Journal Issue
Share
Article

Kyrgyz Republic: Fourth and Fifth Reviews Under the Three-Year Arrangement Under the Extended Credit Facility, and Request for Modification of Performance Criteria—Debt Sustainability Analysis Update

Author(s):
International Monetary Fund. Middle East and Central Asia Dept.
Published Date:
February 2018
Share
  • ShareShare
Show Summary Details

Underlying Assumptions

1. The current DSA takes into account the revised macroeconomic assumptions compared to the Article IV Consultation. Based on recent economic developments, economic growth in 2017–18 is now expected to be weaker than at the time of the Article IV Consultation. Due to a pickup in exports and strong remittance inflows, the current account deficit is expected to narrow in the medium term following a temporary widening in 2018. The fiscal balance is projected to improve at a faster rate than anticipated at the time of the Article IV Consultation.

Kyrgyz Republic: Selected Indicators, 2016-2020(In millions of U.S. dollars)
20162017201820192020
Real GDP growth
Current DSA3.83.23.34.94.6
Previous DSA (2017 Article IV)3.83.73.84.94.5
Overall fiscal balance (percent of GDP) 1/
Current DSA−6.9−5.9−4.0−5.3−3.2
Previous DSA (2017 Article IV)−6.9−7.0−5.2−6.2−3.9
Current account balance (percent of GDP)
Current DSA−12.1−10.0−13.1−12.2−11.6
Previous DSA (2017 Article IV)−9.7−9.1−11.4−11.5−11.2
PIP Disbursements
Current DSA311368341400258
Previous DSA (2017 Article IV)311416325400258
Sources: Kyrgyz authorities and IMF staff estimates.

Including onlending.

Sources: Kyrgyz authorities and IMF staff estimates.

Including onlending.

External DSA2

2. The debt outlook remains vulnerable to external and domestic shocks. Driven by the som appreciation, the postponement of some public investment projects by the authorities, and the write-off of Russian debt,3 external public and publicly guaranteed (PPG) debt is projected to decrease to 54.5 percent of GDP in 2017, down from 63.5 percent in 2015 and 56.6 percent in 2016. However, the postponement of these projects will lead to increasing public investment and thus external PPG-debt is expected to level off at around 56 percent in 2019, before starting to gradually decline in outer years. Total external debt is expected to decline from 85.4 percent of GDP in 2016 to 79.9 percent in 2017 and around 78 percent in the medium term, well below 85 percent of GDP at the third review.4

3. The Kyrgyz Republic remains at moderate risk of debt distress. Public and publicly guaranteed (PPG) external debt in present value (PV) terms is estimated to remain below 36 percent of the sum of GDP and remittances and to continuously decline under the baseline scenario over the projection period. Other indicators of debt sustainability also remain below their indicative thresholds and suggest, in particular, limited liquidity risks.

4. The external PPG debt outlook remains vulnerable to large external shocks, in particular to a decline in exports and non-debt flows as well as combined external shocks. The ratio of the PV of debt to GDP plus remittances rises above the relevant indicative thresholds over the medium term under four of the six stress tests (one standard deviation shock to exports and net debt creating flows, a combined shock, and a 30 percent exchange rate shock (see Table 2)).5 The most severe bound test for the debt-to-GDP+remittances ratio is that of a combination shock, which yields a breach of threshold that is large (averaging 25 percent above threshold) and protracted (13 years), and sufficient to assess the country’s external risk of debt distress as moderate (Figure 1).

