ACRA has upgraded the long-term foreign currency credit rating of the Kyrgyz Republic (hereinafter, Kyrgyzstan, or the country) to B+ and its long-term local currency credit rating to В+ under the international scale. The short-term foreign currency credit rating has been affirmed at B and the short-term local currency credit rating has been affirmed 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 debt with concessional terms.
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Significant economic growth that has resulted in both improvement of the revenue side of the budget and a general strengthening of fiscal discipline.
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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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Relatively low level of economic wealth of the population.
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Strong dependence of the economy on factors related to the external sector, in particular, increased imports and overseas remittances.
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Low coverage of external debt by reserves, foreign currency debt, and imports.
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Comparatively low assessments of institutional quality and human capital factors.
credit rating rationale
The country’s long-term credit rating has been upgraded due to the improvement of the assessment of factors in the Macroeconomics and Institutions blocks. Kyrgyzstan’s B+ sovereign credit rating stems from the comparatively low economic wealth of its population, high dependence on the economies of the country’s main trade partners, relatively low indicators of the institutional quality, moderate public debt, as well as comparatively favorable conditions for external borrowing and development of foreign trade. ACRA notes Kyrgyzstan’s focus on reforming economic policy and actively attracting investments to major infrastructure projects, which has partially already become a driver of accelerated growth of the country’s economy and improvement of its fiscal accounts.
Macroeconomics
Kyrgyzstan’s economy is characterized by the relatively low economic welfare of its population — average per capita GDP in current prices is around USD 2,000 (this indicator is gradually growing).
The country’s economy is also characterized by high external dependence on trade channels, especially imports (the shares of China and Russia were 50% and 18% in H1 2024, respectively), as well as a significant outflow of labor resources from the labor market abroad. The latter forms an imbalance in the labor market and in the long term may put pressure on the budget sector through pension insurance. The outflow of workers and volatility of remittances from the country’s citizens are also sources of risks for the country’s balance of payments. Remittances from abroad amounted to a quarter of GDP on average from 2019 to 2023, while last year this indicator again increased.
ACRA expects the Kyrgyz economy to grow by 4.9% annually on average in 2024–2026 (active economic growth has resulted in an improvement of the assessment of the macroeconomic position compared to the last rating action and is a factor in the upgrade of the credit rating) amid consumer price inflation of 5.7% on average (which also contributed to the rating upgrade), in the event of no new serious inflationary shocks.
Public finances
The Agency notes the overall stabilization of the country’s budget amid steady growth of revenues relative to expenditures. The share of current expenditures, however, remains heightened (more than 80% of total expenditures), and dependence of domestic investments and capital items on external support programs remains high, which leads to some volatility in budget formation.
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, stabilized at 52% of GDP in 2022, and amounted to 45.5% at the end of 2023). The trend of a persistent double deficit (budget and current account) was interrupted in 2023, when the budget was executed with a surplus of 1% of GDP.
According to ACRA’s expectations, in the medium term and long term, the country will be able to maintain its public debt at a moderate level. This will be facilitated by low interest payments and a noticeable increase in budget revenues due to better administration of taxation. Tax revenues were significantly supported by an increase in the volume of imported products in 2022–2024. The Agency assesses Kyrgyzstan’s contingent liabilities as insignificant.
External position
ACRA considers the 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 accounts for 31% of projected GDP in 2024. However, a substantial share of this debt is made up of concessional borrowings received under favorable repayment parameters. Internal public debt is significantly smaller (10.5% of GDP in 2024, as per ACRA’s projections) and practically entirely long-term.
The Agency notes that at the end of 2023 and in 2024, there was a slight recovery of the gross reserves of the National Bank of Kyrgyzstan to USD 4.9 bln as of October 2024. However, the consistently negative foreign trade balance may lead to significant pressure on the national currency and depletion of reserves. This scenario, if realized, will create additional pressure on inflation and lead to an increase in the country’s debt load.
ACRA also notes a low level of coverage by monetary reserves, both with regard to Kyrgyzstan’s debt positions and imports. As of the end of 2024, coverage of gross external debt by reserves amounted to around 44%, while reserve coverage of the country’s annual imports of goods and services forecast by ACRA for 2024 was around four months, which the Agency considers to be a low level of coverage.
Institutions
Kyrgyzstan has medium scores for World Governance Indicators and a consistently low level of human capital. The latter may constrain progress in achieving economic diversification and also affect the quality of government decisions. At the same time, ACRA notes the country’s 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 and support economic growth in the long term. Taking into account the changes to ACRA’s specialized methodology, the overall assessment of the Institutions block was improved and served as one of the factors in increasing the country’s credit rating.
The risk of foreign economic pressure with regard to Kyrgyzstan’s foreign trade flows is still relevant. This may serve as a negative factor in stability of the national currency and have a constraining impact on the activity of international development institutions.
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 Kyrgyzstan’s Indicative credit rating. These include the following, which are determined by the Methodology for Assigning Credit Ratings to Sovereign Entities under the International Scale:
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Quality and sustainability of economic growth;
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Fiscal policy and budget flexibility;
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Vulnerability of the balance of payments;
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Sustainability of foreign debt;
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Political instability and recent political decisions;
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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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Growth of trade diversification, an increase of investment inflows.
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Significant increase of the level of the welfare of Kyrgyzstan’s population, which stimulates higher domestic demand and economic growth restructuring.
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Stable increase in domestic lending on exclusively market-based principles.
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Further institutional transformations that increase the quality of 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 (China and Russia) due to a slowdown of their economic activity.
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Lower investments in the event of reduced lending by international financial organizations, noticeable deterioration of budget parameters.
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New signs of political instability, an escalation of conflict in the region, sanctions risks.
regulatory disclosure
The sovereign credit ratings have been assigned to the Kyrgyz Republic under the international scale based on the Methodology for Assigning Credit Ratings 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.
