Kyrgyz Republic (Kyrgyzstan)

High growth supported by domestic demand and re-exports to Russia

Economic growth, after peaking between 2022 and 2024, is expected to slow in 2025 and 2026 due to the gradual stabilisation of re-exports to Russia. However, with domestic demand continuing to expand, growth will remain robust. It is supported by private consumption, financed by the growing influx of remittances from migrant workers (95% of whom come from Russia), rising real wages, and growth in consumer credit. Demand is also driven by public investment in hydroelectric power and transport infrastructure. Concessional financing for these investments comes from regional partners: the largest hydroelectric dam currently under construction (Kambarata-1) is co-financed by Uzbekistan, Kazakhstan and multilateral institutions (the Asian Development Bank and the World Bank). The China-Kyrgyzstan-Uzbekistan railway is being built by a company 51%-owned by China, with Kyrgyzstan and Uzbekistan each holding 24.5%. In addition, residential and commercial construction (supported by the state) and the production of related materials, plus mining – particularly gold, which accounts for 6% of GDP and is expected to grow significantly in value thanks to rising prices – and the metallurgical industry, will be growth drivers.

Since the start of the war in Ukraine (2022), growth has also been driven by the rapid increase in re-exports (mainly from China) to Russia, which Kyrgyzstan chooses not to officially record due to their membership of the Eurasian Customs Union. Kyrgyzstan is thus one of the countries circumventing Western sanctions. As a result, 38% of total imports (excluding fuel) are reportedly re-exported to Russia. This stimulates activity directly, through labelling or assembly operations, and indirectly, through increased customs revenues and the development of transport networks.

Several risks pose threats to the economy in 2025 and 2026. First, spiking inflation observed in the first half of 2025, due to strong consumption and the depreciation of the som, is expected to continue. The central bank could raise its key interest rate (9.25%) to keep inflation within its target range of 5-7%, which would curb real estate investment. Second, the Russian-Ukrainian war has had mixed effects: it stimulates re-exports, but the projected slowdown in the Russian economy or a depreciation of the rouble could weigh on remittances from the diaspora.

Increased gold revenues fail to offset higher public investment and weaker tax revenues

After a large surplus in 2024, the budget balance is expected to return to the red in 2025. Public revenues are expected to grow more slowly due to a slowdown in customs duties and VAT revenues. At the same time, investment spending is expected to grow strongly on back of the construction of railways and hydroelectric dams – projects partly financed by the issuance of Eurobonds. This method of financing, which is new for the country, was made possible by the upgrade of the sovereign rating (B+, S&P) on 31 March 2025. This will not be offset by the increase in dividends paid by the national company that operates the Kumtor gold mine following higher gold prices. The stabilisation of operating expenditure, including the freeze on salaries and staffing levels, will be compensated by the increase in purchases of goods and services.

The weight of public debt is therefore expected to increase in 2025 and 2026. The situation in 2026 will exhibit a similar profile, which will still be well below the unsustainability threshold of 50% of GDP. The domestic portion of the debt is held by Kyrgyz commercial banks and the social security fund. The remainder (73%) is divided between China (37% of external debt), the IMF and the World Bank (23%), and the Asian Development Bank (17%). The Islamic Development Bank, the Eurasian Development Bank and bilateral creditors (the largest of which is Japan) hold the rest.

The massive current account deficit (31% of GDP in 2024) is attributable to re-exports to Russia: only imports are recorded for these transactions, not exports, which artificially widens the trade balance. This explains the presence of the “errors and omissions” line which represents 22% of GDP in the balance of payments statement. Setting aside this accounting manipulation, the current account deficit would have stood at only 8.3% of GDP in 2024. Hence, by removing the bias associated with the official non-recording of re-exports and reasoning on the basis of real economic flows, the current account deficit is expected to widen in 2025, reflecting the slowdown in re-exports, which will be partially offset by increasing transfers from the diaspora. In addition to international aid, which is declining as the economy develops, this deficit is financed by net capital inflows in the form of loans and rising foreign direct investment, particularly in major hydroelectric and rail projects.

Authoritarian drift and regional integration

Long hailed as a “democratic” model in the region, despite recurring episodes of revolution (2005, 2010, 2020) fuelled by poverty, poor governance and regional divisions, Kyrgyzstan is slowly but surely sliding towards authoritarianism. In 2020, major protests led to the cancellation of parliamentary elections and the resignation of President Sooronbay Jeenbekov. Recently released from prison, Sadyr Japarov won the presidential election in January 2021 after a free but lopsided campaign in terms of financial resources and media coverage of the 17 candidates. He consolidated his position by also winning an absolute majority in the parliamentary elections in November 2021. At the same time, he changed the Constitution by referendum to strengthen presidential power at the expense of Parliament. Since then, he has sought to increase his relative hold on political life, for example by passing a bill modelled on Russian legislation in April 2024 that restricts the freedom of the press and by arresting opposition activists and journalists, at the risk of fuelling popular discontent.

Since Japarov's election in 2021, the government has projected an image of relative stability, supported by noteworthy economic performances and the rise of conservative and populist nationalism, which has been rooted in Kyrgyz society since it became independent in 1991. However, this stability may well be illusory: low turnout in recent elections (30% in the constitutional referendum) and the customary revolutionary practice raise fears of a popular uprising during the upcoming parliamentary and presidential elections, scheduled for 2026 and 2027, respectively.

Like Kazakhstan and Russia, Kyrgyzstan is a member of three major regional inter-state organisations: the Eurasian Economic Union, which includes a free trade area; the Collective Security Treaty Organization (CSTO), led by Russia; and the Shanghai Cooperation Organization (SCO), an economic and military alliance that includes China. This regional integration has helped to strengthen Kyrgyzstan’s already close ties with China and Russia. For China, the ties manifest in finance, commerce and logistics thanks to the Belt and Road Initiative. Russia plays a more political role: involved in the country's defence and sharing a strong cultural affinity, Russia even has an air base near Bishkek. Relations with the West are more measured. Relations with the US have cooled since the closure of the Manas military base in 2014. The European Union, for its part, has strengthened its ties with Kyrgyzstan through an Enhanced Partnership and Cooperation Agreement (EPCA) in 2024. Last, Kyrgyzstan enjoys close economic ties with Kazakhstan and Uzbekistan. On the other hand, its relations with Tajikistan have historically been more tense due to recurring border disputes in the Ferghana Valley, a region with high hydroelectric potential. However, the two countries signed an agreement in March 2025 which is supposed to settle the border dispute once and for all.

Last updated:August 2025