The post-Soviet period in the Kyrgyz Republic was marked by dynamic changes. Gaining independence, Kyrgyzstan, at the end of 1991 and the beginning of 1992, like all other CIS countries, began the transition to a democratic system of governance and the implementation of radical economic reforms. They had to start and carry out these reforms under conditions of an unprecedented depth of economic crisis. The collapse of the Soviet Union meant a rupture of cooperative ties between economic entities. The activities of many enterprises were completely or partially paralyzed. The loss of markets in the former USSR, as well as changes in the structure of domestic demand, led to a significant decline in gross domestic product (GDP). The GDP fell most sharply in 1993 — it decreased by more than 25%.
To overcome the systemic crisis, decisive actions were taken to establish the foundations of a market economy, which allowed for the formation of a private sector, primary market infrastructure, the introduction of a national currency ahead of other CIS countries, and the implementation of an independent monetary policy, halting hyperinflation. As a result, economic growth resumed in 1996.
When analyzing the socio-economic development of the republic, several stages are clearly discernible.
First Stage — from 1991 to 1995. The sharp reduction in production and income coincided with a sharp increase in the number of people reaching the poverty line (over 50% of the population), inequality, hyperinflation, followed by initial macroeconomic stabilization. The slowdown of inflation became the basis for the first stage of macroeconomic stabilization (1992-1995). The macroeconomic and structural reforms of that period laid the foundations for market regulation of the economy.
Second Stage — from 1996 to 1999. Economic stabilization was observed, with growth occurring in limited sectors (agriculture, gold mining, and energy). However, a high budget and coverage of the budget deficit made the economy extremely vulnerable. The crisis that occurred in 1998-1999 was primarily due to the collapse of the Russian ruble.
Third Stage — from 2000 to March 2005. Economic growth continued, inflation slowed, the budget deficit decreased, and the exchange rate stabilized. However, the problem of external debt became more acute. The reforms of this period were grouped around deregulation issues. Deregulation is understood as a significant change in the role of the state, a reduction in its interference in the activities of the private sector, the elimination of administrative barriers for entrepreneurship, and a reduction in the number of controlling and permitting state bodies. Since 2000, active work has been carried out on the privatization of strategic sectors of the country — energy and telecommunications.
Current Stage — from March 2005.
FIRST STAGE
The first stage was characterized by the beginning of market reforms amid declining key macroeconomic indicators, high inflation rates that escalated into hyperinflation, and a sharp decline in the overall standard of living of the population.
The GDP, which reflects the value of goods and services produced in the country and intended for final consumption, accumulation, and export, decreased by almost half from 1991 to 1994, industrial output fell by almost two-thirds, and agricultural output by one-third.
Despite such a significant decline in social and economic indicators, market reforms were carried out, which laid the institutional-legal and regulatory foundation for sustainable economic growth.
During the first stage, economic reforms covered the following main areas:
• reduction and stabilization of inflation;
• ensuring the stability of the national currency;
• reduction of the budget deficit;
• structural restructuring of large loss-making enterprises;
• demonopolization of certain sectors of the economy;
• implementation of the state privatization program;
• liberalization of prices and foreign economic activity;
• strengthening social protection for the population.
In 1991, the process of transforming loss-making collective farms and state farms into peasant and family farms began, and from 1991 to 1994, an entrepreneurial wave swept through the country.
The liberalization of the domestic market in the Kyrgyz Republic began even during the existence of the Soviet state and was nearly completed by mid-1994. During this period, the liberalization of the majority of prices was carried out, and subsidies for bread production were eliminated. By the end of 1993, price regulation continued to operate only in the energy and utility sectors. The rapid liberalization of prices and foreign economic activity led to the alignment of internal and external prices, which, in turn, stimulated the reorientation of production towards tough competition and the search for markets. At the same time as price liberalization, institutional transformations began.