Table 1.Kyrgyz Republic: External Debt Sustainability Framework, Baseline Scenario, 2014-37(In percent of GDP; unless otherwise indicated)
ActualHistorical6 AverageStandard 6/ DeviationProjections
2014201520162017201820192020202120222017-2022

Average
202720372023-2037

Average
External debt (nominal) 1/80.194.885.479.979.980.180.080.278.769.053.5
of which: public and publicly guaranteed (PPG)50.563.556.654.555.856.154.153.151.543.236.1
Change in external debt7.414.8−9.4−5.50.00.2−0.10.1−1.4−2.3−1.7
Identified net debt-creating flows11.610.45.22.24.21.10.70.7−0.5−0.9−0.9
Non-interest current account deficit14.915.011.06.97.48.611.610.69.89.58.84.84.15.1
Deficit in balance of goods and services42.036.435.737.642.642.442.142.841.536.228.2
Exports45.337.037.438.139.342.544.645.848.355.862.5
Imports87.373.473.175.781.984.986.788.789.892.090.7
Net current transfers (negative = inflow)−30.2−24.2−29.1−28.72.3−32.4−34.4−35.1−35.7−36.8−36.5−33.5−25.9−31.0
of which: official−2.8−1.5−1.3−1.6−1.5−0.9−0.10.00.00.00.0
Other current account flows (negative = net inflow)3.12.94.43.43.33.33.43.53.82.11.8
Net FDI (negative = inflow)-3.1-15.1-8.8-7.83.7-5.3-6.3-7.4-7.4-7.4-7.4-5.5-5.1−5.6
Endogenous debt dynamics 2/-0.210.53.0-1.1-1.0-2.1-1.8-1.4-1.9-0.20.2
Contribution from nominal interest rate1.11.11.11.51.61.61.71.61.82.92.5
Contribution from real GDP growth−2.9−3.1−3.7−2.5−2.6−3.7−3.5−3.1−3.7−3.1−2.3
Contribution from price and exchange rate changes1.612.65.5
Residual (3-4) 3/-4.24.3-14.6-7.7-4.2-0.9-0.8-0.5-0.9-1.4-0.9
of which: exceptional financing0.00.0−0.5−3.80.00.00.00.00.00.00.0
PV of external debt 4/66.364.664.364.365.366.165.257.843.3
In percent of exports177.2169.3163.6151.5146.4144.1135.0103.569.2
PV of PPG external debt37.439.140.140.439.439.038.032.025.8
In percent of exports100.0102.6102.295.088.485.178.557.241.3
In percent of government revenues115.1116.2127.7128.9123.9118.8115.992.477.7
Debt service-to-exports ratio (in percent)15.128.427.921.220.016.916.718.420.122.917.5
PPG debt service-to-exports ratio (in percent)3.55.37.15.46.46.26.06.16.36.25.4
PPG debt service-to-revenue ratio (in percent)4.75.88.26.28.08.48.48.59.210.010.1
Total gross financing need (Billions of U.S. dollars)1.40.70.80.81.00.80.80.91.01.52.2
Non-interest current account deficit that stabilizes debt ratio7.50.320.514.111.510.49.99.310.27.15.8
Key macroeconomic assumptions
Real GDP growth (in percent)4.03.53.84.73.63.23.34.94.64.04.84.14.64.44.3
GDP deflator in US dollar terms (change in percent)−2.1−13.6−5.54.814.44.9−0.20.80.80.70.81.32.02.01.9
Effective interest rate (percent) 5/1.51.21.21.10.21.82.12.22.32.12.32.14.34.84.5
Growth of exports of G&S (US dollar terms, in percent)−13.1−26.9−0.97.322.710.46.214.410.87.611.410.18.87.98.1
Growth of imports of G&S (US dollar terms, in percent)−3.0−24.8−2.310.826.112.111.59.77.77.17.09.26.56.96.4
Grant element of new public sector borrowing (in percent)35.538.038.929.231.332.834.327.420.925.1
Government revenues (excluding grants, in percent of GDP)32.933.532.533.731.431.331.832.832.734.633.233.6
Aid flows (in Billions of US dollars) 7/0.30.20.20.40.40.30.10.20.20.20.3
of which: Grants0.20.10.10.30.30.20.10.10.10.10.1
of which: Concessional loans0.10.10.10.10.10.10.00.10.10.10.1
Grant-equvalent financing (in percent of GDP) 8/6.85.54.02.22.22.21.81.31.7
Grant-equvalent financing (in percent of external financing) 8/65.563.756.153.549.350.040.929.336.8
Memorandum items
Nominal GDP (Billions of US dollars)7.56.76.67.17.37.78.28.59.012.122.5
Nominal dollar GDP growth1.8−10.6−1.98.23.15.85.44.85.65.56.66.56.3
PV of PPG external debt (in Billions of US dollars)2.52.72.93.13.23.33.43.85.8
(PVt-PVt-1)/GDPt-1 (in percent)3.62.62.51.21.41.12.10.81.01.1
Gross workers’ remittances (Billions of US dollars)2.01.51.82.22.42.62.93.23.34.15.8
PV of PPG external debt (in percent of GDP + remittances)29.329.930.230.129.128.527.823.920.5
PV of PPG external debt (in percent of exports + remittances)57.456.855.752.749.147.244.835.829.2
Debt service of PPG external debt (in percent of exports + remittance4.13.03.53.43.33.43.63.93.8
Sources: Country authorities; and staff estimates and projections.

