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Could the Growing National Debt of Kyrgyzstan Lead to Default?

«In the event of financial instability in Kyrgyzstan, multilateral creditors may increase the interest rates on loans or even refuse from further financing», Nazik Imanbekova sums up in an article for CABAR.asia.

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Since gaining independence, the foreign national debt of Kyrgyzstan has been growing continuously. By 2019, Kyrgyzstan had an external debt of $ 3.85 billion USD (about 54% of GDP).[1] In addition, over the six months of the current year, the external debt of Kyrgyzstan increased by another 8.3%[2] – the second highest indicator since independence – although there is every chance of becoming the first by the end of the year.

Considering the plans of the Kyrgyz governments to attract additional external borrowing to finance the budget deficit and mitigate the consequences of the coronavirus pandemic, as well as taking into account the recent political events after the parliamentary elections, a fair question arises about the sustainability of national debt in the future.

In this article, we will try to understand the main reasons and grounds for the increase in the debt burden and answer an important question: “Can the growing national debt in the context of COVID-19 and in the light of recent political events in the country lead to the country’s default?”      

Two sides of the coin of economic factors affecting national debt

Let us analyze the current state of national debt based on a number of external and internal economic factors. Over the past ten years, the country’s GDP has grown on average by 4.12% per year,[3] and the rate of debt growth over these ten years averaged 4.51% per year.[4] In general, the rate of economic growth in Kyrgyzstan is not inferior to the rate of growth of debt. In this situation, the country hardly ensured, but at least it could ensure the sustainability of public debt.

However, a drop in GDP, for the period from January to September 2020, by 6% can significantly worsen the economic situation in Kyrgyzstan.[5] At the same time, these data do not take into account the October political events, which entailed business downtime, freebooting, outflow of investments and freezing of foreign aid. The updated October data on the country’s GDP growth rate is more pessimistic than the GDP data mentioned above. So, the IMF predicts a drop in GDP in 2020 to 12% and GDP growth in 2021 to 9%, which can significantly improve the situation in Kyrgyzstan.[6] Only if the government takes anti-crisis measures now, which will promote economic growth and stabilize the political situation.

The devaluation of the Kyrgyz som (KGS), which happened with the onset of the coronavirus pandemic, significantly increased the nominal value of external debt due to exchange rate differences. Although the KGS stabilized after a spike in March-April 2020, it did not return to the pre-coronavirus value of 69.8 KGS per US dollar. The weakening of the KGS after the recent events in October is fueling even greater mistrust in the stability of the national currency. In the short and medium term, risks associated with fluctuations in the dollar exchange rate still remain. Since more than 80% of the external debt of Kyrgyzstan has been received in US dollars, further devaluation of the KGS will lead to an increase in external debt in KGS. Russian and Kazakh economists and financial experts predict further devaluation of the RUB[7] and tenge[8] in autumn, which will entail the weakening of the KGS against the dollar. However, the currency policy of the National Bank of the Kyrgyz Republic (NBKR) plays an important role here, and how stable it can keep the KGS against the USD. So far, NBKR has worked well.  

Concerning the oil price, although it has stabilized since March ($ 25 per barrel) to the pre-coronavirus level ($ 45 per barrel), still remains unstable.[9] Kyrgyzstan does not possess significant oil reserves, but the economy of Kyrgyzstan is closely tied to the economies of countries that produce and mainly export oil. Other external factors, namely global imbalances, a reduction in exports and imports of goods to the main partner countries (China, Russia, Kazakhstan, Uzbekistan, EU countries, etc.), a further reduction in migrant remittances may negatively affect the sustainability of national debt. Thus, the volume of Kyrgyzstan’s exports to China alone fell by 33% in eight months of 2020 compared to the same period of the previous year, and the volume of remittances by 26% in the second quarter of 2020.[10]

It is also alarming that the amount allocated from the state budget for debt servicing is increasing every year. Over the past seven years, the government has spent an average of 4% of GDP on debt servicing. Over the six months of 2020, Kyrgyzstan has spent just over 20 billion KGS[11] (267 million USD) on debt servicing, taking into account the fact that deferrals were achieved in the payment of individual loans. This amounted to about 3.5% of GDP in 2019, a significant drop in GDP is expected in 2020. In 2015, the country entered a period of high payments on principal debts and interest, and the period from 2023 to 2031 is marked by both government officials and individual parliament members as the peak time for national debt servicing.[12]