The first privatization program, designed for 1991-1993, was implemented with significant shortcomings in the legislative and regulatory framework due to the novelty and complexity of the process. This was particularly evident during the privatization of large enterprises. Thus, a significant portion of state enterprise ownership remained with labor collectives on preferential terms, which did not contribute to the emergence of real owners, the influx of investments, and, consequently, the renewal of production. The transformation of trade, public catering, and household service facilities within the so-called "small privatization" was relatively successful. In these sectors, privatization was carried out according to simple schemes based on auctions, competitions, and direct sales.
The result of the transformation of state property in the republic was the formation of a non-state sector, which serves as a real basis for the development of market relations in the economy and changes in the stereotypes of economic behavior of economic entities. However, the initial stages of privatization only solved an intermediate task — the formation of a diversity of ownership forms.
At the same time, radical changes occurred in agriculture. Collective farms proved to be completely unviable in the new conditions, as they were entirely dependent on government subsidies. Instead, many single or multi-family peasant farms emerged, becoming the main form of enterprise in Kyrgyz agriculture. Land distribution was carried out among all rural families in proportion to the number of family members, so that the vast majority of peasants received their own land.
In May 1993, Kyrgyzstan introduced its national currency (som) and became one of the first countries to exit the ruble zone. This allowed the republic to take full responsibility for halting inflation and achieving financial stabilization, to conduct an independent financial and monetary policy, and to exercise control over the economic situation. The main achievements of the monetary policy implemented included a reduction in inflation rates and a slowdown in the decline of production, which facilitated the adaptation of the economy to market conditions.
In fact, it was from this time that the constructive implementation of economic reforms began. The government began to implement a strict monetarist policy in the economy. The National Bank of the Kyrgyz Republic (NBKR) became independent and began to exercise strict control over the money supply, preventing the growth of monetary aggregates and thereby ensuring the containment of inflation rates. During this same period, a reform of the banking system was carried out. This involved the introduction of a two-tier banking system and the liberalization of the procedure for opening commercial banks. In a short time, the number of commercial banks operating in Kyrgyzstan increased. At the macro level, a modern credit and financial system was being built. Market infrastructure was created (the organization of the securities market, wholesale market organizations, commercial banks began to emerge, and modern reliable telecommunications appeared). Training began for all new market specialties for the republic, a labor market began to form, and support was provided for particularly vulnerable segments of the population. Reforms encompassed the judicial and legal system and the internal security system of the country (technically and in terms of personnel).
When hyperinflation was brought to an end in 1994, structural reforms came to the forefront, although, of course, the reform of the fiscal and monetary credit system continued. As for macroeconomic dynamics, 1994 turned out to be the most difficult year: there was a significant decline in sectors directly oriented towards final consumer demand and in sectors associated with capital investments. The decline in production was less severe in sectors that previously had and found new markets both within the republic and beyond (electric power, non-ferrous metallurgy). As a result, there were significant shifts towards increasing the share of raw material sectors and decreasing the share of sectors producing final products.
The period of the beginning of market reforms in the state sector of the economy was expressed in a reduction of the role of the state in the economy, a relative decrease in total budget expenditures from 37.2% of GDP in 1990 to 23.4% in 1994. Although the state managed to limit expenditures with difficulty, the problem of increasing revenues, which fell from 29% of GDP in 1990 to 15.7% in 1994, required a solution. There was also a significant decrease in tax revenues relative to GDP — from 25.7% to 14.7%. The significant budget deficit that arose was financed mainly from internal sources — loans from the National Bank, and from 1994 equally from external sources. This led to the accumulation of public debt.
As for production volumes, the most significant decline was observed in the industry of the republic. The volume of industrial production decreased annually by 25-28% from 1992 to 1994 and in 1995 amounted to 35% of the level of 1990. The largest economic downturn occurred in 1994. In 1995, it was not possible to stop the decline in production, although for the first time in recent years, a weakening of crisis phenomena was observed. By 1995, the economic decline in the country reached a critical point. The volume of GDP in 1995 actually decreased by almost half compared to the level of 1990 and amounted to 50.7%. The country's economy came very close to the threshold of economic security. The industry was in the most critical position as the most dependent sector of the economy on imported raw materials and components. Even greater rates of decline in production volumes were observed in the construction sector. From 1991 to 1994, construction volumes decreased by 72.3%, and only the beginning of construction of a large gold mining complex in Kumtor (1995-1997) allowed this trend to be halted.
