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Discouraging forecast: Prices in Kyrgyzstan to only grow in 2020

According to experts, an increase in prices is expected in Kyrgyzstan in 2020. Almost all types of goods can go up in price. This is due both to the global situation and to harmonization of the legislation of the republic with the norms of the Eurasian Economic Union.

Following the global trend

Taking into account assessments of development of the external environment and internal conditions, the National Bank of Kyrgyzstan believes that inflation in the medium term will be within the target range of 5-7 percent.

In 2020, an average inflation rate is expected to be around four percent and will reach about 4.5 percent by the end of the year.

Aigul Berdigulova, an Analyst at the Eurasian Development Bank, notes that the trend of slowing-down inflation in Kyrgyzstan stopped in the second quarter of 2019. This happened amid rising world prices for grain and meat products, as well as a limited supply of vegetables on the domestic market. At the same time, the cost of non-food goods practically did not change compared to 2018 under the conditions of a stable exchange rate of the Kyrgyz som to the U.S. dollar.

«In the medium term, inflation will continue to gradually approach the target of the National Bank,» Aigul Berdigulova stressed.

According to our estimates, an increase in customs tariffs on the import of personal vehicles from January 1, 2020 (as a result of unification of the republic’s tariff policy with the EAEU Customs Code) will have a limited impact on the consumer price index.

Aigul Berdigulova

Lower oil prices and a weak inflation background in the countries — trade partners of Kyrgyzstan will have a restraining effect on inflation. Shocks that influence acceleration of growth in domestic prices are not expected from the currency channel.

Grain and meat will rise in price

The Head of the Association of Suppliers Gulnara Uskenbaeva notes that there are no specific forecasts for a possible price increase so far. But she added that it all depends on the situation on the world stock exchange.

There are no special expectations for a growth in prices yet. There will be slight inflationary fluctuations, because life does not stand still. Everything is changing.

Gulnara Uskenbaeva

But Aigul Berdigulova notes that a more dynamic increase in grain prices is expected this year with an expected increase in the cost of cereals imported from Kazakhstan. Growth in price of meat in the context of spreading swine fever in China will make a contribution to inflation.

In addition, taxes on tobacco products were increased in early 2020 as part of the EAEU medium-term plan for harmonization of excise policies. Their prices will also rise.

«Kyrgyzstan is an import-dependent country. Most of the goods are delivered from Russia and Kazakhstan. There are no big problems with them. There are small delays, but, in general, the goods are delivered,» Gulnara Uskenbaeva said.

What is the business afraid of?

But in addition to rising prices for goods due to the global situation, there are other risks. The main thing for business is to have no political difficulties. Otherwise, it will immediately affect the economic situation, including the possible increase in food prices.

«We are afraid of difficulties in the supply of goods due to the repair of Ak-Zhol post. If, previously, the people crossed the border with Kazakhstan there, now, both trucks and citizens, will go through Chernaya Rechka. If the load on the post increases, the goods will start getting stuck,» Gulnara Uskenbaeva notes.

There are also some concerns about legislative changes. Amendments to the Tax Code are still discussed.

Initiators promised to take into account opinion of the business. But it is difficult to say now whether this will happen in practice.

«There is no hope for state agencies. They always promise us this, but they do not do anything. We have to hope for deputies. We have repeatedly said that the state, instead of supporting legal business, is ruining it,» Gulnara Uskenbaeva stressed.

If the amendments are adopted without taking into account the views of the business, then the costs of entrepreneurs will increase. Businesses can shift some of them to the final consumer that will increase prices for some types of goods.

Fuel will go up

Another factor on which prices in Kyrgyzstan will depend is the cost of fuel. Kyrgyzstan delivers it from Russia. Deliveries are duty-free, so we are not dependent on excise tax rates of the Russian Federation. However, there are other factors that may affect the final cost of fuel and lubricants.

For example, world oil prices were stable in 2019. This influenced the situation in Kyrgyzstan. As a result, even a decrease in retail prices for fuel and lubricants was registered.

From January 1, 2019 to January 1, 2020, gasoline prices in the country, on average, decreased by 5.1 percent, and diesel fuel — by 2.8 percent.

Analysts, as well as representatives of the official departments of Russia, are sure that a growth of prices for fuel and lubricants will continue in 2020, but there will be no records. Most experts agree that the fuel price will grow by 3.8-4 percent.

But there is another important factor — world oil prices. Economists and oil companies say that they will remain at the level of 2019. This means that the cost of fuel will also be stable. However, there are risks.

Results of the U.S. elections and relations of this country with China may change the positive scenario on oil and fuel prices.

There are internal procedures that may ultimately lead to a growth in fuel prices. This year, Kyrgyzstan plans to introduce an automated system for petroleum products’ accounting. The new rules will come into force in July 2020. But most of oil traders have already installed the necessary expensive equipment. These costs can also be borne by consumers.

An agreement with Kazakhstan on duty-free import of gasoline could partially reduce the risk of a possible rise in price of fuel. Even with the same fuel price, importers could save on fuel and lubricants’ transportation costs. But the officials of the two countries cannot agree for the second year in a row.