Kyrgyzstan’s state debt has almost hit the $4 billion mark, sailing upward past a government-imposed debt ceiling.
That figure, which is dated to the start of June, is a big leap from the figure reported at the end of March, when debt stood at $3.7 billion.
The Finance Ministry’s press service said on July 1 that $3.7 billion is owed to foreign creditors, mainly to the state-run Exim Bank of China, which is owed $1.4 billion. Another $642 million is owed to the International Development Association, a branch of the World Bank that is focused on development in poor countries.
The scale of the debt is not in itself necessarily catastrophic, although it does surpass the 60 percent debt-to-gross domestic product ratio ceiling mandated by parliament in 2014. Deputies have proposed legislation to raise that ceiling as a way to authorise raising additional outside funds for major projects.
The size of debt at the end of March put the country’s liabilities at 60.3 percent of its 2015 GDP in dollar terms, although that figure is lower when the calculations are done in the local currency, the som, as local economists like to point out.
Also, almost all the foreign debt is too all intents and purposes interest-free. Most of the debt is repayable decades from now and is accumulating interest between 0.75 percent and 2 percent.
Accruing debt seems to have become an established strategy for development in recent years. The policy is line with the government’s “National Sustainable Development Strategy for the Kyrgyz Republic 2013-2017,” which envisions sweeping reforms and investment in industry, agriculture, communications and transportation.
One emblematic project was the 405-kilometer high voltage Datka-Kemin power line, which joined the north and the south of the country and was built with $390 million provided by the Exim Bank of China.
Speaking in May, Deputy Economy Minister Almaz Sazbakov expressed his support of raising the 60 percent ceiling.
“The economy needs the means for improving and developing infrastructure. The fact is that many things are left over from the Soviet Union, but they are in a dilapidated state and need replacing. We are talking about roads, hydropower plants, utility networks and so on,” he said. “For the construction and reconstruction of roads alone, around $2 billion have been spent.”
In the abstract, this seems like a fair point, although the reality is that many of the core pieces of infrastructure mentioned by Sazbakov remain in an egregious state and still require much work to repair.
Late last year, the Toktogul hydropower electric station, the country’s main source of electricity, suffered two major accidents that forced the government to turn to Kazakhstan to negotiate a snap deal on electricity imports.
On June 13, the government gave its go-ahead to cooperation with the Asian Development Bank on a third phase in the rehabilitation of the Toktogul plant, which will cost $175 million. At least $100 million out of this amount will be provided in the form of loans from the ADB ($60 million) and the Eurasian Development Bank ($40.00 million).
Ultimately, many of these projects are designed toward the modest aim of restoring Kyrgyzstan’s infrastructure to Soviet-era standards, or slightly above, and certainly not to unprecedented heights.
The point of all this being that it cannot be assumed that Kyrgyzstan’s burden of debt will automatically translate into fulsome dividends further down the road, which is certainly the impression that the governments like to give. Allowing debt to mount moderately is at best the key to economic survival, for now, but there may come a day when it becomes the millstone around the country’s neck.