Debt sustainability level of Kyrgyzstan remains quite stable

11:32, 01 сентября 2020, Bishkek - 24.kg news agency , Tatyana KUDRYAVTSEVA

«Positive result of stress testing is that the level of debt sustainability of the Kyrgyz Republic remains quite stable,» Evgeny Vinokurov, Chief Economist of the Eurasian Fund for Stabilization and Development (EFSD), said.

The EFSD has analyzed debt sustainability and the degree of adaptation to various shock scenarios in Kyrgyzstan and Tajikistan. Published research reveals features of these processes based on a series of stress tests.

The likelihood of negative scenarios is small, but experts stress the need for a high degree of preparedness at the level of macroeconomic policy.

Eurasian Fund for Stabilization and Development

Economists recall that this year’s crisis has demonstrated the high sensitivity of developing countries on all continents to various shocks: not only financial crises can threaten economic growth, but health, political and environmental emergencies can also cause severe problems in the economy.

Taking into account the peculiarities of the current foreign economic situation, experts assessed the stability of the debt situation and solvency in the Kyrgyz Republic and the Republic of Tajikistan. Both republics suffered from the spread of COVID-19: exports fell, the volume of remittances of labor migrants dropped sharply, and small businesses and employment were hit hard.

In the baseline scenario, an estimated 4.3 percent drop in GDP in Kyrgyzstan could lead to an increase in state debt to almost 65.3 percent by the end of 2020. At the same time, this level of state debt will remain relatively stable, but the need for financing the debt burden will noticeably increase.

The debt servicing will grow to 10.9 percent of GDP in Kyrgyzstan compared to 4.5 percent in 2019.

In the long-term, funding needs will remain at around 10 percent of GDP. They will be at the level of 7 percent of GDP in the republic. In these conditions, vulnerability of the country’s debt positions remains quite high. As a result, there is a need for additional external financial assistance.

«Results of empirical research indicate that unfavorable external conditions can lead to realization of vulnerabilities of national economies. Stress tests show that the main drivers of growth in financial needs in stress scenarios may be an increase in the budget deficit and weakening of the national currency,» Evgeny Vinokurov said.