Kyrgyz Republic Improving Growth Potential

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Kyrgyz Republic Improving Growth Potential KYRGYZ REPUBLIC IMPROVING GROWTH POTENTIAL Takashi Yamano, Hal Hill, Edimon Ginting, and Jindra Samson SEPTEMBER 2019 ASIAN DEVELOPMENT BANK KYRGYZ REPUBLIC IMPROVING GROWTH POTENTIAL Takashi Yamano, Hal Hill, Edimon Ginting, and Jindra Samson SEPTEMBER 2019 ASIAN DEVELOPMENT BANK Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) © 2019 Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444 www.adb.org Some rights reserved. Published in 2019. ISBN 978-92-9261-736-3 (print), 978-92-9261-737-0 (electronic) Publication Stock No. TCS190437-2 DOI: http://dx.doi.org/10.22617/TCS190437-2 The views expressed in this publication are those of the authors and do not necessarily reflect the views and policies of the Asian Development Bank (ADB) or its Board of Governors or the governments they represent. ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The mention of specific companies or products of manufacturers does not imply that they are endorsed or recommended by ADB in preference to others of a similar nature that are not mentioned. By making any designation of or reference to a particular territory or geographic area, or by using the term “country” in this document, ADB does not intend to make any judgments as to the legal or other status of any territory or area. This work is available under the Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) https://creativecommons.org/licenses/by/3.0/igo/. By using the content of this publication, you agree to be bound by the terms of this license. For attribution, translations, adaptations, and permissions, please read the provisions and terms of use at https://www.adb.org/terms-use #openaccess. This CC license does not apply to non-ADB copyright materials in this publication. If the material is attributed to another source, please contact the copyright owner or publisher of that source for permission to reproduce it. ADB cannot be held liable for any claims that arise as a result of your use of the material. Please contact [email protected] if you have questions or comments with respect to content, or if you wish to obtain copyright permission for your intended use that does not fall within these terms, or for permission to use the ADB logo. Corrigenda to ADB publications may be found at http://www.adb.org/publications/corrigenda. Notes: In this publication, “$” refers to United States dollars. ADB recognizes “Kyrgyzstan” as the Kyrgyz Republic, “China” as the People’s Republic of China, and “Russia” as the Russian Federation. On the cover: Upper Left to Right: Energy – Toktogul Hydropower Plant (Vlad Ushakov); Road 3 –Reconstruction of Bishkek-Naryn-Torugart Road (Vyacheslav Oseledko); Boy welding–vocational school in Osh city (Kanat Asanakunov); VoTech 2 – Student during her practical lessons in Lyceum in Karakol (Vyacheslav Oseledko); Early EDU – Kindergarden students in Gulcha (Vlad Ushakov). Below Left to Right: Road 1 – CAREC Corridor 3 (Bishkek-Osh Road) Improvement Project, Suusamyr pass (Vyacheslav Oseledko) Agricultural Local Market in Osh (Takashi Yamano). Cover design by Joe Mark Ganaban. Printed on recycled paper Contents Tables, Figures, and Boxes ...................................................................................viii Foreword .................................................................................................................xiii Preface ...................................................................................................................... xv Acknowledgments ................................................................................................xvii Author Profiles ....................................................................................................... xix Abbreviations ........................................................................................................ xxv 1. Introduction: The Kyrgyz Economy at the Crossroads ............................... 1 1.1. Introduction and Overview .............................................................................. 1 1.2. Setting the Scene .................................................................................................3 Legacies of history—the Soviet period and its aftermath .............................. 4 Geography ................................................................................................................5 A small economy .................................................................................................... 6 A remittance economy.......................................................................................... 7 1.3. Economic Development: An Overview ...........................................................8 Economic growth ................................................................................................... 8 Sectoral growth and structural change ............................................................. 11 Investment and savings .......................................................................................14 Macroeconomic survey ........................................................................................15 Summing up: Are macroeconomic storm clouds on the horizon? .............. 22 International dimensions .................................................................................... 24 The Kyrgyz Republic and the Eurasian Economic Union ............................. 28 Social indicators ....................................................................................................31 Governance indicators ........................................................................................ 34 1.4. This Book ............................................................................................................38 1.5. Summing Up and Policy Inferences ..............................................................41 Summing up ...........................................................................................................41 Policy implications and recommendations ..................................................... 43 iii Contents 2. International Dimensions of Economic Transition : Trade, Foreign Direct Investment, and Labor Migration...................................................... 51 2.1. Introduction ....................................................................................................... 51 2.2. Reforms and the Incentive Structure ............................................................52 Trade policy ........................................................................................................... 52 Foreign direct investment policy ...................................................................... 56 Macroeconomic policy and international competitiveness ......................... 56 Trade customs reforms ...................................................................................... 57 Infrastructure, geographical disadvantage, and trade costs ........................ 59 2.3. External Payments Position ........................................................................... 60 2.4. Trade Patterns ....................................................................................................63 Initial conditions................................................................................................... 63 Export performance .............................................................................................64 2.5. Trends and Patterns of Nongold Exports .....................................................65 Electricity ...............................................................................................................67 Cotton ....................................................................................................................69 Food products .......................................................................................................69 Garments ................................................................................................................71 2.6. Foreign Direct Investment ..............................................................................76 2.7. Labor Migration and Remittances ................................................................ 80 2.8. Concluding Remarks ....................................................................................... 84 3. Reinventing the Agriculture Sector ...............................................................91 3.1. Introduction ....................................................................................................... 91 3.2. The Kyrgyz Republic’s Agriculture ................................................................92 Historical overview of agriculture policy ........................................................ 92 Agriculture in Central Asia ................................................................................. 95 Contribution to gross domestic product and employment .......................... 97 Kyrgyz Republic’s agroecological zones ...........................................................98 Irrigation development .....................................................................................101 Agricultural production and trade ................................................................. 102 3.3. Export-Led
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