ACRA has affirmed 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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Institutional changes that contributed to the creation of the Kyrgyzstan Stabilization Fund, the introduction of legalization of income, and improvement of the digital format of taxation.
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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 and industrial diversification.
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Low coverage of external debt by reserves and significantly increased imports.
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Significant risk of weakening of the national currency over the short and medium terms, which may strengthen the country’s foreign exchange obligations.
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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, 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.
Macroeconomics
The country’s economy is characterized by the relatively low economic welfare of the population — average per capita GDP in current prices is around USD 1,500.
The economy of Kyrgyzstan is also characterized by high external dependence on trade channels, especially imports (the shares of Russia and China were 24% and 42% in 2022, respectively) and 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. Remittances from abroad amounted to a quarter of GDP on average from 2019 to 2022.
ACRA expects the Kyrgyz economy to grow by 3.5–4% annually in 2023–2026 amid consumer price inflation of 12% in 2023, followed by inflationary dynamics weakening to 5.5% by 2026, in the event of no new serious inflationary shocks in the country’s key trade partners.
Despite the adoption of a rather 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 52% of GDP in 2022).
In the banking sector as a whole, an increased level of NPLs is observed (11.4% as of the end of May 2023), capital adequacy, although it decreased slightly in 2021, remains adequate, while currency risk in the banking system is moderate.
Public finances
ACRA notes the absence of an explicit fiscal rule, the trend toward stabilization of a significant part of current expenditures within 75–80% of total expenditures, as well as heightened dependence of domestic investments and capital budget items on external support programs. 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 significant growth of budget revenues due to better administration of taxation, as well as higher tax proceeds due to growth of imports.
In 2022, the total volume of contingent liabilities of state-owned banks amounted to around 10% of GDP, which ACRA assesses as insignificant.
External position
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 accounted for 42% GDP in 2022. However, a substantial share of this debt is made up of concessional borrowings with favorable repayment terms. Internal public debt is significantly smaller (10% of GDP in 2022) and practically entirely long-term.
The Agency notes that the gross reserves of the National Bank of Kyrgyzstan have declined from USD 3 bln as of the end of 2021 to USD 2.4 bln as of June 2023. ACRA views this as a consequence of the higher negative trade balance, which may lead to significant pressure on the national currency if this trend continues. Higher inflation and growth of the country’s debt load will follow if this risk materializes.
ACRA also notes a low level of coverage by monetary reserves, both with regard to Kyrgyzstan’s debt positions and imports. As of May 2023, coverage of external debt by reserves amounted to around a quarter, while reserve coverage of the country’s average annual imports of goods and services forecast by ACRA for this year was around three months, which the Agency considers to be a low level of coverage.
Institutions
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 considerably decrease economic uncertainty in the long term and support economic growth.
The risk of sanctions-based foreign economic pressure with regard to Kyrgyzstan’s goods exports is taking on increased importance, and this may serve as a negative factor in recovering the country’s current account and stability of the national currency.
Sovereign model application results
Kyrgyzstan has been assigned a B+ 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 Kyrgyzstan’s 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;
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Involvement in geopolitical conflicts, exposure to geopolitical risks.
In view of the abovementioned modifiers, 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 is B.
Potential outlook or rating change factors
A positive rating action may be prompted by:
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Higher trade diversification, an increase of investment inflows.
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Significant improvement of the level of the welfare of Kyrgyzstan’s population, which will entail an increase of domestic demand and economic growth restructuring.
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Stable growth of domestic lending on exclusively market-based principles.
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Further institutional transformations that increase human capital.
A negative rating action may be prompted by:
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Weakening of the national currency and depletion of the country’s international reserves while maintaining a significant trade deficit and a negative current account balance.
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Transfer of risks from its major trading partners (Russia, China) due to a slowdown in economic activity and strengthening of inflation.
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Lower 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.
The sovereign credit ratings of the Kyrgyz Republic were published by ACRA for the first time on September 7, 2022. 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 were assigned 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.
