The Asian Development Bank (ADB) has published an updated macroeconomic forecast for Kyrgyzstan's economy. According to the report, despite an expected slowdown in the construction sector, the country’s economy will maintain strong growth—8.5% in 2025 and 8.6% in 2026, reports Economist.kg.
Key Growth Drivers
Economic expansion will be fueled by government investments in infrastructure and energy, industrial development, strong domestic demand, and support from international partners.
Growth Rates: High but with Adjustments in Construction
Following strong growth in 2023–2024, the economy is expected to slow slightly but remain robust. ADB forecasts GDP growth of 8.5% in 2025 and 8.6% in 2026. A notable shift will be a moderation in the construction sector, which has been the main driver in recent years but is now stabilizing due to the completion of major projects.
However, investment projects in energy, road infrastructure, mining, and tourism will drive further growth. Many of these projects are funded with international support, reducing the burden on the national budget and bringing advanced technical expertise.
Industry and Services: Boost from Tourism and Manufacturing
Industrial growth is expected to gain momentum as new manufacturing facilities reach full capacity. This will strengthen domestic supply chains and reduce import dependence.
The services sector is projected to grow by 8% annually, with tourism playing a key role in offsetting the decline in re-export activities. Although services are highly sensitive to external shocks, the sector remains adaptable and benefits from rising domestic consumption.
Domestic Demand and Consumption: Stable Growth Driven by Political Cycles
Private consumption is set to grow steadily at 10% per year, supported by remittances, rising wages, and expanding consumer credit. Expectations of improved living standards also fuel spending.
Elections during the forecast period may further stimulate domestic expenditures, as governments often launch large-scale projects in such times, contributing to an estimated 20% annual investment growth.
Inflation: Rising After a Decline
After a slowdown in 2024, inflation is expected to accelerate, reaching 6% in 2025 and 7.8% in 2026. Key factors include rising domestic demand, adjustments to utility tariffs, potential currency depreciation, and continued import dependence.
Despite inflationary pressures, expanding domestic production and stable logistics could help contain price hikes. The National Bank is expected to maintain tight monetary policies and intervene in currency markets to stabilize exchange rates when necessary.
Fiscal Policy: Stimulus with a Moderate Deficit
Fiscal policy will remain expansionary, with a budget deficit projected at around 1% of GDP in 2025 and 2026. While improved tax and customs administration will boost revenues, expenditures will grow at a faster rate.
Increased capital investments, higher current spending, and rising debt interest payments will require careful management to ensure efficient use of funds.
External Position: Improved Trade Balance with Stronger Exports
ADB expects the current account deficit to shrink due to rising gold exports and slower import growth. Re-export activities will likely decline due to shifts in trade routes and stricter regulations in neighboring countries.
The financial balance will benefit from foreign direct investments, particularly in manufacturing and mining. While the National Bank may continue currency interventions, foreign reserves are expected to grow, mainly due to rising gold prices.
Risks: Geopolitical Uncertainty and Energy Constraints
The forecast includes both upside and downside risks. Regional geopolitical instability and uncertainties in global trade could negatively impact trade, investments, and remittance flows.
Domestic risks include delays in major infrastructure projects and limitations in energy capacity, with Kyrgyzstan remaining vulnerable to power shortages, especially in winter.
On the positive side, infrastructure modernization and improved regional relations create opportunities for sustainable growth. Continued governance reforms and a better investment climate will be crucial for attracting capital and stabilizing the economy.
Conclusion
Kyrgyzstan enters 2025 with strong growth momentum, driven by investments, consumption, and exports. However, future stability will depend on managing inflation risks, improving fiscal efficiency, and successfully executing infrastructure projects.
While the economy has significant potential, it remains sensitive to internal and external shocks. Policy coordination and institutional resilience will be key to sustaining growth and ensuring macroeconomic stability in the medium term.
CentralasianLIGHT.org
April 9, 2025