The stable growth dynamics of Kyrgyzstan's economy observed in recent years was interrupted by the events following the coup d'état on March 24, 2005. The goals of the COR-2010 were called into question.
In 2005, the economy experienced a decline of 0.6% compared to 2004. Among the three main sectors of the economy, production volumes decreased in industry and agriculture, while the services sector remained stable, showing a growth of 5.7%.
The most significant impact on GDP growth was due to the fact that industry in Kyrgyzstan produced 12.1% less in 2005 than in the previous year.
This was mainly related to the decline in production at the Kumtor gold mine, which accounts for approximately 7% of the national budget. In 2005, gold production at this mine decreased by 22.6%. Although the decline in production was attributed to the political situation in the country, forecasts as early as 2002 predicted a decrease in gold production in the near future and highlighted the need to start developing new deposits with the involvement of new investors. If Kumtor were to cease operations, it would have a significant impact on the entire economy of Kyrgyzstan.
Compared to 2004, the mining industry saw a decrease of 14% (with the main reason being events at the Kara-Keche coal mine), while the manufacturing sector experienced a decline of 16%. The main hopes for sustainable economic growth were linked to the accelerated development of manufacturing industries.
Agricultural production in 2005 decreased by 4.2% compared to 2004. In particular, grain production fell by 6%, and meat production by 12.2%.
In 2005, the tourism business, which had been rapidly developing in recent years, experienced a decline of 44%.
Real incomes of the population decreased, and there was a reduction in both domestic and foreign investments, along with a decline in social indicators.
There was a sharp deterioration in the external trade balance. Higher growth rates of imports (109.9%) compared to the decline in exports (96.4%) led to a sharp increase in the negative trade balance in 2005. The trade balance deficit nearly doubled compared to 2004. A trend of implicit inflation growth also emerged.
The tax and budget policy of 2005, as in previous years, was aimed at expanding the tax base and prioritizing funding for the social sector. Thus, the improvement of tax policy, including the introduction of a new Customs Code, and the strengthening of tax payment administration against the backdrop of declining economic growth rates allowed the revenue part of the budget to be executed at the planned level. Here is a brief list of the negative consequences of the events of 2005 in the economic sphere.
Noting the overall growth of FDI in the Kyrgyz economy in 2005, it should be mentioned that most of it came from companies in the CIS countries. 71% of the total investment in 2005 was from Kazakhstan.
Due to the complexity of the situation in 2005, the development of necessary reforms for the country was delayed. By the end of the year, the "Program of Specific Actions of the Government of the KR to Ensure Accelerated Economic Growth in 2006" was introduced. The tax reform continued. According to the president's decree, starting in January 2006, the profit tax rate was reduced by 10%, and a single income tax rate of 10% was introduced. Supplies of agricultural products are planned to be exempt from VAT.
It is worth noting that in 2006, a new development strategy project (SRP) was developed in the republic, which reflects the main directions of development and activities of the republic for 2006-2010. The overall goal of the SRP is to improve the level and quality of life of citizens through sustainable economic growth, creating conditions for full employment, obtaining high and stable incomes, accessibility of a wide range of social services, and adherence to high living standards in a health-friendly environment.