Kyrgyz Republic Economic Update No. 7, Spring/Summer 2018 : Favorable Headwinds Time for Structural Reform
Economic growth was robust in 2017, above expectations. This was thanks to favorable external developments in the region, continued expansionary fiscal policy, and growth in the gold sector. Real GDP growth reached 4.6 percent in 2017, up from 4.3...
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| Format: | Report |
| Language: | English |
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World Bank, Washington, DC
2019
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| Online Access: | http://documents.worldbank.org/curated/en/307851548224951736/Kyrgyz-Republic-Favorable-Headwinds-Time-for-Structural-Reform-with-a-Special-Focus-on-Digital-Challenge http://hdl.handle.net/10986/31238 |
| Summary: | Economic growth was robust in 2017,
above expectations. This was thanks to favorable external
developments in the region, continued expansionary fiscal
policy, and growth in the gold sector. Real GDP growth
reached 4.6 percent in 2017, up from 4.3 percent in 2016,
and the fastest rate since 2013. During the first 4 months
of 2018, growth slowed to 1.3 percent, from a year earlier,
as a result of the contraction in gold production; excluding
gold, output grew at 2.5 percent, up from 2.3 percent over
the same period in 2017. In short, the economy appears to
have fully recovered from the recent shock brought about by
the fall in oil prices. Investment and consumption drove
output growth last year. Sources of growth appear to have
been balanced. Growth was mainly driven by consumption and
investment, with: private consumption growth returning to
positive territory, after two consecutive years of
contraction and high rates of public and private investment.
Net exports also made a positive contribution, thanks to
robust export growth. With the regional downturn now over,
it is time the authorities should seize the opportunity for
fiscal reform. First and foremost, action is required on the
fiscal side to increase discipline and policy quality,
transparency and consistency. In the past years, the
authorities have deliberately delayed planned fiscal
consolidation to accommodate the external shocks. As a
result, public debt has remained elevated and fiscal buffers
have been depleted. Moreover, fiscal discipline (in the
context of relaxed targets) has been achieved at the cost of
ad hoc measures, which entail reduced spending efficiency.
It is now time to reverse this trend through implementing
the recently adopted fiscal rule, tax administration reform
and concrete measures to contain recurrent spending (to
preserve room for investment). Additional steps to improve
spending quality, include ensuring that planned amendments
to the Public Procurement Law safeguard best international
practice and that steps are taken to improve public
investment management. In the long run the core challenge is
to increase overall productivity in the economy. Creating
and preserving fiscal space for investment in infrastructure
is key, including via reforming energy tariffs. Significant
long-term payoffs can also be expected from implementing the
ambitious digital agenda under the Taza Koom flagship
program. The Special Focus section of this report highlights
the main challenges the country will face in this regard. |
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