Summarizing the year 2014, Kyrgyzstan’s business community compares its results with the objectives set in the main strategic document of Kyrgyzstan, the National Sustainable Development Strategy until 2017 (NSDS).
According to the strategy, the average annual GDP growth should be not less than 7%. According to the National Statistics Committee, in January-November 2014 the GDP increased by 3.5% compared to the same period in 2013. The World Bank forecast a 3% growth. However, at a Parliament meeting on December 11, Prime Minister Joomart Otorbayev said that the GDP will be increased to 4% by the end of 2014.
As to other macroeconomic indicators, Kyrgyzstan is implementing its plans. So, the task is that budget deficit should not exceed 5% of GDP, and 2014’s budget deficit is 4.2%. However, the World Bank predicted it will increase to 5.7% of GDP.
According to the NSSD, public external debt should not exceed 60% of GDP. According to Finance Minister Olga Lavrova, «we are far from this figure, and the debt decreases every year.» However, the IMF predicted a 58-59% external debt in 2015, and this is a wake-up call.
The national strategy says: «Foreign direct investments (FDI) are of particular importance since they bring in technology and management practices, open up new markets overseas.» However, for the first nine months of 2014 Kyrgyzstan received foreign direct investment by 35.4% less than in the same period in 2013.
Change for the better
Business has obtained changes that will positively affect the development of entrepreneurial activity.
To introduce a stabilization mode, the Investment Law and the Tax Code have been changed. The changes were developed at the initiative of the International Business Council, based in Bishkek.
Now investors will have guarantees for their investment in Kyrgyzstan. The basic rules of the game will not change for investors for ten years. Recently, the Parliament has approved the first reading of a bill on tax stabilization for investors whose investment in the authorized capital of local companies is more than $5 million and for activities related to the exploration and development of mineral resources — not less than $20 million. Investors are given the right to choose the most favorable conditions on taxes, customs and non-tax payments.
Subsoil Advisory Board
To create a partnership between the state and the business community and favorable conditions for the development of the mining sector, the Economy Ministry established a Subsoil Advisory Board which will identify obscure and complex legislative issues, discuss draft laws and improve the quality of legislation in the mineral resources.
The Advisory Board includes representatives of the Government Office, the Economy Ministry, the State Agency for Geology and Mineral Resources, as well as representatives of the business expert communities.
Investment Promotion Agency
After several years of debate, an Investment Promotion Agency (IPA) has been created in the country. Some experts are pessimistic about the new body, as it has no high status and authority, it is “like a department of the Economy Ministry”, experts said. They believe that the agency should be directly subordinate to the Prime Minister. Nevertheless, the business community has high hopes for the IPA and supports its educated young staff.
Business advised IPA to start with solving problems of existing investors in the country. The role and future of the agency will depend on how effectively it will deal with this difficult work. To attract investment, the state must first make happy investors already working in Kyrgyzstan, and this will be a good signal to potential investors.
Transfer of the administration of insurance premiums
Another important issue has been solved: the Government has transferred administration of insurance premiums from the Social Fund to the State Tax Service (STS). Termination of duplication of collecting contributions from employers by the STS and the Social Fund will reduce costs for businesses in the preparation and submission of reports and reduce the number of inspections.
In 2014, the first leasing company was established in the country. It was founded by local companies together with the Islamic Corporation for the Development of the Private Sector (ICD). The Union of Banks of Kyrgyzstan believes “this is a global event for the country”.
The financial market is developing, and its main players are moving to a new level. Two years ago, Bai-Tushum and Partners became the first microfinance organization in Central Asia to receive a full banking license from the National Bank of Kyrgyzstan. Today it is among the seven largest banks in the country.
Function of fiscal policy returned to Economy Ministry
The business community considers it wrong when one body develops a policy, issues licenses and controls its implementation. Therefore, business welcomes the Government’s decision to return fiscal policy development functions from the Finance Ministry to the Economy Ministry.
Contrary to the opinion of the business community, in March of 2013, the Government transferred the functions of tax policy development from the Economy Ministry to the Finance Ministry. Business appealed to the Government to restore the previous order because the Finance Ministry initiated an increase in the tax burden on entrepreneurs. It turned out that the ministry was more concerned with issues of financing budget expenditures than the protection of business.
Frequency of tax reporting reduced
This is a positive step by the government to support small and medium-sized businesses, which will certainly reduce the administrative burden and the costs related to the delivery of tax reporting and payment of taxes. The Draft Law «On amendments and additions to the Tax Code of the Kyrgyz Republic» proposes to introduce a quarterly reporting instead of the existing monthly reporting for small and medium-sized businesses and non-profit organizations.