ACRA has assigned the following ratings to the Kyrgyz Republic (hereinafter, Kyrgyzstan, or the country) under the international scale:
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Long-term foreign currency credit rating at В and local currency credit rating at В;
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Short-term foreign currency credit rating at B and local currency credit rating at B.
The outlook on the long-term foreign currency credit rating is Stable and local currency credit rating is Stable. The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.
Positive rating assessment factors
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Moderate public debt and low interest expenses for servicing it, which were achieved due to a high share of concessional debt.
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Reforms in a number of areas of the economy and public life.
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Stable support from international development institutions.
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Relatively low shares of the public and quasi-public sectors in the economy.
Negative rating assessment factors
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Low level of economic wealth.
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Strong dependence of the economy on factors associated with the external sector, in particular, imports and overseas remittances, weak export diversification.
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Low coverage of external debt by reserves.
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Significant risk of weakening of the national currency over the medium term.
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Comparatively low assessment of institutional quality and human capital factors.
credit rating rationale
Kyrgyzstan’s B sovereign credit ratings stem from a low level of economic wealth, high dependence on the economies of the country’s main trade partners and international development institutions, relatively low indicators of the institutional quality of the public sector, as well as moderate public debt, comparatively favorable conditions for external borrowing, and a focus on economic policy reform.
The country’s economy is characterized by high external dependence on trade channels, especially imports (the shares of Russia and China are 34 and 26%, respectively), as well as a significant outflow of labor resources from the labor market abroad. The latter may put pressure on the budget sector in the long term through pension insurance, and in the current period is a source of risks for the country’s balance of payments and aggregate demand in the economy. Remittances from abroad amounted to 39% of GDP on average from 2010 to 2019.
The economic wealth of the population of Kyrgyzstan remains rather low — per capita GDP in current prices is around USD 1,300 and has remained practically unchanged over the past 10 years.
ACRA expects the Kyrgyz economy to grow by 3–6% annually in 2022–2026 amid consumer price inflation of 8.3% in 2022, followed by inflationary processes weakening to 5% by 2026, in the event of no new major inflationary shocks in the country’s key trade partners.
Despite the adoption of a relatively significant set of anti-crisis measures in 2020–2021, Kyrgyzstan was able to maintain room to maneuver in terms of the budget process (public debt grew to 68% of GDP in 2020 and stabilized at around 61% of GDP in 2021).
ACRA notes the absence of an explicit fiscal rule, the trend toward stability of a significant part of current expenditures within 75–80% of both total expenditures and the revenue part of the budget, and significant dependence of domestic investments and capital budget items on the support programs of international organizations. At the same time, according to ACRA’s expectations, the country will be able to maintain its public debt at a moderate level over the medium and long terms thanks to low interest payments and moderate growth of budget spending.
ACRA considers the country’s consistently negative high current account balance, the predominance of direct investment within the financial sector, and negative net exports to be some of the main characteristics of Kyrgyzstan’s external position. At the same time, the country possesses significant transit potential to strengthen its position in exporting services, which may be realized as the North–South and China–Kyrgyzstan–Uzbekistan transport corridors are created.
The country’s external public debt, unlike its internal public debt, is at a rather high level and exceeds half of GDP. However, a substantial share of this debt is made up of concessional borrowings with favorable repayment terms, and about 80% of the structure of public debt is denominated in foreign currency. Internal public debt is smaller than external public debt — it amounted to 10% of GDP as of May 2022 and is primarily long-term.
ACRA notes a moderate level of coverage by monetary reserves, both with regard to the country’s debt positions and imports. Coverage of external and foreign currency debt by reserves amounted to around a quarter of this debt as of July 2022. Reserve coverage of the country’s average annual imports stood at seven months as of July 2022.
The Agency notes that the volume of interventions performed by the macroregulator over 2020–2022 has grown. The gross reserves of the National Bank of the Kyrgyz Republic have declined from USD 3 bln as of the end of 2021 to USD 2.5 bln as of the end of July 2022, while the liquid part of reserves remains stable at 97%. ACRA associates the decrease in reserves with an increase in the negative trade balance, which, if this trend continues, may lead to significant pressure on the national currency exchange rate. If this risk is realized, an increase in inflation and the debt load of the state will follow.
It should also be noted that as of July 2022, the total volume of contingent liabilities of state-owned banks amounted to around 13% of 2021 GDP, which ACRA views as insignificant. Furthermore, the aggregate positions for the entire banking sector are characterized by moderate NPLs (around 6%), capital adequacy, which despite a certain decline in 2021, remains sufficient, and moderate foreign currency risk. A core element of the country’s financial system is the Russian-Kyrgyz Development Fund, the loan portfolio of which is the equivalent of 5% of the banking system’s loan portfolio.
In ACRA’s opinion, Kyrgyzstan has medium scores for World Governance Indicators and a consistently low level of human capital. This fact does not allow conditions for the effective distribution of resources within the economy to be improved. At the same time, ACRA notes the country’s certain focus on reforming a number of spheres of economic and social life (creation of specialized sector funds for economic development, strengthening the role of automation in fiscal practice, creating state budget reserves), which will considerably decrease economic uncertainty in the long term and support economic growth.
Sovereign model application results
Kyrgyzstan has been assigned a BB- Indicative credit rating in accordance with the core part of ACRA’s sovereign model. A number of modifiers in the modifiers part of the model downgrade the Indicative credit rating. These include the following, which are determined by the Methodology for Credit Rating Assignment to Sovereign Entities under the International Scale:
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Debt sustainability and access to markets and funding sources;
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Fiscal policy and budget flexibility;
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Vulnerability of the balance of payments;
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Political instability and recent political decisions
In view of the abovementioned modifiers, Kyrgyzstan’s Indicative credit rating has been downgraded. A Final credit rating of B has been assigned. There are no analytical adjustments and limitations that could result in an adjustment of the Final rating. In connection with this, the long-term foreign currency credit rating remains at B.
Potential outlook or rating change factors
A positive rating action may be prompted by:
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Higher trade diversification, an increase in investment inflows.
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Significant improvement in the level of the welfare of Kyrgyzstan’s population, which will entail an increase in domestic demand and economic growth restructuring.
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Stable growth of domestic lending on exclusively market-based principles.
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Improvement of assessments of the quality of institutions and human capital.
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Effective implementation of structural economic reforms and strengthening of transit capacities.
A negative rating action may be prompted by:
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Weakening of the national currency while maintaining a significant trade deficit.
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Transfer of risks from its major trading partners (Russia, China) due to a slowdown in economic activity and growth of inflation.
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Decrease in investments in case of reduced lending by international financial organizations.
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New signs of political instability, an escalation of conflict in the region.
Regulatory disclosure
The sovereign credit ratings have been assigned to the Kyrgyz Republic under the international scale based on the Methodology for Credit Rating Assignment to Sovereign Entities under the International Scale and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
Sovereign credit ratings have been assigned to the Kyrgyz Republic for the first time. The sovereign credit ratings and their outlooks are expected to be revised within 182 days following the publication date of this press release as per the Calendar of sovereign credit rating revisions and publications.
The sovereign credit ratings are based on information from publicly available sources and ACRA’s own databases. The sovereign credit ratings are unsolicited. The Cabinet of Ministers of the Kyrgyz Republic participated in the sovereign credit rating assignment.
In assigning the sovereign credit ratings, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to the Kyrgyz Republic. No conflicts of interest were discovered in the course of the sovereign credit rating assignment.
