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Moody's improves outlook on Kyrgyzstan's credit ratings

Moody’s Ratings changed the outlook to stable from negative on Kyrgyz Republics’ government credit ratings and affirmed the local and foreign currency long-term issuer ratings at B3.

As noted, the change to a stable outlook reflects Moody’s assessment that the balance of risks has returned to stable.

«Kyrgyz Republic’s economy and fiscal metrics have been significantly less affected by spillover effects of the Russian invasion of Ukraine than Moody’s earlier expected and despite the economy’s ongoing close links to the Russian economy. Notwithstanding the government’s nationalisation of the Kumtor gold mine in 2022, activity and foreign investment in the key mining sector and more broadly in other sectors such as transport, will remain resilient, notwithstanding ongoing geo-political tensions,» the agency says.

The affirmation of Kyrgyz Republic’s B3 ratings reflects Moody’s assessment that the fundamental underpinnings of the rating remain unchanged. The B3 rating continues to reflect the country’s small, low-income economy and its exposure to Russia’s economy, particularly through significant reliance on remittances.

«Government debt burden remains vulnerable to local-currency depreciation, despite easing significantly and incorporating a rising share of locally financed debt. Financing from development partners that keeps debt servicing costs low is a key support to the rating. Political risk and external vulnerability risk continue to drive event risks,» the agency notes.

Kyrgyz Republic’s local- and foreign-currency country ceilings are unchanged at B2 and B3, respectively. The one-notch gap between the local currency ceiling and the sovereign rating reflects the government’s relatively large footprint in the economy, the unpredictability of some government decisions and a volatile domestic political environment that could hinder the economy’s long-term development. The one-notch gap between the foreign currency ceiling at B3 and the local currency ceiling takes into consideration weak policy effectiveness and high external indebtedness as well as the authorities’ commitment to flexible exchange rates and moderately open capital accounts.

«Moody’s expects Kyrgyz Republic’s economy to show continued resilience despite the shocks emanating from the invasion of Ukraine and Kyrgyz Republic’s ongoing tight links to the Russian economy. Concerns around the performance of the gold sector and foreign direct investment following the nationalisation of the Kumtor gold mine have eased and potential growth is expected to remain at around 4 percent in the medium-term,» the statement says.