a priority for either side.

We expect China also to pursue a continuation of the status quo in its ties with Uzbekistan, and it is not likely to seek a larger political or security presence there in the short term. China's main regional goal is to support its economic power, with the priority in Uzbekistan's case to assure continued gas exports to China. China may push for greater Uzbek commitment to its "One Belt, One Road" regional integration project, but we believe that Uzbekistan will still try to stand aloof from such efforts for fear of becoming too beholden to external economic pressure from a single source.

Regional disputes

Mr Karimov sometimes took a confrontational approach to relations with two of its smaller Central Asian neighbours, the Kyrgyz Republic and Tajikistan, often because of frictions over land and water resources, but also because of personal enmity between the leaders. Mr Karimov's death could offer scope for improvements in these relationships, and in his speech to parliament on September 8th

Mr Mirziyoyev suggested that this was possible.

However, there are two reasons why a significant improvement in Uzbekistan's relations with the Kyrgyz Republic and Tajikistan is unlikely. First, frictions over use of regional resources remain after Mr Karimov's death and would take major concessions on both sides to resolve, which so far look unlikely. A recurrent area of contention is water resources. Whereas the Kyrgyz Republic and Tajikistan—which lie upstream on Central Asia's main waterways—want to harness the rivers for hydropower projects, Uzbekistan contends that their hydropower projects could pose a risk to its commercially important cotton crop. There have also been frequent tensions over border issues and territorial control. These have been highlighted again in 2016, as Uzbekistan has engaged in a stand-off with the Kyrgyz authorities over control of the disputed Ungar-Too Mountain in the Fergana Valley. The Uzbek authorities have used the stand-off to pressure the Kyrgyz Republic to remove checkpoints controlling access to the Kasan-Sai Reservoir, which lies inside Kyrgyz territory but is claimed by Uzbekistan.

Second, Uzbekistan's new leader is unlikely to give ground in disputes with Central Asian neighbours over territory and resources, for fear of being perceived as weak by competing domestic political factions and the population, or as a pushover by regional and international actors. The new leader may therefore see the adoption of a hard line with neighbours as a means of consolidating his standing at home. If, as expected, Mr Mirziyoyev formally becomes president in December, he may also be strongly tempted to pursue a hawkish regional policy.

Ties with Kazakhstan could strengthen

There is a greater prospect for improvement in Uzbekistan's relations with Kazakhstan, since the two countries—as large downstream energy producers with a shared desire to ensure access to water resources—have considerable common interests. Personal rivalries between Mr Karimov and Nursultan Nazarbayev, Kazakhstan's president, may have prevented a close partnership from developing. However, Mr Nazarbayev has already taken steps to establish relations with the new Uzbek leadership. On September 12th he visited Uzbekistan to pay his respects at Mr Karimov's grave and to meet Mr Mirziyoyev. The Kazakh-Uzbek relationship may improve if the two countries use their common ground to assert shared interests, and perhaps even to promote better integration and co-operation within Central Asia as a whole. Despite the similarities of Uzbekistan with Turkmenistan— both are gas producing autocracies—their positions as competitive energy suppliers to China and their isolationist foreign policies will probably keep relations distant.

Mr Atambayev's recent call for a criminal investigation into members of the 2010 interim government will further inflame tensions between the coalition parties; however, we do not expect the coalition to collapse.

If approved the proposed constitutional changes would significantly decrease the president's powers and increase those of the prime minister. This has raised suspicions that the amendments are aimed primarily at entrenching Mr Atambayev and his party in power and that he might seek to become prime minister when his current presidential term ends in 2017. Mr Atambayev, who is 60 and recently underwent heart surgery in Moscow, the Russian capital, denies that he has any intention of remaining in politics when his presidential term ends. Our core scenario remains that Mr Atambayev will not attempt to become prime minister himself when his presidential term ends (although this cannot be excluded) but will seek to ensure that the position is held by a close ally.

Current legislation prohibits any amendments to the 2010 constitution until 2020, although Mr Atambayev has bizarrely denied that any such restrictions exist. The proposed constitutional amendments have been criticised by both opposition politicians and members of the government coalition. Two of the four parties in the coalition, Onuguu-Progress and Ata-Meken (Fatherland), have threatened to quit the government. Omurbek Tekebayev, the leader of Ata-Meken and one of the architects of the current constitution, has pushed to delay the referendum until the constitutional council can debate all the proposed amendments.

Representatives of civil society have also criticised the proposed changes. On August 24th the Committee for Civic Control, a coalition of 70 non-governmental organisations, issued a statement accusing Mr Atambayev of using the referendum to usurp power for himself and his party.

The Venice Commission, a body of constitutional experts within the Council of Europe, echoed the committee's concerns in a report published on August 29th that determined that the constitutional changes would "negatively impact the balance of powers".

Brewing tensions

There has been a crackdown on Mr Atambayev's opponents in the past few months; eight opposition politicians have been arrested since May, including members of the People's Parliament movement who threatened to organise mass protests in Bishkek, the capital, to demand Mr Atambayev's resignation.

