Kyrgyzstan - Economic development

Under the Soviet system, economic planning efforts in Kyrgyzstan focused on increasing agricultural production (particularly in the meat and dairy subsectors during the 1980s) and specialized development of industrial sectors in line with the wider Soviet economy. Transfer payments from the central government as well as capital inflows into state enterprises covered the republic's modest balance of trade deficit with its Soviet trading partners and countries beyond. With this support, GDP growth was sustained at moderately high levels in the late 1980s, averaging5.1% in 1985–89. Kyrgyzstan declared its independence in 1991. Since then, the Kyrgyzstan government faced the task of sustaining a viable national economy despite the sudden cessation of transfers from the central government, the country's critical dependence on oil and gas imports, and its landlocked geographic position that has hampered development of trading ties outside the economically troubled former Soviet Union. Reforms have aimed at making the transition to a market-oriented economy.

Kyrgyzstan experienced declines in gross domestic product (GDP) from 1991–94. Both per capita income and overall output fell to well below the 1990 level. Agricultural output fell by an estimated 20%, and industrial output, by 42%. By 1996, however, Kyrgyzstan had begun to show progress, especially when compared to the other former Soviet republics, in the areas of privatizing state enterprises, ending the state ordering system, lifting price controls, and converting military enterprises to civilian uses. Prime Minister Apas Jumagulov reported in 1995 that the economic crises had eased, and the rates of decline were slowing.

A value-added tax was introduced in 1992 to help strengthen the government revenue base. Expected state revenues however, have fallen short of expectation due to steeply declining consumption and collection difficulties within the new tax system. With seriously declining revenues since 1991, the government's ability to make new development investments in either the productive sectors or physical and social infrastructure has been severely constrained. Capital expenditures as a percentage of total budgetary expenditures declined from 15% in 1990 to only 7% in 1992. Because of its commitment to democracy, Kyrgyzstan has received favorable treatment from international economic aid agencies. In 1992, the government signed a formal agreement with Russia transferring its share of the former Soviet Union's external debt to the latter in return for relinquishing most claims to the financial and other assets of the former USSR.

In May 1996, President Akayev negotiated an aid package from the Asian Development Bank that included $60 million in loans to finance privatization of agriculture and to renovate power and heating facilities in Bishkek. In support of the government's efforts to evolve the country's agriculture from large communes to private farms, the Asian Development Bank also offered loans to small farmers. In July 1996, the International Finance Corporation promised $40 million to finance a project to mine for gold near Issy-Kul', a large lake in the northeast. In November 1996, the World Bank moved to support programs to reform the Kyrgyzstan banking system and to modernize the electric power generating system.

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