Overview

Kyrgyzstan, officially the Kyrgyz Republic, is a landlocked country situated in the Tian Shan and Pamir mountain ranges. Bishkek is the country’s capital and largest city. Kyrgyzstan is bordered by Kazakhstan, Uzbekistan, Tajikistan, and China. Around 94% of the country lies above 1,000 metres elevation, and 40% above 3,000 metres. Over 80% of the country lies in the Tian Shan mountain range and 4% is permanently under ice and snow. Most of the population live in the foothills of the mountains, concentrated around two urban areas, the capital Bishkek in the north, and between Osh and Jalal-Abad in the west.

The country has experienced instability since independence in 1991: political upheavals in 2005, 2010 and 2020 that led to regime change. Opposition figure Sadyr Japarov, who came to power following the October 2020 revolution and the subsequent resignation of then President Sooronbai Jeenbekov, was elected president in January 2021 with 79% of the vote. Freedom Houses categorises Kyrgyzstan as a consolidated authoritarian regime, with a score of 11/100. The country remains divided along ethnic lines, with nationalist movements capable of inciting considerable levels of instability, mainly in their southern strongholds, and election periods are prone to unrest. In addition, high levels of poverty and political instability, endemic corruption and organised criminal activity remain major concerns.

Kyrgyzstan is rich in resources, including gold, rare earth metals, coal, oil, and natural gas. The country’s main exports include gold, uranium, hydropower, and agricultural products, but its economy is heavily dependent on remittances and foreign aid, making it vulnerable to external shocks. 

 

Political Risk 

Domestic politics

Since the October 2020 revolution and the resignation of the then president, Sooronbai Jeenbekov, Kyrgyzstan has been led by Sadyr Japarov, officially elected president in January 2021. Major constitutional changes were adopted in April 2021 by referendum, moving the country from a parliamentary to a presidential system. The referendum considerably strengthened presidential authority, concentrating political power in the presidency and reducing the size and role of the parliament. As a result, national governance currently takes the form of a centralised presidential system with weak separation of powers, an oversized role for the head of national security, and only a small but outspoken political opposition. In the years since Japarov’s election, even these political freedoms have been on the decline and opposition political activity is at its lowest point since independence: several opposition leaders – such as former MP Ravshan Jeenbekov and former Parliament Speaker Adakhan Madumarov– are behind bars. Elections are internationally considered generally adequate, but vote-buying and the misuse of administrative resources to undermine equality of opportunity are commonplace, and turn-out is low.

Freedom of speech and civil society

Kyrgyzstan has for a long time been thought of as an ‘island of democracy’ within Central Asia, however, this reputation is increasingly under threat. Over the last year tensions have mounted between government powers and the civic sector, an erosion of press freedoms culminating in a crackdown on the independent media. Authorities have particularly targeted Radio Azattyk— the Kyrgyz service of Radio Free Europe/Radio Liberty (RFE/RL) — and investigative journalism outlet Kloop. While in the past some journalists have been intimidated and harassed by political figures, subjected to arbitrary raids, arrests, and cyber-attacks, such actions have escalated since the start of 2024. In January, 11 investigative journalists were arrested and have since been charged, along with their outlets, of attempting to incite unrest; in Reporters Without Borders’ most recent ranking Kyrgyzstan fell 50 places to rank 122nd. The last six months have likewise seen the passing of the controversial ‘Foreign Agents’ law, a Russian inspired bill which indicates the tightening ties between the Kremlin and Kyrgyzstan’s government. Consequently, many NGOs have had to suspend activity in the country.

