Hela Cheikhrouhou, IFC’s Vice President for the Middle East, Central Asia, Türkiye, Afghanistan, and Pakistan in an interview told about economic situation in Kyrgyzstan, key challenges that the country faces and opportunities to boost its economy.
Question 1: Could you please provide an overview of the current economic situation in the country?
The Kyrgyz Republic has made great strides in elevating its economy above low-income status and nearly eliminating extreme poverty. Despite spillovers from Russia’s invasion of Ukraine, economic growth remained robust, reaching 6.2 percent in 2023. However, geopolitical uncertainty has adversely affected the country’s economy, impacting exports, remittances, tourism, energy, water, and food sectors.
The country’s transformation toward more stable, inclusive, and sustainable growth necessitates the creation of more jobs and private sector-led growth. Private sector participation in the economy continues to grow, which is good news. Still, there is a need to develop this sector further as it is essential for job creation and innovation. Private enterprises generate nine out of every ten jobs in developing countries, highlighting the critical role of the private sector in economic development and job creation in the Kyrgyz Republic.
Enhanced private sector participation is essential for generating job opportunities and attracting more investment, particularly in key sectors such as agribusiness, finance, and renewable energy, including solar and surface geothermal energy.
Question 2: What are some of the key challenges that the country faces and are there any specific opportunities that the Kyrgyz Republic can capitalize on to boost its economy?
The Kyrgyz Republic boasts significant potential in various sectors. Its agricultural sector, with its fertile land and diverse climate, can be further developed to increase productivity and boost exports. Promoting the country's rich cultural heritage and natural beauty can elevate the Kyrgyz Republic’s status as a tourism destination, increasing its contribution to economic growth and job creation. If policy uncertainty and regulatory gaps can be overcome, the energy and water sectors present untapped potential for private investment. The country’s services sector, including information technology and business process outsourcing, has significant growth potential. Lastly, the Kyrgyz Republic's strategic location at the crossroads of Central Asia presents opportunities for trade and transit.
The Kyrgyz Republic faces both challenges and opportunities in its economic landscape. The heavy reliance on gold exports, while a valuable resource, creates few job opportunities and has limited spillover effects on the rest of the economy. This lack of diversification and limited opportunities for a productive private sector result in a large portion of the working-age population seeking employment abroad, relying on remittances as a major source of income. The economy’s dependence on remittance inflows is one of the highest in the world, with annual inflows equivalent to about 30% of GDP.
Private sector participation in the economy continues to grow, which is good news. Still, there is a need to develop this sector further as it is essential for job creation and innovation. Reforms are needed to reduce regulatory costs, create fair competition, facilitate cross-border trade, and maximize the benefits of foreign investment. Addressing these challenges and seizing opportunities will require a comprehensive approach involving close collaboration between the government, private sector, and international organizations through strong and inclusive public-private dialog platforms. By implementing reforms and creating an enabling business environment, the Kyrgyz Republic can unlock its full economic potential and achieve sustainable, inclusive growth for the benefit of its people.
Question 3: How does International Finance Corporation (IFC) support the Kyrgyz Republic in addressing these challenges and seizing opportunities?
As a member of the World Bank Group, IFC plays a vital role in supporting the Kyrgyz Republic in overcoming economic challenges and capitalizing on opportunities. IFC supports the country in numerous ways. IFC provides investment and financing solutions to support private sector companies in the Kyrgyz Republic. This includes loans, equity investments, and guarantees to help mobilize capital for businesses and infrastructure development. By leveraging its financial resources, IFC helps attract private sector investment and promotes sustainable economic growth.
IFC’s advisory services program helps the country develop its financial market, promote financial inclusion, develop the tourism sector, introduce environmental, social, and governance (ESG) standards, and structure public-private partnerships (PPPs) in the renewable energy and transport sectors.
To support greater private sector participation in the Kyrgyz Republic, IFC will continue to help boost access to finance with a focus on women-owned businesses and climate action, developing agribusiness and renewable energy, and bolstering PPPs for infrastructure and energy sector development. We also see potential in investing inthe manufacturing, services, agribusiness, and food processing sectors.
Question 4: IFC supports PPPs. What projects are being implemented in the country within the PPP?
