Country Diagnostic Study – The Kyrgyz Republic

Abstract

The Country Diagnostic Study (CDS) for the Kyrgyz Republic uses the Hausmann-Rodrik-Velasco growth diagnostics model to identify the binding constraints being faced in its quest for higher and more sustained economic growth and make recommendations to relax these constraints. Hence, the findings of the CDS can help the Islamic Development Bank in identifying areas where it can have a greater impact and provide an evidence-basis to support the development of the Member Country Partnership Strategy (MCPS). During the last two decades, the Kyrgyz Republic has recorded low performance in economic development. The country recorded only 3.0 percent of average annual Purchasing Power Parity (PPP)-adjusted Gross Domestic Product (GDP) per capita growth from 2000 to 2019. The Kyrgyz Republic is facing several economic and social problems that are challenging its economic development model. This CDS report shows that the most binding constraints to inclusive and sustainable growth include i) low human capital, ii) poor infrastructure, iii) government and market failures, and iv) high cost of capital. The Kyrgyz development model’s performance is a subject of concern not only for the government and other local stakeholders but also for the technical and financial partners of the Kyrgyz Republic, including the Islamic Development Bank. The MCPS aims to contribute to the global efforts made by the Kyrgyz Republic to meet its economic and social needs through leveraging opportunities offered by the new business model of the Bank. Given the Kyrgyz Republic’s positives, the Bank can consider financing transport, energy and ICT infrastructure projects and supporting manufacturing and agricultural sectors to assist economic growth.