Private sector development in Kyrgyzstan is significantly constrained by a number of factors, including infrastructure deficiencies, especially in the energy sector, and low levels of financial intermediation. Gulnur Keremkulova, a representative of the Asian Development Bank, told.
Despite significant hydropower potential, per capita electricity consumption in Kyrgyzstan remains low, amounting to 2,021 megawatt-hours, which is significantly lower than the Eurasian average (6,106 megawatt-hours) and the world average (3,427 megawatt-hours).
The consumption structure also indicates an imbalance: 75 percent of final consumption is in the residential sector, while only 14 percent is in industry.
For comparison, the world averages are 27 percent and 42 percent, respectively. This situation, as noted, reflects infrastructure limitations that hinder industrial development and economic diversification.
Moreover, the country’s electricity consumption has reached the level of generating capacity, transforming Kyrgyzstan from an exporter to an importer of electricity.
Another major obstacle is the low level of financial intermediation. Domestic credit to the private sector in Kyrgyzstan, according to World Development Indicators, averages 23.3 percent of GDP, well below the global average of 145 percent and the lower-middle-income country average of 47.2 percent.
The financial sector is characterized by high inefficiency, as evidenced by an average interest rate spread of 16.5 percentage points, compared to 6.9 points in lower-middle-income countries. Underdeveloped capital markets, lack of long-term financing, bank concentration, and high risk premiums are cited as reasons for this gap. The World Bank’s Business Readiness 2024 study also points to complex lending procedures and stringent collateral requirements as significant barriers to accessing finance.
The high level of informal economy also negatively affects private sector development. Despite efforts to combat the informal economy, which have increased the average tax-to-GDP ratio to 23 percent in 2022-2024, the significant informal sector continues to create unfair competition and reduce productivity.
Informal sector employment is estimated at 66 percent. In surveys, entrepreneurs point to taxes, customs duties, administration of social contributions, licensing requirements, and lack of skilled labor as the main operational constraints.
According to experts, the regulatory burden pushes companies into informal activities, creating a vicious circle that hinders private sector growth.
To address these issues, the Kyrgyzstan’s government has initiated a number of reforms.
Strategic investments in infrastructure, including the construction of the Kambar-Ata-1 hydroelectric power station and China-Kyrgyzstan-Uzbekistan railway, are aimed at strengthening regional trade and investment flows. Measures are also being taken to streamline and digitalize business procedures, simplify fiscal and licensing processes.
The industrial enterprise development program has been extended to 2025. At the same time, the need to further improve the coordination of industrial and export-oriented policies is noted to increase the effectiveness of the reforms being carried out.