The synergy between public objectives and private efficiency can lead to remarkable outcomes. Through PPPs, we can build roads that connect communities, hospitals that save lives, and schools that empower future generations. We can foster a spirit of entrepreneurship and create job opportunities that will uplift the standard of living for all citizens.
PPPs allow the government to leverage private sector capital and expertise to spur development where public funds are limited and balance risk between public and private players. We welcome the fact that the government views PPPs as an essential component of its strategy to deliver improved public services and attract much-needed investment and expertise into the country.
IFC, in close coordination with the World Bank and the government of the Kyrgyz Republic, is working on structuring a PPP to mobilize private sector experience and capital to construct and operate a pilot solar plants total capacity up to 500 MWt. The site for the first project has been selected and IFC is helping the government devise a bankable structure.
We also helped structure a PPP to provide full kidney dialysis services in the Kyrgyz Republic. The project was the first PPP implemented under the PPP Law and included the construction of three dialysis clinics in Bishkek and remote regions, and the provision of international quality services, covering a total of 250 patients. A German company, Fresenius Medical Care, the largest dialysis operator globally, won a competitive bidding process to provide dialysis services. This partnership – the first PPP in the country – will ensure that the company provides all-inclusive dialysis treatment to patients, covering about 75 percent of the Kyrgyz population. Looking ahead, we see great potential in energy and transport, and we are working with our counterparts in the government to implement PPP projects in these areas.
Question 5: As you mentioned renewable energy, please tell us why the country should develop renewables.
The Kyrgyz Republic’s energy sector is facing challenges in meeting the growing energy demand cost-effectively and sustainably. The country heavily relies on aging hydropower plants, which account for over 90 percent of electricity generation. However, this dependence on hydropower makes the country vulnerable to power shortages caused by seasonal weather patterns. And finally, the ongoing global warming is leading to a steady decline of glaciers and reduction of water resources. It, in turn, would affect the power system of the country.
The development of renewable energy presents opportunities to increase capacity and generate export revenues, while steering the sector toward a cleaner and greener path. A shift towards non-hydro renewable energy would also help the country diversify its energy mix, thereby addressing hydropower shortages caused by an ongoing drought and adhering to its decarbonization goals. The country is looking to reduce its greenhouse gas emissions by as much as 44 percent by 2030 and achieve carbon neutrality by 2050.
The country’s high solar irradiation levels provide an opportunity to increase clean energy access and security. With an estimated solar power potential of 650 gigawatts, the opportunities are significant. Additionally, the country has significant potential for surface geothermal for heating and cooling; and up to 1.5GW of potential wind power capacity. However, renewable electricity and heating/cooling sources have not been utilized yet.
The Kyrgyz government recognizes that developing renewable energy is crucial and is taking steps to encourage investment in the sector. In this regard, IFC is committed to crowd in private investment to help unlock and scale up renewable energy in the Kyrgyz Republic and I mentioned, we are working closely with the Kyrgyz government to develop a pilot solar project.
Question 6: IFC recently organized a workshop on surface geothermal solutions for heating and cooling. Could you please briefly tell us about the country’s geothermal potential as part of developing renewables?
The workshop was part of an exciting new IFC initiative. Our goal is to implement public and private sector instruments to scale up surface geothermal solutions for heating and cooling in the Kyrgyz Republic and Central Asia, more broadly.
As we all know, about half of the world's energy consumption is used for heating and cooling buildings, and most of this comes from fossil fuels. To achieve our decarbonization goals, we need to increase the share of clean heating and cooling technologies from 20 percent to 50 percent by 2030. This includes the use of surface geothermal energy, a sustainable and efficient solution for heating and cooling buildings. A surface geothermal system utilizes the temperature of the earth's surface to provide heating in the winter and cooling in the summer.
In the Kyrgyz Republic, we are exploring proven technologies, economic opportunities, financing options, and the legislative and regulatory aspects that need to be considered. We aim to identify specific steps and areas of joint work with state and local authorities and the private sector to implement surface geothermal projects in the country. Surface geothermal solutions have the potential to bring energy stability and security to the Kyrgyz Republic. By utilizing this energy source within the country, we can reduce reliance on gas, coal and electricity, and ease the burden on the grid.
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