December 19, 2013 / 6:25 PM / 4 years ago

Gold mine row overshadows Kyrgyzstan's 2014 growth target

* Dispute with Centerra clouds optimistic growth plan

* Fast growth key to reducing widespread poverty

* Centerra threatens legal action if no venture deal

BISHKEK, Dec 19 (Reuters) - Kyrgyzstan is targeting strong growth in 2014 on the back of output from its gold mining venture with Centerra Gold but a row between the state and the Canadian firm threatens to undermine the growth plan.

The budget, which sees gross domestic product rising 6.9 percent next year, was adopted on Thursday with a deficit of $191.3 million, or 2.4 percent of GDP.

However, a dispute over the size of Centerra Gold’s stake in Kyrgyzstan’s largest gold mine, Kumtor, could curtail gold output, a motor of growth in the small Central Asian economy. Protests over Centerra’s involvement in the mining operation, staged by Kyrgyz nationalists, briefly halted production in May.

Kumtor, run by Centerra, is an important component of the economy, contributing 12 percent of GDP in 2011. The economy shrank by 0.9 percent last year after ice movement in the high-altitude mine sharply cut gold output.

Mainly due to ramped up production at Kumtor, the economy is expected to grow this year by 7.8 percent, the International Monetary Fund said in October.

Kyrgyzstan, a mainly Muslim nation which borders China and plans to join a customs union with Russia, needs sustained growth to alleviate deep poverty among its 5.5 million people.

But the optimistic economic outlook for next year is clouded by the row with Centerra Gold, which this week threatened to take Kyrgyzstan to arbitration if it fails to reach an agreement with the government.

The Kyrgyz parliament had demanded the state holds 67 percent in a proposed joint venture to run the open-cast mine.

In October, the legislature voted to tear up a memorandum of understanding between the company and government, in which Kyrgyzstan would swap its one-third of shares in Centerra Gold for a 50 percent stake in the new Kumtor venture.

Centerra has been a focus of protests across Kyrgyzstan, amid opposition demands that Kumtor should be nationalised. In May demonstrators briefly cut off electricity supplies and blocked the main road to the mine. (Reporting by Olga Dzyubenko; Writing by Dmitry Solovyov; Editing by Rosalind Russell)

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