An important factor is the expectations of creditors, in other words, their conviction or doubts about the country’s constant financial solvency within the limits of acceptable risk. In the event of financial instability, multilateral lenders may increase interest rates on loans or refuse from providing credits further. Such a risk is possible only when other economic indicators of the country are completely deplorable: a significant increase in the budget deficit, a decrease in tax revenues, a loss of main sources of income, a decrease in exports, political instability, an increase in national debt servicing, social upheavals, a decrease in consumption by the population, etc. Another political crisis that began in early October 2020, as well as the stagnation of the Kyrgyz economy, may become the very “red muleta” [a piece of bright red cloth, with which the toreador teases the bull during a tauromachy – ed. note ] for creditors to renegotiate the terms of credit. The political situation will affect not only the country’s image for investors and creditors, but also in terms of economic escalation of the already tense and difficult position of the country’s economy in connection with the pandemic. 


The other, more positive side of the coin for Kyrgyzstan is a record increase in gold prices from March (1596.6 US dollars per troy ounce) to September (1970 US dollars per troy ounce).[13] The consistently high price for the main raw materials exported to other countries is a good indicator of the country’s budget replenishment. In addition, the announcement of the Chairman of the NBKR Tolkunbek Abdygulov at the end of August 2020 on the growth of gold and foreign currency reserves up to 3 billion 82 million US dollars (the highest indicator since the formation of the NBKR) creates a certain confidence in an additional safety net.[14] No less important is his statement on further plans on building up the reserves of the bank and the country. However, the latter remains open to question due to recent events.   

The negotiations of ex-president Jeenbekov and the government on the prolongation, restructuring and conversion of debts with a number of countries and international organizations, which have been held over the past four months, may have a positive effect on stabilizing the state debt. Negotiations were successfully held with the countries participating in the Paris Club not only on the prolongation of the debt for 2022-2024,[15] but also on its deep restructuring (negotiations are underway), with China, Korea, Germany, Switzerland and Denmark.[16] Jeenbekov’s negotiations with President of the People’s Republic of China Xi Jinping, as well as speeches by the ex-president at the international forum ” High-Level Event on Financing for Development in the Era of COVID-19 and Beyond ” by UN on May 28 and at the general debate of the 75th UN Assembly on September 23, where he spoke about the need for a “deep restructuring of external debt in exchange for sustainable development projects”, note the government’s detailed intentions to ensure debt sustainability.[17] It became known that China, the main creditor of Kyrgyzstan, did not give an unambiguous answer on the prolongation of debt payments, but negotiations are still underway.[18] Due to political instability, Russia has suspended any financial assistance.[19] The EU and US Delegations expressed concern about “possible procedural deficiencies in the appointment of a new prime minister”.[20] Further negotiations on debt restructuring will be the task of the new government. Relief of the problem of stabilizing external debt depends on how successful the negotiations of the new government will be.   

Finally, the government has set off on the road to reduce public spending, “with the exception of goods, works and services necessary to maintain the health of citizens, public safety, as well as to prevent emergencies, the introduction of digitalization and other state tasks of extreme necessity” and planned to develop a list of measures to reduce the costs of the republican budget of its anti-crisis program dated March 30, 2020 No. 186.[21] Definitely, this can have a positive effect on the stabilization of the budget and, ultimately, on the stabilization of the national debt. However, real cuts down in government spending that are of secondary importance. It is also worth noting the appeal of the new Prime Minister and acting President of the Kyrgyz Republic Sadyr Japarov on the reduction of the state apparatus to optimize the work of the state structure.[22]    

Development in debt. When and why does the country take loans?

The government finance statistics of the Kyrgyz Republic showed significant fluctuations in the country’s budget balance. The huge budget deficit from 2008 to 2012 and from 2015 to 2018 corresponds to the global economic crises affecting Russia and Central Asian countries (2008-2010 and 2014-2015), political unrest in 2010, and a drop in gold production in 2012 year.

However, the coronavirus pandemic, as the numbers show, had even more devastating consequences both for the state budget and for the country’s economy as a whole. The budget deficit only for 6 months of 2020 (-16, 560.7 million KGS) approached the critical annual indicator of 2016 (-20, 888.9 million KGS).[23] The political upheaval that began on October 5, 2020 and continues to this day[24] imposes an even greater burden on the country’s budget and leads to the fact that the budget deficit will only grow. Freebooting attacks on gold and coal deposits in some parts of the country,[25] as well as the destruction of individual state property, caused additional damage to the country’s budget.   


