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On the edge of survival: Kyrgyzstan’s economy through the eyes of a non-economist (Article 1)

Gulnara Kalikova
November 7, 2020

Is it appropriate to discuss the economy when the country is ravaged by the pandemic and every family is hit by ills and casualties? Is it right, at this difficult moment, to speak about low economic indicators, state budget and business sector? I think yes, because what we face today – public health failure, poverty, migration, corruption - is the result of decades-long poor governance and our tacit consent with it.

I dedicate a series of articles titled "The Economy of Kyrgyzstan through the Eyes of a Non-economist" to the memory of the Teachers of Kyrgyzstan: Emil Shukurov, an ecologist, philosopher, the wisest man ever, and Gaysha Ibragimova, a mentor, creator, person who built the future. Both of them, Emil Japarovich and Gaisha Jusupbekovna, always worried about the fate of Kyrgyzstan and did everything possible and impossible to make life in the country better.

There is little doubt that Kyrgyzstan is facing its worst economic crisis. Before the coronavirus (Covid-19) pandemic, it was said about the economy of Kyrgyzstan that "the patient is rather alive than dead", but today, after a few months, it is "rather dead than alive." The crisis in the healthcare sector and in the economy in general has affected literally every Kyrgyzstani - problems with health and treatment, loss of jobs and income, fear of the future ... Is the crisis caused by the pandemic? Yes, indeed, but the depth and severity of the crisis are the consequences of long-lasting governmental actions.


Kyrgyzstan is the "champion" when it comes to a number of negative economic indicators. Why is it useful to know them? They help judge about economic ills that affect the lives of all of us. Without enumerating all economic indicators, we will focus only on some of them: GDP, GDP per capita, sovereign credit rating, public debt, inflation, migration and poverty.

1. GDP (Gross Domestic Product)

GDP measures the volumes and value of all goods and services produced in a country which is what the economy is about. For your information, in the list of countries by GDP, Kyrgyzstan ranks 144 of 189, with the GDP value representing 0.01 percent of the world economy.

The word "Economics" stems from the Greek oikonomikē, the “art of household management” in the interests of a family. From a country perspective, economics is the art of household management in the interests of all citizens of the country and represents a system of relationships associated with the production, distribution and consumption of goods and services. The wellbeing of the country and its citizens depends on the quality and effectiveness of the management of the economy, including the management of revenues and expenditures.

The larger the GDP and the higher its growth rate, the better the health of the economy and the greater the growth and development of the country. The negative GDP growth reflects a decline in the volumes and cost of production of goods and services, a reduction in state budget and a fall in living standards of people.

In June 2020, the Eurasian Development Bank analysts announced that among the EAEU member states, Kyrgyzstan experiences the largest drop in GDP, namely, -3.8%. By comparison, the drop in GDP in the EAEU member states is as follows: - 0.2% in Kazakhstan; - 1.9% in Russia, - 1.7% in Armenia, - 3.3% in Belarus. However, according to estimates by the Kyrgyz Ministry of Finance, in 2020, the drop in GDP will be even lower: - 5.3%.

What is GDP made up of? GDP is composed of goods and services produced, the bigger the production, the larger the GDP. It is the goods and services producers who make the main contribution to the country's GDP and it is thanks to them that the country lives and the economy develops.

In 2019, Kyrgyzstan's GDP amounted to 590 billion soms. The service sector is the biggest contributor to GDP, accounting for almost 47 percent. Activities in the service sector include retail, hotels, restaurants, vehicle repair, media, communications, transport and many other private services. The second-biggest contributors to GDP, accounting for almost 39 percent, are the producers of construction, agricultural, industrial (including apparel), energy, recycling and other goods. The remaining 14 percent come from taxes on products (VAT, excise and other taxes) charged on the very same producers of goods and services.

Based on this information, it is easy to conclude that the real engines of the economy in our country are those who produce goods and services, and these are predominantly entrepreneurs of whom the private sector is made up. And it is they, as well as migrants sending home their remittances (as discussed below), who keep the economy of Kyrgyzstan afloat.