Mr Atambayev has also attacked his former political allies, who, alongside the president, were members of the 2010 interim government. Mr Atambayev used his Independence Day speech on August 31st to publicly castigate Roza Otunbayeva for her actions when she was the interim president in 2010.

In September the prosecutor general, at Mr Atambayev's request, began investigating several members of the interim government on charges of aiding the escape to Europe in 2010 of Kadyrjan Batyrov, an Uzbek community leader. In 2011 Mr Batyrov was charged in absentia with inciting inter-ethnic hatred and masterminding the violent clashes that occurred between ethnic Uzbeks and Kyrgyz citizens in the south of the country in June 2010.

On September 15th, in parliament, Meerbek Miskenbayev, a deputy from Mr Atambayev's Social Democratic Party of Kyrgyzstan (SDPK), accused Mr Tekebayev of instigating theft and looting in Bishkek in April 2010.

Mr Tekebayev, in turn, accused Mr Atambayev of corruption, and KTRK, the state television broadcaster, of biased coverage.

Now that the second reading has passed, the constitutional referendum is almost certain to go ahead on December 4th, and the proposed amendments will probably be approved in this vote. The amendments are likely to lead to small but manageable protests, particularly if the Prosecutor General's Office continues to pursue its investigation into members of the government. Despite rising tensions, however, the government is unlikely to fall, as neither Onuguu-Progress nor Ata-Meken has enough seats to bring down the coalition.

October 28, 2016

Analysis

The Russian Federal State Statistics Service (RosStat) produces a range of estimates of remittance flows, based on data from banks and money transfer services. We have elected to use the widest definition (and highest figure). The nominal figures are likely to be an underestimate, but we believe that the quarterly and annualised change probably reflects the trend in remittance flows. In the first half of 2016 total remittances outflows were down by just over 3% year on year (against a low base), and remittances to the CIS were down by just over 16%. The pace of decline has slowed sharply compared with 2015, when total remittances fell by almost 50%, and those to the CIS were down by over 40% year on year in US dollar terms.

The recession in Russia has seen a sharp fall in wages in real terms over the past 18 months. Official figures suggest that the unemployment rate remains very low, at just over 5%, but in the informal economy, where many migrants from the CIS are engaged, job losses are likely to have been much higher. Nevertheless, the most

significant determinant of the decline in remittances has been the depreciation of the rouble against the US dollar. In rouble terms, outward remittances declined by around only 18% in 2015 and grew by 19% year on year in the first half of 2016.

We expect remittances to rebound in US dollar terms in the fourth quarter of 2016 and into 2017. We forecast that wages in Russia will grow in nominal terms next year, by 6 7%, resulting in modest realterms growth of around 1% as inflation continues to slow. We expect the rouble to be on average around 10% stronger in 2017, supported by a higher average oil price and relatively tight monetary policy. On this basis, we forecast that remittances could grow by around 20% next year in

US dollar terms, although they will remain below the 2014 level.

Impact on the forecast

A rebound in remittances should support a modest recovery in household consumption and imports, from a low base, across much of the CIS. However, there are significant downside risks, as the outlook for the rouble remains uncertain.

Kyrgyz Republic

Generated on January 23rd 2017

Economist Intelligence Unit 20 Cabot Square

London E14 4QW United Kingdom

Резюме

Редактор: Алекс Ницца

Дата закрытия прогноза: 12 декабря 2016 г.

Перспективы на 2017-18 годы

Обзор

14 ноября службы безопасности опубликовали документы

Связывая трех видных членов оппозиционной партии «Ата-Мекен» с коррупционными преступлениями.

Основные данные

Общая площадь

198,500 sq km

Население

5.9m (end-2015 official estimate)

Основные города

Численность населения в тыс. Человек (оценки конца 2011 года)

Г. Бишкек (столица): 937 Ошская область: 1,228

Джелалабадская область: 1,122

Чуйская область: 870

Климат

Континентальная высокая гора

Languages

Kyrgyz and Russian are the official languages

Weights and measures

Metric system

Currency

The som was introduced on May 10th 1993

Time

Five hours ahead of GMT

Fiscal year

Calendar year

Public holidays

Political structure

Official name

Kyrgyz Republic

Form of state

National legislature

The Jogorku Kenesh is a unicameral chamber elected for a five-year term. Changes approved by referendum in June 2010 increased the number of seats in the legislature to 120, from 90

National elections

Last elections: October 4th 2015 (parliamentary), October 30th 2011 (presidential); the next presidential election is due in 2017 and the next parliamentary election is scheduled for 2020

National government

Head of state

Almazbek Atambayev won the election in October 2011 and took over from the interim president, Roza Otunbayeva, on December 1st 2011

Main political parties

Government

Prime minister: Sooronbai Zheenbekov

First deputy prime minister: Mukhammetkaly Abulgaziev Deputy prime ministers:

Oleg Pankratov Cholpon Sultanbekova

Zhenish Razakov

Key ministers

Agriculture & land reclamation: Nurbek Murashev Economy: Arzybek Kozhoshev

Emergency situations: Kupatbek Boronov Finance: Adylbek Kasymaliev