In theory, if government borrowing is invested efficiently, then the income from that investment should provide an economic return for repaying principal and interest on the debt. The alternative is that the country has reserve funds, such as highly profitable production, natural resources, or the ability to borrow other loans to pay off the current loan, which is often not available in many countries.


Therefore, in many developed and developing countries, the main purpose of government loans is precisely to build up the economy by investing in efficient infrastructure projects, maintaining aggregate demand, providing employment and financing research and development. Thus, the provision of payments on the principal and interest is due to the inflow of the debt itself, and the state ensures the return of debts from the income received, without applying the Ponzi scheme [ financial pyramid – ed. note ][26] and without driving the country into a debt trap.

According to the law “On state and non-state debt of the Kyrgyz Republic”, the main goals of state borrowing can be: financing the state budget deficit, investments, coverage of costs related to national debt and repayment of public debt and for other purposes stipulated by the legislation of the Kyrgyz Republic. Over the past ten years, the Kyrgyz government has carried out government borrowing to finance large budget deficits. The second most popular reason is obtaining external loans for large investment projects such as road construction, hydroelectric power plants, technical renovation of existing state-owned enterprises, and much more.

However, several scandalous stories of high-level corruption and low quality of public investment have led to a sharp negative assessment of external borrowing and increased public distrust of the government and creditors.[27][28] In addition, according to many experts, public investment projects do not have a priority to maximize productivity and social discount rate (an indicator that evaluates the effectiveness of the implementation of various programs and projects, including investment projects of the state).[29] Finally, a recent study by economists from the World Bank Group, Elite Capture of Foreign Aid. Evidence from “offshore accounts” disclosed that financial receipts for a number of poor countries, including Kyrgyzstan, from financial agencies of the World Bank, not considering humanitarian aid and debt cancellation, are being plundered by the elites of the countries. The authors show a high correlation between countries’ dependence on aid and aid leakage to major offshore countries. For example, assistance from a bank in the amount of 1% of a country’s GDP in a particular quarter, on average, entails an increase in deposits in offshore accounts by 3.4%. However, the authors suggest that the leakage of aid for poor countries to the offshore accounts of the country’s elites is much higher – for example, bank assistance in 1% of the country’s GDP could cause an increase in funds in their offshore accounts from 4% to 7.5%. Moreover, if the amount of assistance from the bank to the countries doubles, then the outflow of money also doubles.[30]     


For a complete analysis, one needs to know detailed information such as the payment schedule for each lender, the interest on each borrowing, the maturity dates, and at least some idea of ​​the government’s future borrowing plans. Unfortunately, such information is not disclosed by the relevant government agency. However, the growth of the external debt-to-GDP ratio and the debt service-to-export ratio (from 32.1 in 2016 to 36.8 in 2019 and 44.2 in 6 months of 2020),[31] as well as the insignificant growth rate of government revenues, reduce the country’s economic potential for debt repayment in future.



Obviously, today Kyrgyzstan has to borrow financing in order to smooth out the consequences of the coronavirus pandemic and recent political events on the country’s economy. The question is no longer worth borrowing or not borrowing – the country will borrow, and it simply has no other way out. The question is how much it will borrow, at what interest rates and how future borrowing will affect debt sustainability, which was further aggravated by the political events of October 5, 2020.

The analysis above shows that the economy of Kyrgyzstan has suffered on all fronts: a decrease in economic activity and consumption of the population due to the coronavirus and political fluctuations, a recession in the economy of neighboring countries, which led to a significant decrease in exports and cash transfers, an outflow of investments from the country, the devaluation of the KGS and other macroeconomic consequences, and the struggle for limited external credit threatens not only the sustainability of public debt, but also the overall economic recovery. Thus, the stability of the debt situation is approaching the critical range of external debt values. In this situation, quick economic measures are needed to increase the main economic indicators (resumption of production, encouragement and expansion of consumption, export growth, attraction of investments, creation of temporary jobs), which cannot be realized without political stabilization in the country. To summarize the main aspects of national debt sustainability:

