The year 2024 was eventful for Kyrgyzstan, marked by significant progress in economic growth, infrastructure development, and legislative changes.

According to preliminary estimates from the National Statistics Committee of the Kyrgyz Republic (NSC), the country’s gross domestic product (GDP) for January–November 2024 exceeded 1.2 trillion Kyrgyz soms, with a GDP growth rate of 9.0% during this period. In 2024, the development of automobile, irrigation, and air infrastructure continued, and large-scale projects in energy, railroads, and other socially and economically significant areas were launched.

At the same time, businesses in Kyrgyzstan faced serious challenges, including increased fiscal regulations, inspections, pressure from tax and law enforcement agencies, and property seizures. These issues have created uncertainty in the business environment, undermined trust among entrepreneurs, and hindered the sustainable growth of the private sector.

“In light of these developments, the International Business Council (IBC) decided to analyze the year’s key outcomes for businesses and provide recommendations to improve the business environment and foster economic growth,” said IBC Executive Director Askar Sydykov.

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1. Positive Changes

In 2024, a number of business-friendly legislative reforms were adopted, including:

● A significant and historic reduction in social security contribution rates from 27.25% to 12.25% (excluding certain industries), which has already yielded results in terms of reducing informal employment, increasing the number of social payments, lowering business costs, and raising wages for workers (Law of the Kyrgyz Republic dated July 23, 2024, No. 136).

● Improvement of tax administration for taxpayers, including those using the general taxation regime, additional tax benefits for the agro-industrial sector, and elimination of conflicts and gaps identified in the 2022 Tax Code (Law of the Kyrgyz Republic dated February 2, 2024, No. 31).

● Introduction of criminal liability for obstructing lawful entrepreneurial activity, establishment of a priority for electronic surveillance, bail, and house arrest as preventive measures, and a ban on detaining business entities for a number of crimes in economic, property, and tax spheres, prioritizing alternative preventive measures (Law of the Kyrgyz Republic dated July 22, 2024, No. 133).

● Adoption of a new draft Labor Code of the Kyrgyz Republic, which sets a statute of limitations of three years for wage recovery disputes, introduces a uniform penalty rate for late payments at 0.25% per day, the concept of “combined remote work,” and other amendments aimed at balancing the interests of employees and employers.

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2. Protection of Private Property and Administrative Pressure

Despite the positive results achieved, some issues related to the protection of private property and the rule of law persist in Kyrgyzstan.

In the last months of the outgoing year, the information space was saturated with reports of property confiscation and the transfer of private property to state ownership. Since the beginning of 2024, several assets have been returned to state ownership in Kyrgyzstan, which, according to law enforcement agencies, were acquired through criminal means or unlawfully privatized. However, nationalization could have affected bona fide purchasers, including business representatives. According to official data, as of December 2024, 1,174 assets were returned to the state, including markets, land plots, commercial and non-commercial premises, special facilities (including industrial enterprises), and social facilities (including stadiums, historic buildings, markets, and bus stations).

Meanwhile, in countries with the rule of law, nationalization of assets acquired through criminal means or unlawful privatization is carried out exclusively within the framework of legal procedures, with the asset being returned to state ownership only after a court decision has come into force, ensuring the rights of all parties, including the possibility of appeal and, if necessary, compensation to bona fide purchasers.

Additionally, according to open data and business complaints, inspections have been carried out in companies from a wide range of economic sectors, including representatives of the industrial sector, various service industries, microfinance companies, and others.

Such inspections often involve the seizure of goods, sealing of offices, production, and storage facilities, disrupting normal company operations, creating an atmosphere of uncertainty for entrepreneurs, and hindering their long-term development. Despite the moratorium on inspections of business entities introduced by Presidential Decree No. 1 of January 9, 2024, administrative actions by law enforcement agencies, whose interaction with entrepreneurs should be minimal, continue to take place.

This state of affairs, observed in recent times, appears to contradict the Presidential Decree of the Kyrgyz Republic “On Property Protection and Support for Entrepreneurs and Investors” dated January 29, 2021, No. 3, aimed at eliminating unjustified government interference in the economic activities of business entities and creating a favorable investment climate and business environment, as well as the goals outlined in the Kyrgyz Republic Business Development Program until 2026.

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3. Investment Climate and Investor Confidence

The aforementioned events can undermine trust in state authorities by businesses, negatively affect economic activity, and damage the country's image as a favorable place for entrepreneurial activity.

The consequences of these events are reflected in current economic indicators. According to the latest NSC data, the inflow of foreign direct investment (FDI) into the country in January-September 2024 amounted to USD 746 million, equivalent to 6.6% of GDP for this period. This figure falls significantly short of the targets outlined in the Kyrgyz Republic's National Development Program through 2026, which aspires to achieve an annual FDI volume of at least 13% of GDP. This gap underscores the need to ensure transparency and predictability in government actions to restore trust among businesses and investors and to create conditions conducive to achieving the set economic benchmarks.