From the second half of the 1990s, the economic situation in the country began to gradually improve. The turning point in economic development was 1996, when GDP growth began.
SECOND STAGE
The main reforms were completed. The consistently implemented monetary policy, with significant efforts from fiscal authorities, allowed for a reduction in the inflation rate from 1366% in 1993 to 23% in 1997. Successes in suppressing inflation were achieved due to the implementation of measures outlined in the anti-inflation program, particularly — a strict monetary policy and an import substitution policy. It was also possible to strengthen state finances, and the budget deficit was reduced to 5% of GDP. The som was also strengthened, and the interest rate was lowered.
In 1997, Kyrgyzstan was a leader among Central Asian countries in economic reform and the introduction of market mechanisms. According to the Financial Times, Kyrgyzstan ranked 14th among 20 countries in the world with the highest economic growth rates in 1997.
The macroeconomic stabilization achieved at that time and significant liberalization of the economy allowed for the transition to the next stage of transformation — the privatization of strategically important facilities and structural restructuring. Kyrgyzstan needed to transform large state enterprises and organize effective use of the mechanism for rehabilitation or bankruptcy of unprofitable economic entities. The most important task was to create a class of real owners whose activities could ensure real competition in the economy.
During this same period, as a result of the agrarian and land reform carried out in Kyrgyzstan, it was possible to halt the decline and achieve a certain rise in agricultural production. It should be noted that the results of the agrarian reform in the early stages were not very evident due to the fact that farms and peasant households were "crushed" by taxes until 1997. Therefore, in 1998, a unified land tax was established. It can be considered that the land reform that began in the conditions of the collapse of collective and state farms in 1991 was completed by 1997, and a market credit system for agrarian reform began to be implemented, ending the practice of providing commodity loans.
During the institutional transformations in the agricultural sector of Kyrgyzstan, large commodity agricultural enterprises were replaced by more mobile, effectively working private producers and peasant (farmer) households. The structure of sown areas also changed. The increase in the area of grain crops allowed for a more complete satisfaction of the population's needs for bread and flour. An important step in the reform of agriculture was the introduction of private land ownership (PLS), which created an additional incentive for the development of the sector and the economy of the country as a whole.
The reforms carried out in agriculture allowed the agricultural sector during this period to increase real production volumes by more than 40% (an average annual growth of about 7%), mainly due to an increase in crop production, which accounts for more than half of agricultural output.
Government budget revenues during the period from 1995 to 1997 were recorded at 16.8-16.6% of GDP. To improve the situation, measures were taken to strengthen tax collection, establish a treasury service, introduce a new tax code in 1996, and streamline the country's tax system. Special funds of budget organizations, revenues obtained from the privatization of housing by citizens, and the denationalization of state property were included in the state budget revenues.
Structural reforms received effective support from donor countries and international financial organizations. It should be noted that macroeconomic stabilization was largely achieved thanks to the attraction of significant volumes of loans and donor assistance to the country. The country began to receive foreign aid in large amounts starting from 1993. Per capita, Kyrgyzstan ranks second in the CIS (after Armenia) in terms of the amount of aid received; according to the World Bank, from 1992 to 2002, the country received $458 per capita. In the second half of the 1990s, the country received up to 10% of GDP in concessional loans and grants. This assistance partially replaced the subsidies of the Soviet era and was directed towards maintaining the budget and balance of payments, structural regulation and infrastructure projects, technical assistance, etc. Without these funds, it is unlikely that the collapse of the country's social system could have been avoided.
With a 7% GDP growth in 1996 and a 10% growth in 1997, the level of public production in the republic during these years was lower than the indicator of 1980 and lagged behind the level of 1990 by more than 40%. Despite the nominal growth of wages, the standard of living of the population continued to decline, the average wage remained below the level of the consumer budget, and the proportion of the population living below the poverty line increased.
