Kyrgyz Republic - Country Economic Memorandum : Enhancing Productivity-Driven Growth in the Kyrgyz Republic

Overview & Synopsis

The Kyrgyz Republic has historically been a pioneer in forging a new economic path and needs to become so again to boost economic growth. This report delves into how the Kyrgyz Republic can pursue a high-growth trajectory and fulfill its economic potential. The report builds on new aggregate and firm-level analysis to reveal what it will take to sustain high and inclusive growth. In doing so, it shows that the main task for the Kyrgyz Republic is enabling its firms to make better use of the resources they have at hand—in other words, to raise the productivity of firms, upgrade skills of the labor force, improve the quality investment, especially outside the extractive and hydro-power sectors, and leverage foreign direct investment (FDI) as a sources of technology infusion. A series of in-depth diagnostics connect these challenges with policy levers to address them. While sectoral policy may play a role, key priorities cut across sectors. These include improving business regulation, enhancing market competition, strengthening the framework for foreign investment, and minimizing the costs of international trade. Challenges identified by the report’s diagnostics are in line with the first World Bank Business Ready survey results for the Kyrgyz Republic that identified taxation and especially the lack of mechanisms for resolving tax disputes, business insolvency, market competition, and restrictions for foreign companies as the weakest dimensions of the business environment in the Kyrgyz Republic. Implementing the recommendations contained in this report is critical to supporting growth across a range of high-potential economic sectors. Human capital and infrastructure especially transport, energy and digital - are also important drivers of growth. The evidence and global experience suggests that by addressing these areas, the Kyrgyz Republic can maintain a strong growth trajectory which could elevate it to upper-middle-income country (UMIC) status within the next two decades. In this context, the report may provide useful input to the government’s ongoing efforts to update the Medium-Term Development Strategy for 2025-30 and contribute to discussions on identifying strategic priorities the Kyrgyz Republic’s Long-Term Development Strategy up to 2050.