  • The new government should now review and resume negotiations on debt reorganization with the country’s main creditors. This can be a re-registration of debt with an extension of the terms for payments on interest and principal. Or, as already announced by the former president, one can make a debt conversion for some kind of environmental programs, development programs or programs to develop democracy and expand human rights in the country.
  • If the new government faces a dilemma between paying its social obligations (pensions, benefits, and wages) and paying off interest and principal debt, the government will most likely choose the former. Moreover, if at that time the government will not be able to agree on the reorganization of debts, it will be forced to declare the country’s default. Then the country can conduct new negotiations with creditors or consider other options for getting out of the situation. What consequences can such an outcome bring? First, the country will lose its reputation as a conscientious borrower, which will affect future borrowing in the form of high interest rates. Second, it will certainly affect the population, especially the poor, as a result of the negative macroeconomic consequences of the default. Accordingly, it is necessary, if possible, to predict and prevent this.
  • The government needs to look for alternative ways to replenish the budget – this can be the launch of a new deposit of gold or other valuable minerals, the return of stolen funds into the budget (which happened in the course of corruption), the withdrawal of the shadow economy, and others.

This material has been prepared as part of the Giving Voice, Driving Change – from the Borderland to the Steppes Project. The opinions expressed in the article do not reflect the position of the editorial board or donor.

[1] Official website of the Ministry of Finance of the Kyrgyz Republic, section “Public debt”


[2] Ibid. C.1

[3] Official website of the Ministry of Economy of the Kyrgyz Republic, section “Macroeconomics” http://mineconom.gov.kg/ru/direct/3/26

[4] Ibid. C.1

[5] Official website of the Ministry of Economy of the Kyrgyz Republic, section “Home” http://mineconom.gov.kg/ru

[6] Official website of the International Monetary Fund, section “World Economic Outlook Databases” https://www.imf.org/en/Publications/SPROLLs/world-economic-outlook-databases#sort=%40imfdate%20descending

[7] “Economic Forcast for October 2020. What will happen to the ruble, dollar, and oil? “, October 3, 2020, information portal Kommersant, section” Economics ” https://www.kommersant.ru/doc/4511757

[8] “How much will the tenge weaken by the end of the year?. Analysts’ opinions are in the inbusiness review “, August 26, 2020, AtaMeken Business information portal,” Finance “section https://inbusiness.kz/ru/news/naskolko-tenge-oslabnet-k-koncu-goda    

[9] Nazik Imanbekova and Savia Khasanova, “Economy and COVID-19 in Central Asia”, April 2020, Central Asia Regional Analytical Network (CAAN), https://caa-network.org/archives/19734

[10] Ibid. P.9

[11] Ibid. C.1

[12] “Kyrgyzstan will be able to cope with the repayment of the public debt in 2027” interview with the head of the Public Debt Department under the Ministry of Finance of the Kyrgyz Republic Ruslan Tatikov, January 09, 2020, information portal sputnik.kg, section “Economy”,


[13] Ibid. P.9

[14] “The reserves of the National Bank of Kyrgyzstan have reached a historic maximum”, August 26, 2020, Azattyk information portal, section “Economy”, https://rus.azattyk.org/a/30803275.html

[15] “Kyrgyzstan is negotiating with the G20 on the prolongation of its external debt”, May 29, 2020, information portal Akchabar, https://www.akchabar.kg/ru/news/pik-pogasheniya-vneshnego-dolga-kr-budet- v-2023-24-gody /

[16] Kudryavtseva T, “The Ministry of Finance asks for more time for negotiations on the restructuring of the state debt of Kyrgyzstan”, June 23, 2020, information portal 24.kg, section “Economy”, https://24.kg/ekonomika/157078_minfin_prosit_vremyizstana_naperegovoryi_porestrukturdolizatsii_g

[17] “Photo report -” High-Level Event on Financing for Development in the Era of COVID-19 and Beyond”, May 28, 2020, and” President Sooronbay Jeenbekov: Today it is impossible to imagine the world without the UN … “Official website of the President of the Kyrgyz Republic, section” Events ” , ”, Http://www.president.kg/ru/sobytiya

[18] “China did not refuse Kyrgyzstan in debt restructuring”, October 1, 2020, information portal Akchabar, https://www.akchabar.kg/ru/news/kitaj-ne-otkazyval-kyrgyzstanu-v-restrukturizacii-dolga/

