Publication: Monitor Volume: 7 Issue: 191

Kyrgyzstan’s latest effort to increase heretofore disappointing levels of foreign direct investment is a new investment coordination body. The council, which held its first meeting in early September, is supposed to streamline the investment process and to keep potential investors informed of investment opportunities. Council members include the prime minister, representatives of the presidential administration, international financial institutions and foreign investors.

Although pressure is growing for the Kyrgyz authorities to scale back foreign borrowing, alternative sources of much-needed investment finance are thin. The domestic financial market remains shallow, and the yearly inflow of foreign direct investment into Kyrgyzstan continues to languish far below the peak in 1998, when according to official Kyrgyz statistics, net foreign direct investment hit a high of US$86.6 million. Since then, net foreign direct investment has fallen off considerably. In 1999, it reached only US$35 million, and in 2000, the latest figures show the country as having had a net outflow (of almost US$7 million).

To date, much of Kyrgyzstan’s investment spending has been foreign-financed and government-guaranteed. The off-budget Public Investment Program (PIP) has been the main vehicle for financial inflows. According to government figures, government investment equaled 8.5 percent of GDP in 2000, compared to gross investment of about 16 percent of GDP. In 2001, the ratio of government investment to GDP is supposed to decline to below 6 percent; by 2005, it is to reach 3.8 percent. The planned reductions anticipate an increasingly onerous debt service burden later in the decade.

The newly created consultative council is part of an attempt to square the circle and slash expenditures without sacrificing investment levels or future growth. The recently opened Kyrgyz Investment and Credit Bank (KICB), whose shareholders include the Aga Khan development fund and the European Bank for Reconstruction and Development (EBRD), is another. With US$7 million in capital at the time of its opening in August 2001, KICB has become the country’s biggest commercial bank. Hopes are high that it too will help fill the gap in the economy left by a weak banking system (Kyrgyz-Press International Agency, September 4; Kyrgyz Radio First Program, September 16; background data from Kyrgyz National Statistical Committee and the Interim National Strategy for Poverty Reduction 2001-2003).

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