A few months ago, some experts expressed their views that Kyrgyzstan will easily get through the crisis. They said that the economic crisis was continuing for years, and the battle-hardened Kyrgyzstanis would effortlessly adapt to this crisis also. Indeed, the people of Kyrgyzstan are enterprising and can survive in any conditions, especially since it is hopeless to count on government.

But the crisis that has crippled the entire world hits the poor hardest. Everyone in Kyrgyzstan suffered, but the impact of the crisis was particularly harsh for entrepreneurs and farmers, the very same producers of goods and services, the pillars and engines of the economy. Meanwhile, there are not dozens, but hundreds of thousands of people employed in this sector. According to official records, as of January 2020, there were about 715 thousand registered business units, including: 23.6 thousand small enterprises; 4.3 thousand medium-sized enterprises; 342 thousand individual entrepreneurs; 344 peasant farms and farmers. Taking into account those employed off the record, the number of people working in the private sector may rise to one million.

The most affected are those employed in private services, retail, tourism, restaurant, and agriculture (by the way, more than two-thirds of the country's population live in rural areas). According to the records of the Kyrgyz Ministry of Economy, due to the declaration of an emergency situation and a state of emergency, the economic activity in April slowed down by more than 80%. All small and medium-sized enterprises, construction and some production industries have almost completely stopped operating. The service sector was put in the most vulnerable position. In March-April, the activity in the service sector decreased by almost five times.

In April 2020 (compared to April 2019), cargo transportation fell by 67.2% , while passenger traffic fell by 98%. According to Mr. Asanov, head of the Association of Light Industry Enterprises, due to the closure of borders and drop in demand from consumers in Russia, Kazakhstan and other countries, only 20-30% of the apparel industry enterprises are currently operating, and the demand for clothing dropped to 80%.

Back in May, there was hope for a quick economic recovery, but in July, the sharp deterioration in the epidemiological situation forced many businesses to stop work again, which, in turn, entails further economic contraction.

2. GDP per capita

Another important indicator is GDP per capita or per capita GDP, which, roughly speaking, is a country's GDP divided by its total population. According to the World Bank, in 2019, per capita GDP in Kyrgyzstan was $ 1,323.

What has happened to GDP over the past twenty years? According to the IMF, over the past 20 years, in Kyrgyzstan, GDP growth averaged 4%. Not so bad, compared to the current crisis and the fall in GDP. But what does a 4% growth rate mean? This means that it is the lowest growth rate among the CIS member states and it does not allow creating enough new jobs, which is the reason for labor migration and unemployment.

If the economy of Kyrgyzstan grows at the same rate (4% annually) over the next years, the per capita GDP will reach $2,370 (i.e. the level of middle income countries) in 23 years. By the way, according to the World Bank, Kazakhstan GDP per capita is $9,820, and Georgia GDP per capita is $ 4,720, so, even if Kyrgyzstan develops at the same pace as in previous years, it will achieve the current standard of living in Kazakhstan in 52 years and that of Georgia in 35 years. "Sad" is not the right word ….

For your information, according to the Government's outlook, in 2020, per capita GDP will decrease to $1,145.

Those who are interested in high-quality scientifically sound information on the state of the economy of Kyrgyzstan are recommended to read the works written by economist Bolot Satarovich Jhamankulov available at the link below. contributions/2151486317_Bolot_Saparovic_Dzamankulov

3. Sovereign credit rating

Sovereign credit rating is an assessment of the creditworthiness of a country/national government as a borrower, risk of default (inability to pay debts) and economic stability. A sovereign credit rating looks something like this: AAA (highest), AA, A; BBB, BB, B; CCC, CC, C; DDD, DD, D (lowest).

