Arguably the most important impact pathway from the developments in Ukraine and its economic consequences runs through its impact on global grain and energy markets, pushing food prices even higher. For countries dependent on the Russian Federation for food imports, like the Kyrgyz Republic, the spill-over effects could be severe. After significant depreciation, by 22 April 2022, the Kyrgyz Som appreciated by 12 percent at level of around 80 KGS, against the US Dollar. The national retail prices for fuel (AI-92) and for diesel have gradually begun to stabilize. Despite the recent appreciation, the situation remains highly volatile and the poorest households, who already spend 65 percent of their income on food, will be the most affected by currency fluctuations.
Despite the challenge to the Kyrgyz economy to recover from the effects of the COVID-19 pandemic, some improvements were observed in early 2022. In January – March 2022, monthly Global Domestic Product (GDP) increased by 4.5 percent, compared to the previous year, adding a net 145 billion Kyrgyz Soms (USD 1.7 billion) to the economy. This increase was predominantly driven by improvements in the agriculture, construction, service sector and industry. Yet, ADB growth projection for 2022 were revised downwards from 5 percent to 2 percent. Inflation, currently at 13.2 percent (NBKR), is forecasted to reach 15 percent in 2022 (ADB), the highest in the region.
Increasing geopolitical risks in the world and the region, have already begun to negatively affect the recovery in the Kyrgyz Republic, most notably seen in rising consumer prices. In January – March 2022, the Consumer Price Index (CPI) increased by 12 percent for all goods and services and by 15 percent for staple foods, as compared to January – March 2021. It is worth noting that the Government imported key food commodities last year in a bid to stabilise prices, which helped prevent a further deterioration of food prices (wheat, vegetable oil and sugar were purchased for a cumulative sum of KGS 1.8 billion or USD 21.2 million). Due to the events in Ukraine, the sanctions imposed on the Russian Federation and the related destabilization of global and regional markets, importing commodities to the Kyrgyz Republic could be potentially harder this year. The CPI for fuel and lubricants is estimated to have increased by 61 percent, leading to an increase of transportation costs, which in turn has affected all other prices.
The Russian Federation has lifted the ban on the export of grain and sugar to the countries of the Eurasian Economic Union (EAEU).
While the Kyrgyz Republic produced almost 363,000 tons of its own wheat in 2021, it also imported approximately 125,000 tons from the Russian Federation. The Government has prepared a decree for the Cabinet Ministers on the introduction of a temporary ban starting from 15 February until 15 August 2022 on the export of wheat, wheat flour, sugar, vegetable oil, eggs and feed crops from the Kyrgyz Republic to other countries outside the EAEU to ensure the food security of the country, prevent critical shortages of food and promptly respond to internal and external threats to the food market. To stabilise the market, the Government has introduced Zero VAT for the import of sugar and vegetable oil.
The abnormally high temperatures last summer and the lack of irrigation water led to lower yields across multiple key crops: wheat (-42 percent) barley (-46 percent), oil crops (-25.4 percent), sugar beet (-18 percent) and melons (-14 percent). Unstable weather conditions (frequent rains with decreasing temperatures) observed in March caused a slowdown in the pace of spring field works.
Thus, as of 23 March 2022, 26 percent less of spring crops were sown compared to the previous year. According to the European Centre for Medium-Range Weather Forecasts, the rainfall from April to June 2022 is likely to be slightly below average conditions, however, with 20-40 percent possibility of exceeding the average rainfall across the country. Above average temperatures may lead to flash floods and landslides caused by earlier than normal snowmelt that could result in crop damage in the next coming months.
Further, early snowmelt may lead to the reduction of water supply for planting of spring season crops in all areas of this subregion in the next coming months.