The current situation is also evidenced by reports from certain diplomatic missions in the Kyrgyz Republic, which highlight the absence of a stable business environment, as well as the fact that the Kyrgyz Republic remains a high-risk market, attracting mainly investors willing to operate under significant uncertainty. Despite government efforts to attract foreign investment, its volume decreased by 24% in 2023 compared to 2022. According to diplomatic missions, factors such as the “use of criminal investigations to influence commercial disputes, weak protection of property rights, and onerous bureaucracy” continue to negatively impact the country’s investment attractiveness.

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4. Additional Fiscal Requirements for Specific Business Categories

In 2024, Kyrgyzstan saw the introduction of additional fiscal requirements for certain business categories, including the imposition and modification of significant obligations regarding the labeling of excisable goods.

These factors, combined with higher compliance costs associated with new requirements and flaws in other legislative provisions, may negatively affect the country's investment attractiveness, increase risks for entrepreneurs and further complicate business activities in Kyrgyzstan.

Thus, in the World Bank’s Business Ready 2024 report, Kyrgyzstan ranked 40th out of 50 countries in the taxation category, which evaluates the quality of the regulatory framework in terms of clarity and fairness of tax legislation, the level of services provided by tax authorities, and the operational efficiency of the tax system, reflecting the time and resource costs of meeting tax obligations.

Moreover, according to the World Bank’s Country Economic Memorandum, compliance with tax legislation represents a particularly significant burden in the Kyrgyz Republic, with companies being inspected much more frequently than in other countries of the Europe and Central Asia region.

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5. Other Private Sector Issues

In addition to the above problems, businesses also face challenges such as:

● Brain Drain: According to the World Bank’s 2024 Report “Better Education for Stronger Growth” over 30% of the population with higher education in Kyrgyzstan has emigrated.

● High Corruption Perception: Despite the goal of improving Kyrgyzstan’s ranking in the Corruption Perception Index set out in the National Development Program until 2026, according to the Rule of Law Index (WJP), Kyrgyzstan ranked 130th out of 142 countries in the corruption category in 2024. A high perception of corruption erodes trust, weakening the attractiveness of the business climate, restricting investment inflow, and hindering private sector development. In its November 2024 release, the OECD noted that “overall progress in fighting corruption in these countries is limited, anti-corruption reforms are stagnating, and some countries, such as Kyrgyzstan, have moved backwards on several aspects.”

● Limited Private Sector Growth Opportunities: The World Bank’s “Unleashing the Power of the Private Sector in Europe and Central Asia” 2024 report highlighted state-owned enterprises, limited competition, and excessive regulation as one of the major obstacles to doing business in Kyrgyzstan. According to the 2024 Index of Economic Freedom, in which Kyrgyzstan ranked 112th out of 184 countries, progress in improving the business environment remains slow and inconsistent, with bureaucratic barriers still impeding production growth and private sector investment.

● Lack of Tender Transparency: The 2022 Public Procurement Law excluded state-owned and municipal enterprises, allowing them to bypass competitive procedures and public justification of supplier selection. This undermines fair competition, restricts private sector growth, and worsens the country's investment appeal. Subsequently, various reports, including the 2024 IMF Country Report, emphasized the need to extend the mentioned law’s application to state, municipal enterprises, and companies with state participation to lift output and strengthen the country's long-term resilience.

● Unrealized Export Potential: According to the World Bank’s Country Economic Memorandum, Kyrgyzstan’s unrealized export potential is estimated at over $1 billion annually, emphasizing the need for infrastructure development and reduced trade costs.

● Limited Access to Financial Resources: According to the 2023 Enterprise Survey by the World Bank, about 27% of companies are fully credit constrained. Furthermore, the 2024 World Bank report “Unleashing the Power of the Private Sector' identified limited access to financing as the most significant obstacle to conducting business in Kyrgyzstan.”

● Low Labor Productivity: The contribution of productivity to economic growth, measured by total factor productivity (TFP), has significantly declined in recent years, and human capital development remains limited, weakly supporting sustainable economic growth. Overcoming these challenges requires improving labor productivity through innovation and human capital development, creating a skilled workforce for key economic sectors.

IBC is confident that 2025 will provide new opportunities for economic growth, improving business conditions, and attracting investments in the Kyrgyz Republic. Important steps in this direction will include strengthening the rule of law, simplifying business regulations, enhancing competition, and addressing other barriers for entrepreneurs. Creating a transparent, fair, and predictable business environment remains a top priority for building trust among entrepreneurs and investors. Joint efforts of the government, businesses, and the international community will help overcome existing challenges and achieve the set goals in economic development.