Includes both public and private sector external debt.

Derived as [r - g - ρ(1 + g)]/(1 + g + ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Sources: Country authorities; and staff estimates and projections.

Includes both public and private sector external debt.

Derived as [r - g - ρ(1 + g)]/(1 + g + ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms.

Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes.

Assumes that PV of private sector debt is equivalent to its face value.

Current-year interest payments divided by previous period debt stock.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Defined as grants, concessional loans, and debt relief.

Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).

Table 2.Kyrgyz Republic: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2017-371/(In percent)
Projections
20172018201920202021202220272037
PV of debt-to-GDP+remittances ratio
Baseline3030302929282421
A. Alternative Scenarios
A1. Key variables at their historical averages in 2017-2037 1/30252218161366
A2. New public sector loans on less favorable terms in 2017-2037 2/3031323131313137
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2018-20193030313029292521
B2. Export value growth at historical average minus one standard deviation in 2018-2019 3/3035454443423724
B3. US dollar GDP deflator at historical average minus one standard deviation in 2018-20193032343332322724
B4. Net non-debt creating flows at historical average minus one standard deviation in 2018-2019 4/3038464241403524
B5. Combination of B1-B4 using one-half standard deviation shocks3040565050494227
B6. One-time 30 percent nominal depreciation relative to the baseline in 2018 5/3038383736353026
PV of debt-to-exports+remittances ratio
Baseline5756534947453629
A. Alternative Scenarios
A1. Key variables at their historical averages in 2017-2037 1/57463932272299
A2. New public sector loans on less favorable terms in 2017-2037 2/5757555352504753
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2018-20195755524846443529
B2. Export value growth at historical average minus one standard deviation in 2018-2019 3/57721039692897349
B3. US dollar GDP deflator at historical average minus one standard deviation in 2018-20195755524846443529
B4. Net non-debt creating flows at historical average minus one standard deviation in 2018-2019 4/5774857168655234
B5. Combination of B1-B4 using one-half standard deviation shocks57801149188846943
B6. One-time 30 percent nominal depreciation relative to the baseline in 2018 5/5755524846443529
PV of debt-to-revenue ratio
Baseline1161271291241191169277
A. Alternative Scenarios
A1. Key variables at their historical averages in 2017-2037 1/116103917562522119
A2. New public sector loans on less favorable terms in 2017-2037 2/116130135132130130121139
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2018-20191161281351291241219680
B2. Export value growth at historical average minus one standard deviation in 2018-2019 3/11614619318717917614091
B3. US dollar GDP deflator at historical average minus one standard deviation in 2018-201911613815615014314011193
B4. Net non-debt creating flows at historical average minus one standard deviation in 2018-2019 4/11615218417817116713389
B5. Combination of B1-B4 using one-half standard deviation shocks116161232224215211169104
B6. One-time 30 percent nominal depreciation relative to the baseline in 2018 5/116179181174167163129108
Debt service-to-exports+remittances ratio
Baseline33333444
A. Alternative Scenarios
A1. Key variables at their historical averages in 2017-2037 1/33333321
A2. New public sector loans on less favorable terms in 2017-2037 2/33334445
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2018-201933333444
B2. Export value growth at historical average minus one standard deviation in 2018-2019 3/34566687
B3. US dollar GDP deflator at historical average minus one standard deviation in 2018-201933333444
B4. Net non-debt creating flows at historical average minus one standard deviation in 2018-2019 4/34444465
B5. Combination of B1-B4 using one-half standard deviation shocks34555576
B6. One-time 30 percent nominal depreciation relative to the baseline in 2018 5/33333444
Debt service-to-revenue ratio
Baseline6888891010
A. Alternative Scenarios
A1. Key variables at their historical averages in 2017-2037 1/67766643
A2. New public sector loans on less favorable terms in 2017-2037 2/68899101013
B. Bound Tests
B1. Real GDP growth at historical average minus one standard deviation in 2018-201968999101111
B2. Export value growth at historical average minus one standard deviation in 2018-2019 3/6891111121513
B3. US dollar GDP deflator at historical average minus one standard deviation in 2018-201969101010111212
B4. Net non-debt creating flows at historical average minus one standard deviation in 2018-2019 4/6891011111413
B5. Combination of B1-B4 using one-half standard deviation shocks68101313131815
B6. One-time 30 percent nominal depreciation relative to the baseline in 2018 5/611121212131414
Memorandum item:
Grant element assumed on residual financing (i.e., financing required above baseline) 6/1717171717171717
Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Sources: Country authorities; and staff estimates and projections.

Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline.

Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels).

Includes official and private transfers and FDI.

Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent.

Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2.

Figure 1.Kyrgyz Republic: Indicators of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2017-371

Sources: Kyrgyz authorities and IMF staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2027. In figure b. it corresponds to a Combination shock; in c. to a Exports shock; in d. to a Combination shock; in e. to a Exports shock and in figure f. to a Combination shock.

Public DSA

5. The public debt outlook has remained broadly unchanged since the Article IV Consultation. Public debt (external plus domestic) is expected to reach 57.1 percent of GDP in 2017, down from 58.1 percent in 2016, partly driven by the write-off of Russian debt. Total public debt is expected to be manageable in the medium and long term, but remains highly sensitive to shocks to real GDP growth and the exchange rate or to failure to reduce the primary deficit over the medium term. Under the historical and fixed primary balance scenarios, public debt is projected to be on upward path in the long term, suggesting the importance of fiscal consolidation and growth-friendly reforms to preserve fiscal sustainability. Liquidity risks associated with public debt are expected to increase in the years ahead, with debt service increasing from around 5 percent toward 15 percent of revenues. This is due to the rising share of domestic debt in total public debt, which is serviced at higher domestic interest rates. Rising liquidity risks underline the importance of continued fiscal consolidation.

Kyrgyz Republic: Comparison of Debt Ratio
20162017201820192020Long Term (2025)
PPGE debt to GDP ratio
Current DSA56.654.555.856.154.146.8
Previous DSA (2017 Article IV)56.655.256.156.354.447.7
Public debt to GDP ratio
Current DSA58.157.158.258.456.250.0
Previous DSA (2017 Article IV)58.157.258.659.458.352.9
Sources: Kyrgyz authorities and IMF staff estimates.
Sources: Kyrgyz authorities and IMF staff estimates.

Conclusion

6. The authorities need to remain cautious when contracting and guaranteeing new debt, and should resume fiscal consolidation. In 2018-19, the primary fiscal deficit is expected to exceed the debt-stabilizing level, resulting in an increase in the public debt-to-GDP ratio. While necessary to fill the large infrastructure gap, externally financed public investments, could undermine debt sustainability. In this context, further efforts are needed to strengthen public debt and public investment management, in order to ensure that potential gains from externally financed public investment projects are fully realized.

Figure 2.Kyrgyz Republic: Probability of Debt Distress of Public and Publicly Guaranteed External Debt Under Alternative Scenarios, 2017-371

Sources: Country authorities; and staff estimates and projections.

1/ The most extreme stress test is the test that yields the highest ratio on or before 2027. In figure b. it corresponds to a Combination shock; in c. to a Exports shock; in d. to a Combination shock; in e. to a Exports shock and in figure f. to a Combination shock.