Corruption

The 2024 Corruption Perceptions Index ranked Kyrgyzstan 141th of 180 countries. Corruption and nepotism in political office are widespread, while the fight against corruption is largely a pretext for authorities to go after political rivals or new revenue sources. The independent media outlets which investigate high-level corruption and government misconduct are targeted and legally gagged. State actors are heavily involved in organised crime and criminal organisations, and the state apparatus is closely linked to both. A  policy of ‘kusturizatsia’, or, ‘vomiting’, is a government scheme whereby corrupt individuals are forced to repay some of the stolen money to the state. While recognised as a just form of public humiliation and generally popular as a policy, there is little transparency about how much money is returned, or how it is spent. The judiciary suffers from political influence, corruption, the influence of organised crime, and low public confidence – a state of affairs exacerbated by the post-election constitutional amendment which increased the judiciary’s subservience to the executive branch.

 

Economic Risk

World Bank data shows that economic growth in Kyrgyzstan was roughly 6.2% in 2023, a slowed rate of expansion compared to 9% in 2022. This growth was driven by the services sector and transit trade from Russia and China, boosted by gold exports, tourism, and supported by exports and private consumption on the expenditure side. Data also shows that inflation has declined since 2022, from 13.8% to 10.8% in 2023, cooled by easing world food and fuel prices and restrictive monetary policies.

The budget deficit broke records to reach 66.2% of GDP in the first half of 2023, a figure marred by significant ‘errors and omissions’ likely the result of under-reporting large-scale re-exports to Russia, and, despite an export growth of 52%, attributable to a 38% increase in imports and 6.5% decline in remittances. Tax revenues rose due to VAT on imports as well as non-tax income, a fiscal boost (amounting to 1.2% of GDP) which allowed for increased public spending on infrastructure, wages, pensions, and benefits.

The World Bank expects 4.5% GDP growth for 2024 due to the deceleration of services sector growth. On the demand side, growth is expected to be supported by exports and investment, while consumption rates are expected to make a negative contribution. It is predicted that inflation will decrease to between 5 % and 7% but overall remain stable. Assuming a rise in remittances and services exports, and an uptick in non-gold exports, the budget deficit – expected to widen in 2024 – will shrink to 7.7% of GDP by 2026. Higher capital expenditure will see a fiscal surplus turn into a GDP deficit widening from 1.6% to 2.4% by 2026.

 

Business climate

The International Trade Administration (ITA) considers that Kyrgyzstan remains a frontier market oriented towards high-risk investors, and recommends it only to those with prior experience in post-soviet locations. In spite of this, President Sadyr Japarov has expressed the desire to attract greater and more diversified foreign direct investment (FDI) and to develop a green economy which might contribute to sustainable economic growth. The ITA notes the investment potential in renewables, in particular hydropower, and the technology sector. Banking is likewise a sector at the forefront of Kyrgyzstan’s developing business climate due the international sanctions arising out of Russia’s invasion of Ukraine and their effect on business operations.

Foreign investors, however, can come under greater scrutiny than domestic investors, and the country’s ability to provide an investment-friendly environment continues to face many challenges. These include issues over corruption, transparency, predatory taxation, and the repercussions of doing business in an unpredictable and weakened legislative environment where the judiciary is not independent. Overall, the business climate presents a high risk to investors, with a high probability of corporate default.

 

Security Risk

Demonstrations and social unrest

Demonstrations occur over various political and economic issues. They are generally small-scale but can turn violent during security force interdiction. Even peaceful demonstrations are seriously restricted and are dangerous to conduct amid an increasingly repressive authoritarian environment. Ethnic and communal tensions can escalate into clashes, particularly in the south where in 2010 inter-ethnic clashes between Uzbek and Kyrgyz citizens of the city of Osh claimed hundreds of lives. Despite community reconciliation activities, the two groups remain at odds.

Human rights

Police officers reportedly engage in arbitrary arrests, politically motivated arrests, and often extort people by threatening them with legal proceedings. Law enforcement proceedings have been flagged by Human Rights Watch as particularly failing in cases of gender-based violence. Amnesty International’s 2023 report notes increasing government repression of public criticism and peaceful dissent, while arbitrary detention of journalists has become commonplace. In cases regarding ‘transgressions’ by the independent media, prosecutions and trials are sham displays of justice, and some activists are held in conditions amounting to torture.

