Government consumption in Kyrgyzstan stood at 41% of GDP in 2017, comparable to many more developed transitional countries in Europe - a sharp increase from its pre-crisis level. Public debt, which reached 60% of GDP, was recently reduced due to the Russian debt write off, but significant efforts need to be done in order to stabilize public finances. The economy has experienced robust growth in 2017, of 4.7%, but it has recently slowed due to the sharp fall of gold prices, the main export commodity. But economic growth in Kazakhstan and Russia, its main foreign market, is expected to have beneficial effect on the Kyrgyz economy through rise in exports and on domestic consumption through rise in remittances. The three-year arrangement program with the IMF since November 2015 has helped to
improve fiscal situation and make ground for sustainable growth in future. The fiscal consolidation program, that has been implemented since 2015 in order to put the deficit under control and slow down debt growth, is now in jeopardy due to spending increases connected to the presidential elections in late 2017.
State-owned enterprises (SOEs) are numerous, the most important ones operating in the fields of banking, mining, electricity, natural gas and transportation. Some of the companies are by and large inefficient and operate at financial losses, thus creating fiscal risks for the government, which needs to subsidize their operation. SOEs are under authority of the State Property Management Fund, which executes corporate governance of SOEs and appoints members of the SOE boards of directors. But in many cases, elected officials appoint company board members based on political loyalty instead of professional managerial skills and expertise. This leads to poor performance of the SOEs and low quality of public services. In 2017 the Government decided to liquidate non-operating SOEs, i.e. those that mainly existed only in paper. Out of the 8 banks under conservatorship of the National Bank, four were liquidated in 2016 and one in 2017, with the remaining three expected to be liquidated in 2018. Privatization program is mostly stopped. After years of deliberation regarding privatization of the telecommunication company Megacom and the announcement of the auction in July 2017, this did not come to pass. Tax rates in Kyrgyz Republic are moderate. Corporate and personal income tax rates are flat and low, standing at 10% each. The standard VAT rate is also low, just 12%. On the other hand, social security contributions are high, which, coupled with the personal income tax, leads to a labour tax wedge of approximately 32% on the average wage, much more than in other Eurasian countries. It is somewhat high for countries on this level of development and it encourages shadow economy.