The government consistently adhered to a course of liberalizing foreign trade, maintaining low import tariffs and providing all economic agents with the freedom to export and import goods. This policy was reinforced by Kyrgyzstan's accession to the WTO in 1998.
On February 13, 1996, the Kyrgyz Republic submitted an official application to the World Trade Organization, expressing interest in joining this organization. On April 16 of the same year, in Geneva, the application of the Government of the Kyrgyz Republic for WTO membership was reviewed by the General Directorate, and from that day the country received observer status. A working group was created in the WTO to study the possibility of Kyrgyzstan's accession to the WTO. A total of six meetings of the working group took place. Negotiations with more than 30 countries, including the USA, the European Union, Japan, and Canada, lasted for 2.5 years. On October 14, 1998, at a meeting of the WTO General Council, Kyrgyzstan's accession to the World Trade Organization was announced. The protocol on the accession of the Kyrgyz Republic to the Marrakech Agreement establishing the World Trade Organization came into force on December 20, 1998. Thus, the Kyrgyz Republic became the 135th member of the WTO (the first among the CIS countries).
The end of 1998 was characterized by a deterioration in the socio-economic situation in the republic. To some extent, the difficulties were related to the consequences of the global financial crisis, including the Russian and Asian crises, which affected all areas of life, and a slowdown in economic growth. Internal factors also played a negative role. Despite apparent stabilization in the country, a crisis potential was accumulating. One of the causes of the crisis was the lack of coordination in economic policy, which led to a decline in production levels, a noticeable decrease in economic growth rates, and an increase in imports. This was confirmed by the crisis of 1998-1999, during which inflation rose again, and the exchange rate of the som depreciated by about 2.5 times.
However, the systematic strengthening of budgetary policy allowed for the maintenance of budget revenues at a proper level (16.6% of GDP) while simultaneously reducing expenditures (19.1% of GDP). Already from the beginning of 1999, the republic began to overcome the crisis, and the pace of economic development resumed.
The average economic growth rate in Kyrgyzstan from 1996 to 2000 was 5.5%, which was one of the highest indicators among CIS countries.
Since 2000, there has also been growth in foreign direct investment (FDI). A large share of these investments went to the industry.
THIRD STAGE
This was a period when inflation rates and the depreciation of the som significantly slowed down, while GDP growth accelerated somewhat, but it was still too early to speak of achieving macroeconomic stabilization. The situation in the country remained insufficiently stable. Macroeconomic instability and sensitivity to external shocks were created by:
• a high budget deficit, traditionally one of the main economic problems of the country;
• the size of the public debt, which exceeded annual GDP. The costs of servicing it became a heavy burden for the budget. The noticeably reduced external assistance was entirely directed towards these goals and maintaining the stability of the national currency;
• the shadow economy, which accounted for (according to statistics) about 25% of GDP in 2000.
The reasons for such a situation in the country were the unfinished reforms, insufficiently effective functioning of the financial market, and an unfavorable climate for the development of private entrepreneurship and attracting foreign direct investments. The moment had come when the process of consistent and active renewal required the development of a long-term strategy aimed at overcoming existing problems and meeting the urgent needs of the citizens of the country.
A long-term coordinated strategy for sustainable development was formulated in the "Comprehensive Foundations for Development for 2001-2010" and in the medium-term "National Strategy for Poverty Reduction for 2003-2005." The implementation of this long-term strategy was supposed to ensure a systematic overcoming of existing problems and dynamic development of the state and society in political, social, and economic spheres. Macroeconomic policy was aimed at reducing the level of external debt and maintaining the country's solvency.
These strategic documents established three main goals for the country's development:
• improvement of governance;
• creation of a just society;
• achievement of sustainable economic growth based on a market economy.
An important principle of these strategies is the establishment of partnership relations between the state, the private sector, and civil society as a necessary prerequisite for the successful development of the country.
The period from 2000 to 2002 was characterized by deeper macroeconomic stabilization. In 2001, the budget deficit decreased, the current account deficit was only 1.3% of GDP, and the inflation rate according to the CPI (December to December) reached a record low of 3.7%.