[19] “Russia has suspended financial assistance to Kyrgyzstan”, October 15, 2020, information portal KaktusMedia, https://kaktus.media/doc/423602_rossiia_priostanovila_finansovyu_pomosh_kyrgyzstany.html

[20] “Kyrgyzstan: will the appointment of Japarov to the post of Prime Minister put an end to the crisis? Meanwhile, the country faces serious economic and epidemiological challenges ”, October 14, 2020, information portal Eurasianet, https://russian.eurasianet.org/%D0%BA%D1%8B%D1%80%D0%B3%D1% 8B% D0% B7% D1% 81% D1% 82% D0% B0% D0% BD-% D0% BF% D0% BE% D0% BB% D0% BE% D0% B6% D0% B8% D1% 82 -% D0% BB% D0% B8-% D0% BA% D0% BE% D0% BD% D0% B5% D1% 86-% D0% BA% D1% 80% D0% B8% D0% B7% D0% B8% D1% 81% D1% 83-% D0% BD% D0% B0% D0% B7% D0% BD% D0% B0% D1% 87% D0% B5% D0% BD% D0% B8% D0% B5 -% D0% B6% D0% B0% D0% BF% D0% B0% D1% 80% D0% BE% D0% B2% D0% B0-% D0% BD% D0% B0-% D0% BF% D0% BE% D1% 81% D1% 82-% D0% BF% D1% 80% D0% B5% D0% BC% D1% 8C% D0% B5% D1% 80% D0% B0

[21] Order of the Prime Minister of the Kyrgyz Republic on anti-crisis measures dated March 30, 2020 No. 186

[22] “Sadyr Japarov’s address to the people (spoiler: there are many promises)”, October 16, 2020, information portal KaktusMedia, section “Political Crisis” https://kaktus.media/doc/423816_obrashenie_sadyra_japarova_k_narody_spoyler:_tam_mnogiyht

[23] Sadyr Japarov’s address to the people (spoiler: there are many promises) “, October 16, 2020, information portal KaktusMedia, section” Political crisis ” https://kaktus.media/doc/423816_obrashenie_sadyra_japarova_k_narody_spoyler:_tam_mnogo

[24] Ibid. C.1

[25]  “Events in Bishkek. Day Two “, October 5, 2020, Azattyk Radio information portal, section” Protests ” https://rus.azattyk.org/a/30875773.html

[26] Under the Ponzi scheme, in macroeconomic theory, we mean a financial pyramid, in which the borrower pays the principal and interest of previous loans or credits exclusively through new borrowings. The scheme is named after Charles Ponzi, who worked out a wily financial pyramid by constantly attracting funds from new participants – income to the first participants in the financial pyramid was paid at the expense of subsequent new participants.

[27] Asylzada Talipbergen, “How did the troublemakers leave the people of Kyrgyzstan without a livelihood?”, October 14, 2020., Gezitter information portal, section “Society”, https://www.gezitter.org/society/92153_kak_buzoteryi_ostavili_narod_kyirgyizstana_bez_susstviy

[28] Ulan Egizbayev, “Scandal with TPP: Missing Millions”, February 21, 2018, Azattyk information portal, section “Politics”, https://rus.azattyk.org/a/kyrgyzstan_bishkek_parliament_comission/29052760.html

[29] Tatiana Kudryavtseva, “Alternative road north-south. A new scandal awaits us? “, June 27, 2018, information portal 24.kg, section” Economics “, https://24.kg/ekonomika/89067_alternativnaya_doroga_sever_yug_nas_jdet_novyiy_skandal/

[30] Alibek Mukambaev, “Kyrgyzstan: how optimal is the alternative North-South road?”, June 5, 2020, KabarAsia information portal, section “Analytics”, https://cabar.asia/ru/kyrgyzstan-naskolko-optimalna-alternativnaya-avtodoroga-sever-yug 

[31] Jorgen Juel Andersen, Niels Johannesen, Bob Rijkers «Elite Capture of Foreign Aid, Evidence from Offshore Bank Accounts», Policy Research Working Paper 9150, February 18, 2020, Development Research Group, Development Economics, World Bank Group http://documents1.worldbank.org/curated/en/493201582052636710/pdf/Elite-Capture-of-Foreign-Aid-Evidence-from-Offshore-Bank-Accounts.pdf


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