An International Monetary Fund (IMF) mission has sounded a warning over signs of economic overheating in Kyrgyzstan.

Though it noted that the country of 7.4mn continues to record strong economic growth and rising per capita income, the Fund mission observed that stronger domestic demand pressures and external factors have pushed inflation above the National Bank of the Kyrgyz Republic (NBKR)’s 5%-7% target range.

It advised: “In the context of rapid credit growth, strong wage increases, and elevated liquidity, this points to signs of overheating that requires timely policy recalibration.”

The fears of overheating in Kyrgyzstan have been a major talking point since at least early last year. Last July, IntelliNews reported on how top officials were discussing the anxieties.

Responding to the conclusions of the mission, economist Azamat Akeneev told 24.kg that sustainable growth would not be possible without improvements in labour productivity and exports. “If the economy grows through consumption and government spending rather than competitiveness and expansion into foreign markets, sooner or later an adjustment phase will follow,” he said, cautioning that overheating can produce recession, currency depreciation and social instability.

As well as elevated inflation, the mission pointed to rapid credit expansion, strong wage growth and high liquidity that indicate “signs of economic overheating, requiring timely macroeconomic policy adjustments”.

Kyrgyz inflation, said the mission, is expected to remain elevated through 2027 and decline gradually thereafter, provided macroeconomic policies are appropriately set.

Strong remittances and high gold prices are expected to continue to support Kyrgyzstan’s external position, although persistent balance of payment errors and omissions “complicate the assessment of underlying external dynamics and highlight the need for improvements in data quality and transparency”, it added.

The mission also concluded:

• Even though the Kyrgyz Republic has limited exposure to the war in the Middle East, sustained high oil prices could add to inflation pressures.
• Growing exposure to crypto asset activities and cross-border trade and financial flows could pose new risks.
• The overall fiscal balance is projected to shift into deficit in 2026, reflecting mainly higher public wages and increased capital spending.
• While the projected fiscal deficit remains moderate, gross financing needs are considerably larger due to the net acquisition of financial assets and quasi-fiscal operations.
• Persistent excess liquidity and a relatively wide and asymmetric interest rate corridor continue to impair monetary policy transmission.
• Strengthening the independence and governance of the central bank remains critical to safeguard price stability.
• Repeated transfers of central bank profits to the budget while capital remains below statutory thresholds risk undermining institutional credibility and the conduct of monetary policy.