Kyrgyzstan: Russia Cancels Debts, But Credit Pile Remains High

Kyrgyzstan has for some time been barreling toward a sovereign debt crunch, but lucky for it, Russia has just wiped $240 million off the slate. 

Russian Prime Minister Dmitry Medvedev on May 3 approved a decree cancelling historic debts worth that amount.

The money in question stems from a loan issued in February 2009.

At the time, Kurmanbek Bakiyev was president of Kyrgyzstan and he had bagged a $2 billion credit deal that included $1.7 billion that was to be spent toward paying Russian companies build Kambar-Ata hydropower station station on the Naryn River — a project that has since hit the buffers. Another $300 million were lent on highly preferential conditions — 0.75 percent per annum to repaid within 40 years. Another $150 million were given as a grant.  

The largesse was viewed universally at the time as a giveaway in exchange for Bakiyev agreeing to kick US troops out of the air transit base outside the capital, Bishkek. In the event, Bakiyev welched on the deal, only to then be deposed in a popular uprising that Moscow tacitly supported.

In May 2013, Russia agreed to cancel $189 million worth of previously issued debt, leaving just the $300 million to go. The remaining liabilities were to be gradually cancelled over a 10-year period, from 2016 to 2025, at $30 million per annum. Fast forward to today, that left Kyrgyzstan with $240 million in debts, which Russia decided just to cancel in one fell swoop.

Officials in Bishkek have said this gesture will cut sovereign debt by 3.8 percent. 

The write-off doesn’t make a huge impact in the broader scheme of things, however. The Finance Ministry has said that sovereign debt at the close of 2016 stood at $4.1 billion, an annual increase of $300 million. Out of that total, $3.8 billion is external debt, itself a sum that marked a $182 million increase on the year before.

The government likes to point out that in Kyrgyz som terms, however, its liabilities have actually fallen — an optical illusion courtesy of the floating exchange rate.

Kazakhstan-based news website 24.kz in February cited Finance Minister Adylbek Kasymaliev as stating that the budget for 2017 envisions running a $300 million deficit, equivalent to 4.7 percent of the gross domestic product.

But the government casts this as something of a minor victory since no money was spent on capital investments in 2016, while Kasymaliev said $370 million is being allocated in the budget to a state investment program this year. Then again, Kyrgyzstan spent around $310 million last year on servicing its debts — an eye-watering amount that suggests that the usefulness of Russia’s gift will be short-lived.

Kyrgyzstan has since 2014 been recording annual economic growth in the 3.5 percent ballpark. That is good but not great. For the loan-dependent development model not to transform into a debt disaster, more substantial returns are needed soon.

Kyrgyzstan: Russia Cancels Debts, But Credit Pile Remains High

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