Situation in Ukraine have significantly worsened outlook for Kyrgyz economy - WB

Bishkek, April 12, 2022 / Kabar /. The World Bank in its latest Economic Update for the Europe and Central Asia region, released on April 10, said that the spillovers of Russia’s invasion of Ukraine have significantly worsened the outlook for the Kyrgyz economy, which is projected to contract by 5 percent in 2022. This is mainly due to a fall in private consumption and investment spending from an anticipated 33 percent decline in remittance inflows, it said. According to the WB prognosis, the fiscal deficit is expected to again widen to 5 percent of GDP in 2022, and external trade is expected to shrink. Forecasts of weak agricultural output in 2022 and continued uncertainties around gold production will further constrain growth. Growth is expected to recover to 3.2 percent in 2023 and 4.0 percent in 2024, assuming a stabilization in the conflict and continued public investment growth. These projections also assume domestic political stability and further easing of pandemic conditions. However, risks remain high of the outlook further worsening. Inflation will increase to about 18 percent by end-2022, from further food and fuel price increases, before moderating to 8 percent by end-2023. The current account deficit in 2022 is projected to widen to 11 percent of GDP, reflecting drops in remittances and gold exports. The deficit is expected to narrow over the medium-term alongside a recovering economy and a revival in exports. The fiscal deficit is expected to widen to 5.3 percent of GDP in 2022 as the government increases spending to offset domestic spillovers from the war in Ukraine. Expansions of social spending and public wages are expected to help offset the impact of the remittance shock and weaker economic activity. The deficit is expected to narrow to 3 percent of GDP over 2023-24 as conditions improve. Lower remittances, high food prices, fewer job opportunities domestically and abroad, and economic contraction will likely increase and deepen poverty in 2022. The impact of sanctions on Russia may sever a vital lifeline for Kyrgyz households reliant on remittances from Russia. The government’s anti-crisis measures, such as increased pensions and wages for government officials and social assistance, will partly soften the negative impact on the poor, the WB’s latest Economic Update said.