The most important factor that led to such results was the strict monetary and budgetary-tax policy implemented. To a large extent, the need for such a strict policy was dictated by the situation with the state external debt, which sharply increased (to almost 95% of GDP in 2001) as a result of extensive borrowing to cover the current budget deficit and finance the State Investment Program (SIP), as well as the aforementioned depreciation of the som. The reduction of the budget deficit, which played a central role in the ongoing stabilization, was achieved mainly by cutting the expenditure side of the current budget and the SIP. Therefore, in 2001, there was a noticeable reduction in both government consumption (including education and healthcare services) and investments in fixed capital, an important element of which were state investments within the SIP. Thus, macroeconomic stabilization was achieved at the cost of some slowdown in GDP growth due to the reduction of these components.
In 2002, Kyrgyzstan faced problems in economic development due to a major accident in the gold mining sector, a decline in production in the energy sector, and unfavorable weather conditions in agriculture.
The average economic growth rate from 2000 to 2004 was 5.6% per year. It reached particularly high levels in 2003 (6.7%) and 2004 (7.1%).
Thanks to a more favorable economic situation, it was possible to increase the revenue part of the state budget from 16% of GDP in 2000-2001 to 19% in 2003-2004. The budget deficit decreased from 11.9% of GDP in 1999 to 5.7% of GDP in 2002.
Inflationary pressure significantly decreased: if the average annual inflation rate for 2000-2001 was 12.6%, then in 2002-2005 it dropped to 3.4%, and the national currency strengthened. However, the stabilization of its exchange rate was mainly due to the weakening of the US dollar's position in global financial markets, an increase in the inflow of foreign currency in the form of remittances and deposits, as well as an increase in foreign currency receipts from the export of goods and services.
As a result of the quite successful implementation of the "National Strategy for Poverty Reduction - 1" (NSPR-1), the poverty level was reduced during these years by 20%, i.e., it decreased on average by 4% per year.
Through consistent measures taken by the national council for good governance, the investment climate was significantly improved, which contributed to a steady annual growth in the volume of investments in the economy. All this gave confidence that in 2005-2010, in accordance with the "Comprehensive Foundations for Development 2010" strategy, average growth rates of 7-8% per year, doubling of GDP, and halving the level of absolute poverty would be ensured. In 2005, progress in poverty reduction stopped. Due to the persistently high level of poverty, the situation in society remained unstable and explosive in relation to any unexpected impacts.
Fortunately, during this period, the international and regional economic situation was favorable for maintaining demand. GDP per capita increased from $279 in 2000 to $433 in 2004. There was some growth in real incomes of the population. At the same time, long-term factors of instability persisted: still a large budget deficit, a high level of external debt, vulnerability of the country's exports, and excessive dependence of the country's economy on the situation in several sectors.
The backbone of Kyrgyzstan's economy is agriculture. It accounts for about one-third of GDP, and half of the economically active population is employed in it. There has been noticeable progress in land reform and restructuring of farms, with a new agricultural structure emerging that provides universal access to land for peasants, and productivity in small farms is gradually increasing. However, the technical and managerial skills of farmers need to be improved. Access to markets for production resources and finished products remains limited for peasants, and the reduction of physical capital (depreciation of fixed capital exceeds the level of new investments) poses a major threat to Kyrgyz agriculture in the long term.
The country's industry accounts for about 20% of GDP. It is represented by the following sectors: small machine engineering, textile production, food industry, cement production, footwear, timber, refrigeration equipment, furniture, electric motors, gold mining, and rare earth metals.
Since 1998, about half of industrial production has been provided by two sectors — non-ferrous metallurgy and electric power. The mining and metallurgical complex plays a special role in the development of the economic sector. The presence of gold, mercury, antimony, tin, zinc, nepheline syenites, etc., in the depths of the Kyrgyz Republic attracts large foreign businesses for the development of corresponding mineral deposits. Since 1996, the largest gold mining company in Kyrgyzstan, "Kumtor Gold Operating Company," has been operating, whose founders are Kyrgyzstan and the Canadian state-private corporation "Cameco." There are also joint ventures with mining companies from Malaysia, Australia, the USA, and the UK.
