The Kyrgyz Republic has reported average annual GDP growth of 9% for the past three years and will again be close to that growth in 2025. This has resulted in a doubling of the value of nominal GDP since 2022. The main reason for this strong growth is the over 120% surge in the price of gold, by far the country’s largest “official” export, during this period. The country produces approximately 20 tonnes of gold per year, much of which is exported. Expansion plans for the country’s largest gold mine (Kumtor) are aimed at sustaining or expanding production for the next 20 years.

The economy has also benefited from a strong recovery in remittances from Kyrgyz workers – mostly in Russia – due to the high wage growth in Russia and the strength of the ruble in 2025. Remittances from Russia account for over 90% of the total and continue to rise despite the Russian authorities’ actions to make it more difficult for migrant workers from Central Asia.

But there is a major threat to the sustainability of the strong growth trajectory – water. More precisely, the lack of water and a threat this poses to the electricity supply through the coming winter. The government has already issued an order (November 5) restricting electricity use in offices, etc., and, on November 14, the Mayor of Bishkek directed that all places of entertainment (restaurants, bars, etc.) close by 10 pm. All energy-intensive appliances (household and commercial) must be switched off at this time.

Over 90% of the country’s electricity is produced from Hydro Power Plants (HPPs). The main problem is the Toktogul Reservoir, the country’s largest. It feeds five major HPPs that generate around 97% of the country’s hydroelectricity. That includes the Toktogul Hydropower Plant, which alone generates up to 40% of the country’s power. The reservoir can hold about 19.5 cubic kilometres of water, but below about 5.5 cubic kilometres, the hydroelectric cascade that depends on it cannot operate. Currently, the volume is close to 9.5 cubic kilometres. In 2008, the only time in recent memory that Toktogul’s September water level was lower than this year, it triggered an energy crisis, which saw GDP growth decline from 8.4% to a 0.5% contraction in 2009.

This emerging power supply threat comes as the country prepares for parliamentary elections on November 30. The elections have been called one year early on the pretext that there needs to be a bigger gap between the parliamentary and presidential elections (the next Presidential election is set for January 2027). But there is a growing opinion that the President wants the parliamentary election completed now because of the fear that the power supply crisis may get a lot worse. People in the Kyrgyz Republic have a long history of protest, including previously because of power outages, and President Japarov wants to avoid that risk in 2026.

But the country plans even more water-dependent HPPs. President Japarov has pledged that the country will overcome its winter power shortage difficulties and has made a very ambitious declaration that the country will become energy independent within two and a half years. He means to achieve this with the completion of almost 40 new HPPs and a new coal-fired power station (at the Kara-Keche deposit). But if the water levels continue to shrink – climate change is melting the Pamir Glaciers – then these new plants, even on a wide diversity of rivers, may not help address the growing crisis.

Water is also an issue of concern to the country’s “downstream neighbours.” Kazakhstan and Uzbekistan rely on water from Kyrgyzstan, so if there is a reduced flow in the rivers or a major expansion in the HPPs/Dams cut the downstream volume, this will intensify existing water supply problems in some regions of these countries. The Kyrgyz Government is now proposing that the downstream neighbours pay considerably more for water in order to help fund remedial actions.

Energy Minister Taalaibek Ibraev also informed of the probability of a harsh winter and called for more financial support from neighbouring countries that offtake water from the country.

“I want to address some of our neighbours who allocate a paltry amount annually to maintain our hydrological facilities. What is $600,000? It’s practically nothing. I think it would be better for us to refuse this money just so they don’t make demands [on Kyrgyzstan’s water]. This is not the 1990s or 2000s. We are spending billions of som to preserve water not only for ourselves but also for downstream countries. We must unite our efforts within the country and the region.”

The Kyrgyz Republic has generally good relations with its neighbours, but managing the emerging water crisis and efforts to share the cost could test these relations in the coming years, especially as countries such as Uzbekistan are facing multiple water challenges as a result of Afghanistan’s work to divert water from the Amu-Darya river via the Qosh-Tepa canal.

Kyrgyzstan’s financial position improved because of higher value gold exports and the higher value of the National Bank’s (NBK) gold holdings. But the need to build new electricity generation capacity has led to an almost equal rise in state debt, to now over 40% of GDP. However, the budget remains comfortably in surplus, so debt service costs are not currently an issue.

Inflation is a concern for the NBK. It raised the policy rate to 10% in October and warned that a further rise may be required if inflation did not start to cool towards its target range. The higher interest rate and measures to control consumer lending growth will lead to some reduction in consumer activity in 2026.

Major trade data inconsistencies are, meanwhile, something else to consider. There are significant inconsistencies and distortions in the Kyrgyz trade data relative to corresponding data from trade-partner countries. For example, while Kyrgyz statistics show that imports from China totalled $5.4bn in 2024, China’s Customs data reports the value of exports to the Kyrgyz Republic at $19.7bn. Much of the difference is likely to be the onward transit of goods to Russia.

The other major issue for Kyrgyz efforts to attract investment and maintain economic expansion (apart from the legacy of the 2021 nationalization of the biggest foreign investment in the country at the time – the Kumtor mine) is the prospect of another phase of domestic political instability ahead of the January 2027 presidential election or in the years after that election.

President Japarov is entitled to serve another five-year term (2027-2032), but he shares effective political power with the head of the security services, Kamchybek Tashiev. It is thought that he also would like a “turn” in the presidency and, in a country where only one previous president left office voluntarily, only to be prosecuted by his successor, the prospect of political instability is also a reason why investors retain a cautious stance.