Ratings from AAA to BBB are considered investment grade, lower ratings are referred to as non-investment grade. This means that a country with a non-investment grade credit rating will have to pay higher interest rates on loans, because investing in such a country is unsafe, the level of its creditworthiness and solvency as a borrower is low, and the risk of default on a debt is high.

In June 2020, Rating-Agentur Expert RA rating agency affirmed Kyrgyzstan's sovereign credit rating at 'B' non-investment grade. This score has remained unchanged for a number of years, but this year there is a significant difference: the outlook on the country's credit score was revised to negative from stable, which is mainly attributable to a significant decline in economic activity. What does this mean? The rating agency explains that with such a credit score, it will be difficult for Kyrgyzstan to attract foreign loans and private investment, but at least, there remains hope for support from the donor community. But it should be taken into account that international aid is declining globally, everyone has their own problems.

4. Public debt

Public administration and governance are funded by the state budget. The state budget consists of revenues and expenditures. If expenditures exceed revenues, the outcome is a budget deficit. Over the past six years, the budget of Kyrgyzstan has been running at a deficit, which means that for a number of years, public expenditures have exceeded revenues coming from taxes paid by all people of the country. In 2020, an excess of expenditure over income reached 27.7 billion soms, which has never happened in the history of independent Kyrgyzstan (by comparison, in 2018 the budget deficit was 0.8 billion soms, in 2019 - 7.9 billion soms).

If there is not enough revenue, it is necessary to work more or to borrow. Everyone knows that our government has been, for decades, constantly and regularly asking donors for financial support. What does this lead to? Debts.

At the end of 2018, public debt accounted for 54.08% of GDP. By March 2020, public debt has grown to 60.19% and now stands at $ 4.76 billion. Almost 84% of all debts are owed to international organizations and foreign countries (more than 200 loans), half of which are owed to China . Payments on the national debt will continue to grow, especially after 2024. They, of course, will drag the economy down and will place a heavy burden on future generations, especially if the economy does not grow in subsequent years. By comparison, government debt to GDP is 20% in Kazakhstan, 15% in Russia, 43% in Georgia, 23% in Turkmenistan, 12% in Uzbekistan, and 41% in Tajikistan.

From 2001 to 2017, it was prohibited by law to exceed the debt-to-GDP ratio of 60%, but in 2017, the new Budget Code abolished this restriction at the suggestion of the Government.

5. Inflation

By June 2020, a consumer price index (inflation) for basic products rose to 5.8%. In 2020, the Government predicts a rise in inflation to 10.8%. In the context of overall drop in revenue, this means that Kyrgyzstanis will not only earn less, but also buy less.

6. Migration

According to the World Bank, as of October 2019, Kyrgyzstan took the third place in the world (after Tonga and Haiti) by remittance to GDP ratio. In 2019, remittance flows to the country reached $ 2.4 billion which accounts for 30% of GDP.

Labor migration has become an integral feature of modern Kyrgyzstan, and according to some estimates, the number of migrants is close to one million people (640 - 800 thousand only in Russia). They are rightly called a sort of the largest investors in the country's economy. By helping their families, migrants implement the principle of self-help. Hundreds of thousands of people in Kyrgyzstan, mainly older adults and children, live on remittances sent home by migrant workers.

For many consecutives years, experts and international organizations have been warning the Government of Kyrgyzstan that it is risky to rely on remittances. On the one hand, remittances support households by smoothing out the effects of the crisis in the country's economy. On the other hand, the dependence of a great part of the population on remittances creates enormous risks. In the event of a crisis, the flow of remittances drops, thus putting in danger hundreds of thousands of people in Kyrgyzstan. This year, such risks turned into reality, and only in April 2020 the volume of remittances reduced by three times, entailing the sharp rise in the number of poor (especially in Osh, Jalal-Abad and Batken regions, where the majority of migrants originate from). According to World Bank forecasts, remittance flows to Kyrgyzstan will be reduced by one third in 2020.