Border security

Due to its mountainous topography and rugged landscape, Kyrgyzstan’s borders are difficult to monitor, making the country vulnerable to organised crime. Border areas between Kyrgyzstan and Uzbekistan and between Kyrgyzstan and Tajikistan, in particular, contain widespread criminality and long-standing ethnic tensions.

Organised crime

Numerous informal criminal networks and dozens of criminal gangs operate in Kyrgyzstan, mainly engaged in smuggling illicit goods. While gangs in the southern region are mainly involved in drug trafficking, criminal networks in the north concentrate on racketeering and the misappropriation of state assets, as well as the smuggling of Chinese goods. There is a strong collaboration between local criminal networks and foreign actors – particularly in the areas of human trafficking, drug trafficking and crime related to non-renewable resources – due to the transnational nature of these markets. Likewise, state-embedded criminal actors are deeply involved in organised crime through the facilitation of criminal markets (in particular the drug trade). Private-sector actors are mainly involved in financial crimes such as embezzlement, tax evasion, and corruption.

Inter-state conflict

Tensions with neighbouring Uzbekistan, Tajikistan, Kazakhstan, and China tend to revolve around territorial disputes. Cross-border skirmishes can occur, particularly with Uzbekistan and Tajikistan. A new border conflict with Tajikistan erupted in September 2022, causing widespread destruction of civilian infrastructure, the death of more than 10 people and the displacement of around 140,000 people on the Kyrgyz side. The border conflict between Tajikistan and Kyrgyzstan is a longstanding one, whose main flashpoint is the Ferghana valley, which is dotted with territorial enclaves that exacerbate disputes over land and water in this densely populated region. There has, however, been positive recent development on this count as March 2024 saw Kyrgyzstan and Tajikistan agree on 11 more kilometres of border, now amounting to 700 km of a total 972 km.

 

Geopolitical Risk

Russia

Since Kyrgyzstan’s independence, Russia has been considered its closest economic, military, and, in some cases, cultural partner – a dynamic heightened by Russia’s invasion of Ukraine and complicated by a general trend amongst Central Asian countries towards strengthening relationships with the West.

Despite challenges incurred by a decline in linguistic cohesion (actively being countered by the development of nine Russian language schools across the country), Russian-Kyrgyz relations are strong. Held together by joint ventures, investments (for instance $500 million from a Russian-Kyrgyz development fund), and security systems, Moscow’s deployment of the Eurasian Economic Union (EAEU) and the Collective Security Treaty Organisation (CSTO) draws Kyrgyzstan and the wider region under its strategic umbrella of blizhnee zarubezhe (near abroad).

Moscow is one of Bishkek’s main trading partners, and has become a vessel for allowing Russia to circumvent sanctions. Many of Kyrgyzstan’s imports from China (in particular crucial infrastructure materials such as ball bearings used in railcars and as part of tank production), are passed directly through to Russia, and in many cases Ukraine. The Washington Post, for instance, found in 2023 that Kyrgyzstan had served as a juncture for China-Russia drone exports, and it is a near certainty that Kyrgyzstan’s large import figures for Chinese-made electric vehicles end up in the hands of Russian consumers. Russia still attracts large numbers of Kyrgyz migrant workers, whose remittances (90% of which come from work within the Russian Federation), account for around 18.6% of Kyrgyzstan’s GDP.

Russia plays an essential role in Kyrgyzstan’s security. Not only is Kyrgyzstan a member of the CSTO, but Russia also maintains active troops at the Kant air base. However, Russia’s redirection of resources from its Central Asian bases to Ukraine may erode its military position in the region.

China

Kyrgyzstan controls the Tien Shan mountain range, which surrounds the main land connection between Europe and Asia. As China invests billions of dollars in a global effort to rebuild its overland trade belt, Kyrgyzstan stands out as a crucial entry point. Maintaining a favourable and dependent relationship is therefore essential for Beijing.

