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Russian analysts outline Kyrgyzstan's external debt situation

The Information and Analytical Center of the Moscow State University published an article «On the verge of financial abyss: Kyrgyzstan asks to write off debts,» in which it told that the republic has been teetering on the brink of default for many years, which can only be avoided thanks to cash receipts from outside.

The center also named the reasons why China refused to write off the national debt.

It is known that on September 21, the President Sooronbai Jeenbekov asked the UN to support the state in «deep restructuring of the external debt,» in other words, to write off part of the state debt. He named the coronavirus pandemic and its dire consequences for the economy as a good reason.

«The moment for the appeal was chosen well. Some international institutions have temporarily given the go-ahead to time-out on repayment, some borrowers will use the respite to improve their financial situation. However, the Kyrgyz Republic does not belong to such countries,» the article says.

It is noted further that for many years the state has been teetering on the brink of default, which can only be avoided thanks to cash inflows from outside.

«The state debt of the republic, meanwhile, is growing — as of July 2020, it exceeded $ 4.8 billion, and this is the highest figure in the entire history of the country. The budget deficit is also growing — by the end of the year it may amount to about $ 400 million,» author of the article stresses.

Kyrgyzstan owes the PRC most of the money (43 percent of the total). As of May of this year (the Ministry of Finance has not yet published recent data), Bishkek’s debt to Beijing amounted to more than $ 1.7 billion.

The World Bank takes the second place among the largest lenders, to which the country must return $ 645 million. The republic also owes $ 551 million to the Asian Development Bank.

The Kyrgyz Republic owes nothing to Russia, since in 2018 Moscow wrote off $ 240 million debt to Bishkek. Generally speaking, on average, there is $ 624 of the debt per each resident of the republic, $268 of which -to China.

Information and Analytical Center of the Moscow State University

The center reports that the PRC does not want to restructure and write off the debt to Kyrgyzstan.

«This became known after the meeting of the Chinese Foreign Minister Wang Yi with the President Jeenbekov on September 14. Beijing is unhappy with the delay in the implementation of its projects in the Kyrgyz Republic. These are the construction of the China — Kyrgyzstan — Uzbekistan railway and Iskra Asia industrial park in Chui region,» the author notes.

In his opinion, a number of other factors also cause Beijing’s irritation:

  • Activities of the United States, which through non-governmental organizations «interfere» with the PRC’s work on the territory of the Kyrgyz Republic;
  • Smuggling flows from China to Kyrgyzstan. The PRC believes that part of the proceeds of the illegal business can be spent on support of the activities of the Uighur separatists in China;
  • Bishkek’s failure to fulfill its obligations to protect Chinese investments, that is why large Chinese companies are regularly drawn into internal political scandals. An example of this is the high-profile criminal case on the modernization of the HPP in the capital, which was carried out by TBEA Chinese company.

«The factors mentioned above cannot be quickly eliminated, therefore, relations between the Kyrgyz Republic and the PRC are unlikely to improve in the near future. Thus, the debt will have to be paid in full. If it is restructured or written off, it will mean that Bishkek has made serious concessions to the Celestial Empire,» the Information and Analytical Center of the Moscow State University believes.

Alternatively, it could be a significant acceleration of the implementation of the aforementioned projects, transfer of large precious or rare earth metals deposits to China, part of the territory, and so on. All these steps involve serious political risks for the official Bishkek.

Information and Analytical Center of the Moscow State University

According to the center, other creditors of Kyrgyzstan may take not so tough stance as China.

«There are several reasons for optimistic assumptions, and the main one is that the country is not so significant object for the application of efforts and remains on the periphery of the interests of world players,» the center summed up.