Figure 3.Kyrgyz Republic: Indicators of Public Debt Under Alternative Scenarios, 2017-371

Sources: Kyrgyz authorities; and staff estimates and projections.

1/ The most extreme stress test is the bound test (see Table 4) that yields the highest ratio on or before 2027.

2/ Revenues are defined inclusive of grants.

Table 3.Kyrgyz Republic: Public Sector Debt Sustainability Framework, Baseline Scenario, 2014–37(in percent of GDP; unless otherwise specified)
ActualAverage5/Standard Deviation5/EstimateProjections
2014201520162017201820192020202120222017-22

Average
202720372023-37

Average
Public sector debt 1/52.364.958.157.158.258.456.255.053.247.942.3
of which: foreign-currency denominated50.563.556.654.555.856.154.153.151.543.236.1
1.71.41.62.62.42.22.11.91.84.76.2
Change in public sector debt6.112.6−6.8−1.01.10.1−2.2−1.2−1.8−1.0−1.2
Identified debt-creating flows6.113.2−2.6−0.51.72.10.20.0−0.6−0.6−0.2
Primary deficit2.82.15.95.87.54.62.74.12.01.41.22.70.90.60.8
Revenue and grants35.335.634.738.535.133.433.334.134.035.634.1
of which: grants2.42.22.24.83.62.01.41.21.10.80.5
Primary (noninterest) expenditure38.237.840.643.237.737.535.335.535.136.634.7
Automatic debt dynamics3.311.0−8.0−1.3−0.9−2.0−1.8−1.4−1.8−1.5−0.8
Contribution from interest rate/growth differential−2.2−1.7−2.4−1.6−1.6−2.5−2.4−2.0−2.3−1.5−0.8
of which: contribution from average real interest rate−0.40.10.00.20.30.20.20.20.20.71.1
of which: contribution from real GDP growth−1.8−1.8−2.4−1.8−1.8−2.7−2.6−2.2−2.5−2.1−1.8
Contribution from real exchange rate depreciation5.412.7−5.60.20.60.50.60.60.6
Other identified debt-creating flows0.00.0−0.5−3.80.00.00.00.00.00.00.0
Privatization receipts (negative)0.00.00.00.00.00.00.00.00.00.00.0
Recognition of implicit or contingent liabilities0.00.00.00.00.00.00.00.00.00.00.0
Debt relief (HIPC and other)0.00.0−0.5−3.80.00.00.00.00.00.00.0
Other (specify, e.g. bank recapitalization)0.00.00.00.00.00.00.00.00.00.00.0
Residual, including asset changes0.0−0.5−4.1−0.6−0.6−1.9−2.4−1.2−1.3−0.4−1.0
Other Sustainability Indicators
PV of public sector debt39.041.742.642.641.540.939.736.632.1
of which: foreign-currency denominated37.439.140.140.439.439.038.032.025.8
of which: external37.439.140.140.439.439.038.032.025.8
PV of contingent liabilities (not included in public sector debt)
Gross financing need 2/6.05.19.78.56.98.26.25.45.37.24.9
PV of public sector debt-to-revenue and grants ratio (in percent)11210812112712512011710394
PV of public sector debt-to-revenue ratio (in percent)12012413513613012412110595
of which: external 3/1151161271291241191169277
Debt service-to-revenue and grants ratio (in percent) 4/5.36.09.28.28.69.29.69.39.914.115.5
Debt service-to-revenue ratio (in percent) 4/5.76.49.89.39.69.810.09.710.314.515.7
Primary deficit that stabilizes the debt-to-GDP ratio−3.2−10.512.65.71.53.94.22.53.02.01.8
Key macroeconomic and fiscal assumptions
Real GDP growth (in percent)4.03.53.84.73.63.23.34.94.64.04.84.14.64.44.3
Average nominal interest rate on forex debt (in percent)1.31.31.31.10.21.41.61.61.61.71.81.62.12.52.4
Average real interest rate on domestic debt (in percent)5.613.926.2−3.026.529.716.915.515.715.715.618.214.413.114.4
Real exchange rate depreciation (in percent, + indicates depreciation)13.126.1−9.3−0.615.30.5
Inflation rate (GDP deflator, in percent)8.43.82.531.765.43.43.73.83.83.83.83.74.04.04.0
Growth of real primary spending (deflated by GDP deflator, in percent)6.82.411.52.14.09.8−9.74.2−1.54.63.81.94.45.44.2
Grant element of new external borrowing (in percent)35.538.038.929.231.332.834.327.420.9
Sources: Country authorities; and staff estimates and projections.

[Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.]

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Sources: Country authorities; and staff estimates and projections.

[Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or gross debt is used.]

Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period.

Revenues excluding grants.

Debt service is defined as the sum of interest and amortization of medium and long-term debt.

Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability.

Table 4.Kyrgyz Republic: Sensitivity Analysis for Key Indicators of Public Debt, 2017–37
Projections
20172018201920202021202220272037
PV of Debt-to-GDP Ratio
Baseline4243434141403732
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages4245464851536692
A2. Primary balance is unchanged from 20174244454648495980
A3. Permanently lower GDP growth 1/4243444444445180
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2018-20194244474849495461
B2. Primary balance is at historical average minus one standard deviations in 2018-20194251595757555143
B3. Combination of B1-B2 using one half standard deviation shocks4248545353525250
B4. One-time 30 percent real depreciation in 20184259585756545045
B5. 10 percent of GDP increase in other debt-creating flows in 20184251514949484437
PV of Debt-to-Revenue Ratio 2/
Baseline10812112712512011710394
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages108127138144149157185270
A2. Primary balance is unchanged from 2017108126134137140145166235
A3. Permanently lower GDP growth 1/108123131131130130144235
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2018-2019108126142143143145151180
B2. Primary balance is at historical average minus one standard deviations in 2018-2019108146176173167163143125
B3. Combination of B1-B2 using one half standard deviation shocks108138161159156154145146
B4. One-time 30 percent real depreciation in 2018108170175171164160139131
B5. 10 percent of GDP increase in other debt-creating flows in 2018108145152149143140123109
Debt Service-to-Revenue Ratio 2/
Baseline899109101416
A. Alternative scenarios
A1. Real GDP growth and primary balance are at historical averages8891010111726
A2. Primary balance is unchanged from 20178991010111624
A3. Permanently lower GDP growth 1/8991010111624
B. Bound tests
B1. Real GDP growth is at historical average minus one standard deviations in 2018-201989101010111722
B2. Primary balance is at historical average minus one standard deviations in 2018-201989101211121719
B3. Combination of B1-B2 using one half standard deviation shocks89101111111720
B4. One-time 30 percent real depreciation in 2018810131313142023
B5. 10 percent of GDP increase in other debt-creating flows in 201889101110111617
Sources: Country authorities; and staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.

Sources: Country authorities; and staff estimates and projections.

Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period.

Revenues are defined inclusive of grants.

The updated CPIA score of the Kyrgyz Republic is 3.63, which is an average for the 2014-16 period, maintaining the classification as a medium policy performer.

Given the importance of remittances for the Kyrgyz economy (around 27-30 percent of GDP between 2014-16), staff applied the remittance-modified debt indicators in the debt sustainability analysis. The use of this approach is also supported by the following conditions: (i) remittances have been a reliable source of financing over the past few years and are expected to increase further in the medium term, partly driven by the easier movement of labor in the Eurasian Economic Union; (ii) breaches of thresholds before taking account of remittances are not protracted; and (iii) the modified debt burden indicators are significantly lower than the thresholds.

The initial agreement between Russia and the Kyrgyz Republic signed in 2014 consisted of a write-off of a $300 million debt in equal tranches over a 10-year period. $60 million were written off in 2015–16. However, the agreement was revised earlier this year to write off the outstanding $240 million in 2017.

This implies that private external debt (for example, debt of commercial banks) would be in the range of 25-29 percent of GDP in the medium term.

Under these scenarios, exports growth and non-debt creating flows are at historical average minus one standard deviation.

Other Resources Citing This Publication