Events in Ukraine have had a limited direct impact on the poverty level in Kyrgyzstan. However, if the conflict continues for 3-5 years, it will probably have a significant impact on the standard of living in the republic.
According to such international organisations as the World Bank and UN, the standard of living in Kyrgyzstan is one of the lowest among other world countries. Nevertheless, donors admit that in recent years the government of Kyrgyzstan has taken a series of measures that have had a positive impact on the standard of living of Kyrgyzstanis.
The government of the republic has contributed to it by implementing the initiatives intended to reduce poverty and improve the standard of living of citizens. They include introduction of the social security programme that provides for cash payments and food assistance to the most vulnerable groups of people. It ensured security for those who are at risk of falling below the poverty line and helped reduce the poverty level.
Besides, money was invested to infrastructure and human capital development in order to create jobs and stimulate economic growth.
In these years, new roads, bridges and schools were built. It contributed to the reduction of poverty, especially in rural areas, where job opportunities are more limited.
“In recent years, the economy of Kyrgyzstan has grown in moderate pace, which created new jobs and increased incomes of many households. As a result, the poverty indicator reduced in urban areas, which have more job opportunities,” said expert Iskender Sharsheev.
If we look at the income level of the population in Kyrgyz som, it grows every year. However, it is not that simple in terms of the dollar.
Until 2019, the number of people with consumer spending below the poverty line decreased by steps in Kyrgyzstan. But starting from 2020, the indicator has grown sharply. It was during the Covid-19 pandemic. As a result of the increase in the number of people with consumption below poverty line in towns by 2.3 times, and in rural areas by 1.4 times, the indicator in towns and villages became equal and amounted to 33.3 per cent.
Consumer spending below poverty line is the food poverty line that is peculiar for extreme poverty and is set at the consumption level, below which it is impossible to ensure minimum needed calories provided that all resources are spent on buying food.
“The Covid-19 pandemic showed the significant impact on economy of Kyrgyzstan. And it probably reduced to zero some successes achieved in poverty reduction in recent years,” Sharsheev said.
The military conflict in Ukraine became the new challenge for Kyrgyzstan. Although it, according to the expert, had a limited impact on poverty in Kyrgyzstan, geopolitical tensions and economic sanctions caused by the conflict had wider economic consequences for the country.
“One of the main ways of impact of events in Ukraine on Kyrgyzstan is the decrease of trade and investment flows from Russia, which was one of the main economic partners of the republic. Economic sanctions and decrease in investments from Russia slowed down the rates of the Kyrgyz economic growth, reduced job opportunities and increased poverty for some households,” the expert said.
One more factor that strongly affected the country is the depreciation of the national currency. This, according to Sharsheev, made imported goods even more expensive and reduced the purchasing power of people. As a result, it increased the inflation rate and lowered the standard of living of many people, especially those living in poverty.
It is important to note that the American currency was at untypically high level in Kyrgyzstan from February 26 to March 29. Back then, the rate was in the range of 89.1-104.9772 Kyrgyz som per dollar. However, in annual terms, Kyrgyz som weakened against dollar by 1.04 per cent in 2022, when there were no open conflicts in the region – by 1.51 per cent.
“There is some correlation, but events in Ukraine did not have great impact on Kyrgyzstan. De facto, Russia, and, basically, Kyrgyzstan managed to maintain quite a stable dollar rate. There is inflation, but it is rather a worldwide trend,” said expert Denis Berdakov.
Inflation rates show that in 2022 it reached maximum values in the last five years. Moreover, it started to grow in 2019, and continued to grow in the following years.
The recession in Russia itself became even more significant for Kyrgyzstan. At least, in the beginning of the military operation. Then migrant workers started to leave the country amid the steep decline of the rouble against dollar because it resulted in the decrease in their income. However, it had a short-term effect. The second wave of departures from Russia began after mobilisation was declared. Because of the lack of reliable information on who and when can be mobilised, some migrants hurried to leave the country.
Thus, the growth of migration from Kyrgyzstan to Russia turned into outflow. According to the data, it was not mass outflow. For nine months of 2022, nearly 10 thousand Kyrgyzstanis left Russia. Low numbers of those returned to their homeland are related to the fact that despite the worsened situation in Russia, there are not enough jobs for them in Kyrgyzstan.
“Many Kyrgyz citizens rely on cash remittances of those migrant workers to support their families,” Sharsheev said.
Dependence of citizens of Kyrgyzstan on cash remittances is so strong that any fluctuations immediately affect the income level of households.
Despite the fact that in 2022 Kyrgyzstan received 3.32 per cent more via money transfer systems, 2 billion 780.2 million dollars vs. 2 billion 690.7 million dollars in 2021, the difference between inflow and outflow decreased because of the sharp growth of cash remittances from Kyrgyzstan to foreign countries.
According to Sharsheev, the continuation of the conflict will possibly lead to further decrease in trade and investment flows from Russia and lower down the economy of Kyrgyzstan, reduce job opportunities. Depreciation of the national currency will probably continue just like the growth of inflation rate and decline in purchasing power, and consequently the increase in poverty rate in Kyrgyzstan.
“In general, those military actions in Ukraine will continue for several years, and they will probably have a significant negative impact on the people’s standard of living in the Kyrgyz Republic,” said Iskender Sharsheev.
Denis Berdakov agrees that looking at the impact of events in Ukraine in the long run, Kyrgyzstan, just like other countries that depend on demand in Russia, and mainly labour demand, may lose. However, Kyrgyzstan, Kazakhstan and Uzbekistan received some chances for the transfer of production and turning into the hub between Türkiye, China, Russia and Belarus. Now these countries use their chances with different efficiency.
“The economy of Kyrgyzstan, however ironic it may seem, gets through the new industrialisation, just like in Kazakhstan and Uzbekistan. It is related to the fact that many large-scale productions move here from China and Russia. In fact, Central Asia becomes the industrial centre, which will supply a range of goods to Belarus and Russia. Today we can see that the demand for recreational services in Kyrgyzstan, for accommodation and banking services has increased much in Russia,” Berdakov said.
According to him, the new opportunities have already added at least 3-5 per cent to the GDPs of Armenia, Kyrgyzstan and Uzbekistan.
Iskender Sharsheev also indicated the progress in domestic businesses that took part in the parallel import in Russia. However, he warns that such success could turn into sanctions for Kyrgyzstan.
“Their welfare has improved just like the toxicity of their assets in the international arena. Including the growing risk of secondary sanctions for Kyrgyzstan, which is on the list of draft documents,” he said.