June 15, 2012 / 12:46 PM / 7 years ago

Gold mine ice crushes Kyrgyz economic growth hopes

* Economic blow follows recent political turmoil

* Kumtor crisis underlines need to diversify: Prime Minister

By Olga Dzyubenko

BISHKEK, June 15 (Reuters) - Kyrgyzstan’s economy will grow by barely a quarter of the 7.5 percent originally forecast because of the collapse in output from the nation’s flagship venture with Canada’s Centerra Gold, the government said on Friday.

The economy in Kyrgyzstan, a mountainous former Soviet republic where per capita gross domestic product is less than a tenth of that in neighbouring Kazakhstan, relies heavily on gold production from Centerra’s Kumtor mine.

But ice movement in the high-altitude pit, which lies nearly 4,000 metres above sea level, has cut Kumtor’s output.

“Due to Kumtor’s lower production, Kyrgyzstan’s annual GDP growth will fall to 1.8 percent from the original target of 7.5 percent,” Kyrgyz Prime Minister Omurbek Babanov told a government meeting.

“Kumtor had originally planned to produce 642,000 ounces of gold this year, but now it intends to produce just 390,000 ounces,” he said.

Hard hit by the slump in Kumtor’s output, Kyrgyzstan’s GDP shrank by 6.4 percent in January-May of this year compared with the same period of 2011, data released by the National Statistics Committee showed on Friday.

Industrial output plunged by 31.2 percent in year-on-year terms in the same period.

Kyrgyzstan, a Central Asian nation of 5.5 million which borders China, sits on a busy drug trafficking route out of Afghanistan and hosts both Russian and U.S. military airbases. It has also been hit by political turmoil in recent years.

Angry crowds toppled two presidents in violent revolts in March 2005 and April 2010. In June 2010, ethnic clashes between Kyrgyz and local Uzbeks in Kyrgyzstan’s south killed about 500 people, mainly Uzbeks.

Kyrgyzstan’s GDP grew by 5.7 percent in 2011, reversing a 0.5 percent decline recorded during the upheaval of 2010.

But hundreds of thousands of Kyrgyz citizens are still forced to work abroad, mainly in former imperial master Russia, sending back cash remittances which help keep the rickety economy afloat.

Babanov said the current situation should not last forever.

“In the total volume of industrial output, Kumtor accounts for 60 percent,” he said. “This means we must diversify our industry. We cannot rely on just one single Kumtor.”

Economy Minister Temir Sariyev that if Kyrgyz GDP grew by 1.8 percent this year, it would be worth 305.5 billion soms, or just $6.5 billion at current exchange rates.

Neighbouring Kazakhstan, with a population only three times larger than Kyrgyzstan’s, had GDP worth $185 billion last year. (Writing by Dmitry Solovyov; Editing by Ruth Pitchford)

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