7. Poverty

According to the Kyrgyz National Statistical Committee, in 2017, 25.6% of the population of Kyrgyzstan, or 1.6 million people, were poor, of whom 41 thousand were living below the extreme poverty line. The majority of the poor (72%) live in rural areas. The poor are people whose income does not exceed 2,674 soms per month. The extremely poor live on less than 1,455 soms per month.

The crisis, entailing a rise in prices for products, a drop in earnings, a halt of activities, a decline in migrant remittances, will inevitably lead to an increase in the poverty rate. According to some estimates, poverty can rise to 33%.

8. And others …..

A list of the chronic diseases of the Kyrgyz economy is endless. This is confirmed by numerous global indices, comparative statistical data, daily facts. The economy's ailments are visible to the untrained eye, and in the context of the Covid-19 pandemic, they become even more vivid: failed health reform, poor education, poverty, corruption that has penetrated all layers of society.

In recent years, it has become commonplace to explain the failures of Kyrgyzstan by the small population and market (“only 6 million people”), shortage of natural resources (“Kazakhstan is reach in natural resources, but we are not”), poor transport links due to the lack of access to the sea. It is surprising that such explanations are often given by the public officials themselves as an excuse for their own failure. Going cap in hand to different countries is a common practice among the public administrators of Kyrgyzstan, perhaps, this is easier than thinking about economic development.

So what should Kyrgyzstan do? Is everything really so hopeless? In Kyrgyzstan, the notion persists that the country lacks internal resources for economic growth, so loans and grants cannot be avoided. But first of all, it is necessary to understand whether we properly manage what we have, namely, state funds? What have been done so far to stimulate jobs and revenues within the country? This will be discussed in the next articles.


Links of sources used

GDP by Country.

Among the EAEU member states, Kyrgyzstan experiences the largest drop in GDP.

A package of documents related to the updated republican budget 2020 and economic forecast 2021-2022. Explanatory note to the bill proposing amendments to the Republican Budget 2020 and Forecast 2021-2022 Act of the Kyrgyz Republic.

Breakdown of Gross Domestic Product 2019. National Statistical Committee of the Kyrgyz Republic.

The number of operating business entities by type of economic activity located in the territory of the Kyrgyz Republic as of January 1, 2020. National Statistical Committee of the Kyrgyz Republic.

The World Bank in the Kyrgyz Republic. Overview.

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Kyrgyz Republic: Selected Issues; IMF Country Report No. 19/209; May 23, 2019 file:///Users/master/Downloads/1KGZEA2019002%20(2).pdf

Economic indicators: Kyrgyzstan vs Kazakhstan.

A package of documents related to the updated republican budget 2020 and forecast 2021-2022. Explanatory note to the bill proposing amendments to the Republican Budget 2020 and Forecast 2021-2022 Act of the Kyrgyz Republic.

Rating-Agentur Expert RA affirmed Kyrgyzstan at ‘B’. Outlook changed from stable to negative.

State budget deficit (-), surplus(+). National Statistical Committee of the Kyrgyz Republic.

At the end of 2019, the public debt of Kyrgyzstan amounted to $ 4 billion 587.26 million.

Breakdown of state debt of the Kyrgyz Republic as of May 31, 2020.

A package of documents related to the updated republican budget 2020 and forecast 2021-2022. Explanatory note to the bill proposing amendments to the Republican Budget 2020 and Forecast 2021-2022 Act of the Kyrgyz Republic.

Kyrgyzstan leads the region in terms of public debt.

Consumer price indices. National Statistical Committee of the Kyrgyz Republic.

A package of documents related to the updated republican budget 2020 and forecast 2021-2022. Explanatory note to the bill proposing amendments to the Republican Budget 2020 and Forecast 2021-2022 Act of the Kyrgyz Republic.

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Konstantin Larionov. How will the global crisis affect Kyrgyz labor migrants in Russia?

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World Bank Predicts Sharpest Decline of Remittances in Recent History.

Figures and facts: How many Kyrgyzstanis live below and near the poverty line.