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Moody’s revises Kyrgyzstan's sovereign credit rating outlook to negative

Moody’s Investors Service (Moody’s) revised Kyrgyzstan’s sovereign credit rating outlook to ‘negative’ from ’stable’ and affirmed the debt grade at ’B2′. Official website of the agency says.

It is noted that the change in outlook to negative was driven by the risk that the current heightened political uncertainty, if prolonged, would restrict the government’s very narrow financing options and pose liquidity challenges, particularly as funding needs have risen in response to the coronavirus pandemic. Moody’s added that investment, particularly foreign investment, may weaken, weighing on the economy and constraining the recovery in government revenue, also amplifying the negative impact of the coronavirus pandemic.

The affirmation of Kyrgyzstan’s rating reflects strong financial and technical support from development partners that strengthens the government’s credit profile.

«The country’s medium-term growth prospects remain robust. They are backed up by mineral reserves. External vulnerability risks are limited due to significant foreign direct investment in the mining sector and favorable external debt repayment conditions. These lending opportunities are counterbalanced by the country’s small economy, low incomes, limited scale of operations, and weak economic competitiveness that limit its ability to absorb shock. Institutional weaknesses in governance, anti-corruption and administrative capacity, as well as long-standing internal political risks, impede long-term economic development and diversification outside of the mining industry,» the statement says.

At the same time, long-term obligations on bonds and deposits in the national currency of Kyrgyzstan remain unchanged at the Ba3 level. The ceiling for long-term foreign currency bonds Ba3 and the ceiling for long-term foreign currency deposits B3 were also unchanged. They act as an upper limit on the ratings that can be assigned to the obligations of other legal entities located in the country.

Moody’s emphasizes that the impact of the coronavirus on economic activity will dramatically increase the debt of the Kyrgyz government. The situation is the same in many emerging and frontier markets around the world. Over time, Moody’s expects that the deterioration in budget performance and debt levels will gradually end, given the government’s efforts to effectively manage the budget during the previous shock in 2014-2015.

«But recent political events have exacerbated political uncertainty that, if continued, could constrain very tight government funding opportunities and negatively impact economic stability and foreign investment. In turn, this will increase the risk of government liquidity, create problems for the recovery of government revenues, and leave the sovereign credit profile in a weakened state in the medium term,» the agency notes.

«Moody’s assumes that political uncertainty will be temporary, and parliamentary and presidential elections will be held in the first half of 2021. But the period of uncertainty could drag on and formation of a new government will be delayed, if protests resume. Long-term political uncertainty will create liquidity risks for the government, given its very narrow funding base,» the agency concluded.