Kyrgyzstan’s GDP continues to grow at double-digit rates. Since 2022, growth has been driven by expanding trade flows, a steady inflow of capital and remittances, and a construction boom supported by government spending. However, this growth model is producing side effects that are beginning to emerge in the form of declining re-exports and rising inflation, which is approaching overheating levels.
Economic growth remains strong
In the first quarter of 2026, Kyrgyzstan’s GDP grew 10.1% year over year, reaching 429 billion soms ($4.9 billion at the current exchange rate). Although robust, the growth rate slowed from 12.6% in the first quarter of 2025.
Economic expansion was driven by fixed capital investment, a construction boom, and rising domestic consumption. However, a deteriorating external environment — including declining exports and the closure of intermediary companies because of sanctions-related risks — highlights the country’s vulnerability to external shocks. Rising global energy and food prices are adding to these pressures.
Read also: Sanctions on the horizon? Europe targets Kyrgyzstan’s 1,200% trade surge to Russia.
The services sector remains the largest segment of the Kyrgyz economy. Despite continued growth, its share of GDP fell by 3.1 percentage points (p.p.) year over year to 50.4%. The total value of services provided in the first quarter increased 10.7% to 672 billion soms.
Growth was largely driven by domestic trade, which expanded 12.1% to 465 billion soms. The sector remains heavily dependent on domestic demand, which in turn is shaped by household income trends. Growth in other service industries was more modest: transportation and warehousing expanded 7.5%, telecommunications grew 3.1%, and finance and insurance increased 1%.
Healthcare and education posted particularly strong gains, growing 39.5% and 19.1%, respectively, primarily because of increased public spending.
Investment shifts toward infrastructure
Fixed capital investment increased 25.5% year over year to 77 billion soms.
The largest investment volumes were directed toward transportation and warehousing infrastructure, which received 6.5 billion soms, a 6.5-fold increase from a year earlier. Electricity and gas supply projects attracted 3.4 billion soms, up 1.9 times year over year.
Investment in arts, entertainment, and recreation increased fivefold to 2.3 billion soms, while investment in education doubled to 2 billion soms. In contrast, investment in mining fell 60.9% to 2.3 billion soms.
Foreign investment increased 1.6 times year over year, while foreign direct investment in infrastructure rose 4.9 times. This surge is likely linked to the continued implementation of the Kambarata-1 Hydropower Plant project.
Fiscal pressures are building
According to International Monetary Fund forecasts, the government is likely to run a budget deficit in 2026 after posting budget surpluses from 2023 through 2025.
One factor is the growing cost of public-sector wages. According to official data, the average salary of public-sector employees reached 34,500 soms in January-March 2026, up 11.3% year over year. Workers in the private sector earned an average of 83% more, and their wages increased at a faster pace, rising 17.6%.
In response, the government has introduced measures aimed at narrowing income disparities. A special presidential compensation payment was introduced April 1 for teachers, healthcare workers, cultural employees, and social-service workers. The payment can reach up to 50% of the average salary. Additional bonuses of up to 50% of salary for departmental and regional officials are scheduled to begin in September.
At the same time, IMF analysts have warned about elevated risks in the quasi-fiscal sector — spending and liabilities carried out through state-controlled enterprises that are not fully reflected in the national budget. Strong fiscal stimulus and government spending are boosting domestic consumer demand, increasing pressure on public finances while also contributing to higher inflation.
Inflation accelerates despite tighter monetary policy
Strong domestic demand and government spending contributed to accelerating inflation during the first quarter. Inflation rose to 11% year over year in March, up from 9.4% in 2025.
In an effort to contain price growth, the National Bank of Kyrgyzstan raised its key policy rate by 1 p.p. to 12% in February 2026. Despite tighter monetary conditions, inflation continued to accelerate, reaching 11.4% in April. Price increases were broad-based, affecting virtually all categories of goods and services.
In May, the government implemented a planned increase in electricity tariffs, a move expected to add further inflationary pressure.
Nevertheless, at its regular meeting on May 25, the regulator chose not to tighten monetary policy further or raise its benchmark rate. The central bank argued that inflation is largely nonmonetary in nature and is being driven primarily by volatility in global energy and food prices.
Foreign trade weakens
Despite rapid GDP growth, Kyrgyzstan’s foreign trade sector posted weaker results in the first quarter of 2026.
Total trade turnover declined 4% year over year to $3.3 billion. Exports fell 13.5% to $483 million, while imports declined 2.3% to $2.9 billion.
Read also: Investment envy: Kyrgyzstan challenges its neighbors’ dominance in Europe.
The country’s trade deficit remained unchanged from a year earlier at $2.4 billion, underscoring the continued imbalance between imports and exports despite strong domestic economic growth.
Export outlook deteriorates
Exports declined both to Commonwealth of Independent States (CIS) countries, down 10.6%, and to non-CIS markets, down 19% year over year. Exports to Russia fell 13.4%, likely reflecting a decline in re-export activity.
Further export weakness is likely in the near term.
First, in April, the European Union adopted its 20th package of sanctions against Russia, which included Kyrgyzstan on a list of jurisdictions considered at elevated risk of sanctions circumvention. In response, Kyrgyz authorities suspended the operations of logistics and trading companies suspected of facilitating the transit of restricted goods to Russia.
Second, in March, the Kyrgyz government imposed a ban on imports of vehicle bodies in an effort to prevent the illegal registration and subsequent export of automobiles.
In previous years, Kyrgyzstan’s economy was heavily dependent on transit trade and re-export activities. The tightening of sanctions enforcement and stricter domestic controls are likely to further reduce these flows, adding pressure to export performance and overall economic growth.