Despite serious rifts between their populations, China and Kyrgyzstan enjoy an increasingly close relationship, based on economic dependence. Around 44% of Kyrgyzstan’s imports come from China, a higher percentage than that of any other Central Asian country.  As of April 2024, Kyrgyzstan’s accumulated debt to China was estimated to be $6.2 billion, $1.7 billion of which is owed to China’s Export and Import Bank. While this money has been used to create and modernise crucial infrastructure in the country, opening it up to global trade, tensions are mounting as Beijing refuses to renegotiate the debt or accept the alternative modes of payment extended by Bishkek. Voices around the world are concerned about what might happen should Kyrgyzstan fail to repay this debt, and anti-Chinese sentiment (a recurrent issue), is on the rise once more across the country. In spite of this, a third checkpoint between the two countries, the Bedel Pass, will open in late 2024, while the long-awaited China-Kyrgyzstan-Uzbekistan railway continues to drag on.

Türkiye

Türkiye’s geopolitical significance is on the rise across Central Asia, and Kyrgyzstan is no exception. As well as its involvement in the Organisation of Turkic States (OTS), Kyrgyzstan has purchased significant numbers of Türkiye’s Bayraktar TB2 combat drones as part of a burgeoning arms race with Tajikistan (who, in turn, has looked to Tehran for support). Ankara’s pan-Turkism also seeks to offer an alternative to the prior dominance of Moscow and Beijing.

Conclusion and forecast

The constitutional changes adopted by referendum in April 2021 moved Kyrgyzstan from a parliamentary to a presidential system, considerably strengthening presidential authority, concentrating political power in the presidency, and reducing the size and role of the parliament. As a result, national governance is highly centralised in the person of the President, and the separation of powers is weak.

On a policy level, the passing into law of the ‘Foreign Agents’ bill is indicative of an increasingly hostile stance to foreign intervention in matters of human rights, while, in turn, a weakened judiciary and an increasingly restrictive government stance towards the independent media has seen a radical decline in the freedoms of civil society. Corruption remains widespread and can be seen in a range of state apparatus’, from the electoral machine to the presence of government officials within organised crime units.

GDP growth is expected to fall to 4.5% as a continuation of a declining trend over the past few years. This moderation is thought to be a result of the re-settling of services sector growth, which inflated suddenly in 2022 due to Russia’s invasion of Ukraine and Kyrgyzstan’s willingness to re-export goods from China to Russia on a large scale. Issues such as corruption, a lack of transparency, predatory taxation, and the repercussions of doing business in a weakened legislative environment mean that Kyrgyzstan remains a high-risk investment frontier, despite the potential of renewables, ICTs, and the banking sector.

Kyrgyzstan remains heavily involved with both Russia and China, the former through an interdependent migrant-worker/remittances reliance relationship, and the latter through debt entrapment and access to land transit routes. While President Sadyr Japarov has expressed a desire to broaden the country’s economic and diplomatic relationships, Kyrgyzstan stands accused of helping Russia evade sanctions and continues to take a neutral stance towards the conflict in Ukraine. In spite of this, the C5+1 summit of 2023 between all five Central Asian countries and US President Joe Biden, and a visit from the United Kingdom’s ex-foreign secretary, David Cameron, are indicative of fresh global interest in the region. In particular, this comes out of the attention brought by the Middle Corridor (an alternative overland trade route to the Northern trade route through Russia) and mounting international interest in the region’s stores of critical raw materials. The ITA notes the presence of silver, tin, copper, tungsten, zinc, aluminium, iron, lead, manganese, molybdenum, chromium, cobalt, and nickel beneath Kyrgyzstan – materials crucial for the clean energy technologies of the future. Furthermore, March 2024 witnessed the inaugural B5+1 Business Forum which focussed on promoting connectivity between US and Central Asian businesses: while Kyrgyzstan might not be top of the leaderboard of international interests in the region, it will certainly not be overlooked, and is likely to play an increasingly important role on the global stage in the medium to long-term.