The rich water-energy potential (over 35,000 watercourses and lakes) serves as the main source of income for the country and the development of the economy, allowing for irrigated agriculture, hydropower, municipal and drinking water supply, food and processing industries, fisheries, and other water-consuming sectors. The presence of 15 hydroelectric power stations allows Kyrgyzstan to export up to 2.5 billion kWh annually to neighboring countries. The largest of these are the Toktogul HPP (installed capacity — 1200 MW), Kurpsai HPP (800 MW), and Tash-Kumyr HPP (450 MW).
In general, approximately 90% of all industrial and agricultural production is produced in the private sector of the economy. Since 1991, the form of ownership of 7,182 economic entities has changed. The private sector, which is mainly represented by micro, small, and medium enterprises, is now the leading force. It finds new markets, improves product quality and management of enterprises, and invests in human capital. An important and dynamic sector of the economy is small and medium-sized enterprises (SMEs) operating in light and food industries and in the service sector. These enterprises currently provide the majority of jobs in cities; however, many of them operate in the shadow economy, which limits their development opportunities and participation in the creation of public goods.
Source: NSC KR
It should be noted that over the past few years, the structure of GDP has undergone certain positive changes. The agricultural sector and the service sector continue to be the dominant sectors providing economic growth in the country (their share in the structure of GDP production averages 70%). The share of the service sector has increased and since 2002 has exceeded that of agriculture. In 2004, it accounted for 38.3% of GDP. The shares of industrial and agricultural production have shown a tendency to decrease, respectively. During the period from 2000 to 2004, the share of industrial production decreased from 20% to 16%, and that of agriculture from 34.2% to 30.5%.
Stabilization has not had a noticeable impact on the size of private investments in fixed capital. For example, investments in fixed capital in 2002 amounted to only 17% of GDP, which is very low for a developing country aiming for 5-6% annual GDP growth. Kyrgyzstan still relies on capital accumulated in the previous period, which is now rapidly depreciating. This is particularly evident in areas such as agriculture, irrigation, roads, energy supply networks, social infrastructure, etc.
It seems that the inflow of both domestic and foreign investments can be expected when the state demonstrates its ability to maintain macroeconomic stability for a sufficiently long period in the context of high external debt and vulnerability of key sectors of the economy to external factors.
It is important to note that the increase in investments can only occur as a result of overall improvement in the investment climate in the country. This task is much more complex than implementing several large investment projects, but there are not many opportunities for this in the country.
In addition to internal economic difficulties, the socio-economic development of the republic is currently hindered by the growing external debt, which requires allocation of funds from the state budget for repayment.
According to the National Bank of the Kyrgyz Republic, Kyrgyzstan's external public debt is almost equal to GDP (according to EU standards, the total external debt should not exceed 60% of GDP). In monetary terms, its amount at the end of 2005 was $1.882 billion. Together with the private sector, which is not included in the concept of "public," the total debt of Kyrgyzstan exceeds $2 billion. In 2004, 17.2% of exports of goods and services (about a quarter of budget revenues) were directed towards servicing it. It is no secret that Kyrgyzstan's external debt is "excessive." Among CIS countries, only Tajikistan found itself in a similar situation.
The increasing debt has a depressing effect on the still weak financial and economic systems, destabilizes the overall economic situation, and leads to disruptions in development. External borrowings have mainly gone and continue to go towards supporting the budget and balance of payments, stabilizing the national currency, and strengthening international currency reserves. About a third of the total amount of external assistance is directed to the real sector of the economy.
Donors will restructure old debts, but a serious influx of new resources should not be expected. Even after the restructuring of external debt on concessional terms in 2005, its parameters may remain above the level of highly indebted countries until 2008, and the situation will remain vulnerable to external shocks.
