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Impact of rising U.S. dollar on economy of Kyrgyzstan

Sharp growth of U.S. dollar exchange rate is observed in the countries of the Eurasian Economic Union after tightening of sanctions against Russia by the United States. All that is happening in the foreign exchange market forced the National Bank of Kyrgyzstan to intervene for the first time in four months to meet the demand for the U.S. dollars.

Experts and businessmen told 24.kg news agency how the next increase in the price of the American currency would affect the Kyrgyz economy and what to expect in the fall.

Tolonbek Abdyrov, economist:

— It is difficult to predict anything now, because variety of factors influence the development of events in the foreign exchange market. Even after the first reports about additional sanctions from the USA, I predicted that the ruble would fall. But bring notice: the Russian authorities did not react sharply. They let the ruble go down, gave it the opportunity to fluctuate. It began to depreciate, but this is a plus for the Russian economy: export goods fall in price, especially the products of the agro-industrial complex. They become competitive in the markets. Therefore, the Russian authorities are unlikely to interfere in the situation now. They will slowly let the ruble fall.

And this is a problem for the Kyrgyz economy, which imports most of the goods.

Tolonbek Abdyrov

After all, we practically have no enterprises that can produce goods and sell them for dollars to other countries. The main inflow of currency to the republic comes from our citizens who work in Russia, Kazakhstan and other countries. The som’s exchange rate is stable thanks to their transfers and the interventions by the National Bank.

The depreciation of the ruble leads to the fact that it almost equaled the Kyrgyz som. This is a big problem for migrants who transfer money to Kyrgyzstan from Russia. It was profitable earlier because of the exchange rate difference, but it is not now.

This may become a difficult test for the Kyrgyz economy; many enterprises will begin to experience difficulties. Bankruptcy is possible.

Tolonbek Abdyrov

The situation is stabilizing due to transfers of migrants and tourists. It is the height of the season now, many guests come to us and leave dollars. Perhaps, the situation will begin to change in the fall. But there is an option that the situation in Russia will change by that time, which, of course, will have its impact on us.

Kubanychbek Idinov, economist:

-I see no cause for concern. The growth of the dollar is insignificant. It is connected mainly with global trends — rising energy prices and new U.S. sanctions against Russia. It has minimal impact on us. The Kyrgyz economy feels some influence only through Russia. But I do not think there is a reason for panic here.

The National Bank has enough reserves to smooth the sharp fluctuations in the exchange rates.

Kubanychbek Idinov

The dollar’s growth is short-term. The country plans to hold the 3rd World Nomad Games in the beginning of September. Many visitors from other countries will come. They will leave the currency in Kyrgyzstan. So, the situation on the foreign exchange market will stabilize in the near future at the expense of tourists.

Sergey Ponomarev, President of the Association of Markets, Trade and Services Enterprises:

— Finances are the blood vessels of an economy. Unfortunately, there is a great attachment to the dollar in Kyrgyzstan. Of course, we have already moved away from counting everything in dollars. But there is still dependence. At the same time, Kyrgyzstan is not so strongly tied to the global economy. Therefore, I would not to say that we would be strongly influenced by the events taking place in the world.

We depend on the economies of Kazakhstan and Russia. The exports and imports of goods from these countries are large. Therefore, there are risks.

Sergey Ponomarev

It is advantageous for the exporters to get 1.5 soms for 1 ruble. When there is 1 to 1 rate, our export rises by 50 percent. Business activity slows down traditionally in the period of devaluation of the ruble. With the predominance of imports over exports, the transfers of migrants have always been a lifesaver. The situation becomes more complicated in case of depreciation of the ruble. Yes, nothing changes in ruble terms, but the amount of money transfers decreases when converting them. Accordingly, som’s exchange rate fluctuates.

But there is no reason for panic. The National Bank has all the tools and resources to prevent sharp jumps in the exchange rate.

Nasriddin Shamshiev, economist:

— I do not see a cause for concern and panic. Look, Russia is now also taking no steps to stop the ruble’s fall. Our currency is just subject to the influence of external shocks, so there is a slight appreciation of the dollar. But there are no fundamental factors that could lead to drastic changes in the economy.

What is happening now is more connected with the speculative moods of individual market participants.

Nasriddin Shamshiev

Inflation in Kyrgyzstan is negative. The economy does not feel any excitement. You just need to wait. Kyrgyzstan has already experienced similar situations.

On the other hand, it is important to have a difference between the ruble and som. If we continue to hold som, this will negatively affect the competitiveness of our goods in Russia. The USA want to introduce a new package of sanctions on August 22. We need to see how the situation will develop. The market reacts quickly to such things.

Yaroslav Lissovolik, Chief Economist of the Eurasian Development Bank:

— In August, amid worsening external background, the pressure on the currencies of the EDB countries, primarily on the Russian ruble and the Kazakh tenge, increased. During several trading sessions, the ruble lost more than 5 percent of its value. Tenge by August 11 fell by 2.9 percent to the dollar compared to the beginning of the month.

One of the consequences of the weakening of the exchange rates of the EDB countries’ currencies may be an increase in inflation risks.

Yaroslav Lissovolik

An important factor of macroeconomic stability in the region against the backdrop of rising volatility of exchange rates is a relatively favorable situation in the budgetary sphere. In the first half of 2018, all countries in the region consolidated their budgets compared to the first half of 2017.

Other important factors in neutralizing risks for macroeconomic stability in the region are strengthening of the foundations of economic growth and diversifying its sources. In this regard, we should note the growth in mutual trade and export of manufacturing industry of the EEA countries. In the first quarter of 2018, it increased by 23.5 percent compared to the same period in 2017. The growth in the exports was recorded in 15 industries, which are priority for industrial cooperation.