The low level of savings in the private sector and the chronic budget deficit have led to a noticeable reduction in gross domestic savings, which are necessary for financing investment projects, which in turn determines the need for external borrowings. Kyrgyzstan urgently needs to mobilize the country's internal resources (bank funds, investment funds, and household savings). The model of investment activity that has developed in the republic is also characterized by the fact that the banking system does not adequately perform its functions of accumulating internal savings and transforming them into investments. It is not yet possible to consider the banking sector as an institution financing the real sector of the economy due to the size of Kyrgyz banks and, consequently, their high operating costs.
Despite positive changes in the financial market during the period in question, there remains a noticeable gap between commercial banks' deposit and loan rates, which is 20%, and for foreign currency, 17%.
Such a significant gap is a substantial obstacle to broad financing of the economy. It indicates that, in essence, it has not been possible to reduce bureaucratic, tax, and other costs in the economy and business.
Banking system deposits have significantly increased over the past three years. As seen from the data, the largest growth was observed in deposits of legal entities, which likely confirms the increase in economic activity during these years.
At the same time, the loan portfolio of commercial banks nearly tripled during the period from 2003 to 2004. Nevertheless, the financial penetration indicator (the ratio of loans issued to GDP) in the economy remains one of the lowest among CIS countries.
During the third stage of reform development, significant changes occurred in Kyrgyzstan's foreign trade. Thus, while from 1999 to 2001, there was a decline in trade turnover, starting from 2002, trade turnover began to increase. The growth of commodity flows occurred largely due to an increase in imports.
The trade balance has been negative in recent years (except for 2001). Since gaining independence, this was the second case (after 1994) when a positive balance of $8.9 million was recorded. However, since 2002, the situation changed again, the trade deficit began to increase and reached $429.3 million in 2005.
The narrow domestic market forces Kyrgyz products to seek outlets in other countries' markets. Since the 1990s, Kyrgyz exporters of products (excluding energy and gold, whose export since 1997 has significantly influenced economic growth indicators) have lost their niche in their markets. A serious obstacle to increasing export potential is the excessive concentration and dependence of export supplies on a limited range of goods. Precious metals, mineral products, cotton fiber, tobacco, incandescent light bulbs, clothing, vegetables, and agricultural products make up the bulk of export supplies.
The macroeconomic stabilization of 2000-2004 seems to have had little impact on the country's exports, the dynamics of which are still much more dependent on the situation in several global and regional commodity markets than on the real exchange rate of the som. The effect of currency stabilization on net exports is negative. However, the exchange rate of the som has a visible impact on imports. The effect of the devaluation that occurred in 1998-1999 has already ended, and the ongoing nominal and real strengthening of the som against the dollar is accompanied by a significant increase in imports. Dominant items in imports remain consumer goods, fuel and energy products, machinery, and equipment.
Significant changes in the geographical structure of exports and imports have been noted since 1999. In export supplies, against the backdrop of a decrease in the share of CIS countries, the share of other countries has increased. In import receipts, on the contrary, the share of imports from non-CIS countries has decreased annually, while the share of imports from CIS countries has increased. Despite the emergence of new trading partners, only eight of them — Russia, Kazakhstan, Switzerland, China, Uzbekistan, the USA, the United Arab Emirates, and Turkey — made up the bulk of the republic's turnover (about 80%) after 2003.
Exports in trade turnover with distant foreign countries have a stable growth trend. This market reorientation of Kyrgyzstan can be explained by the fact that trade relations with WTO countries are built on a more favorable basis.
The WTO regime means that Kyrgyzstan cannot engage in protectionism. But it is always difficult for a small country to protect itself from American or even Russian companies. Kyrgyzstan's trade with WTO countries is not subject to tariffs. The country has been granted most-favored-nation status, and anti-dumping measures cannot be imposed against Kyrgyzstan, as is the case, for example, in relations with Russia.
Kyrgyzstan's problem is that its nearest WTO partner neighbors are over 3000 km away. These are Taiwan, Japan, and possibly Pakistan. To transport its goods, Kyrgyzstan needs to use routes through Kazakhstan, China, or Russia. However, the discriminatory measures of these countries significantly hinder the development of Kyrgyzstan's exports.