Country Risk Rating

A high-risk political and economic situation and an often very difficult business environment can have a very significant impact on corporate payment behavior. Corporate default probability is very high. - Source: Coface

Business Climate Rating

The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D.


  • Major reserves of gold and other precious metals (including copper, uranium, mercury)
  • Support from bilateral and multilateral donors
  • Strategic pivotal position between Asia and Europe
  • Membership of Eurasian Economic Union since 2015 (Russia, Belarus, Kazakhstan, and Armenia)


  • Poor diversification of the economy, which remains reliant on gold, agriculture, and remittances from expatriate workers
  • Landlocked country with high energy dependency
  • Difficult business climate
  • Political and social instability associated with high poverty rate and inter-ethnic tensions
  • Difficult relations with its neighbors (water management, borders...)

Current Trends

Dependence on Remittances from Expatriate Workers, Gold, and Agriculture

While there was a modest level of growth in 2017, private consumption took over from the fiscal stimulus policy introduced in 2016 to mitigate the negative impact of a degraded regional economic environment. The recovery in Russia, although slight, together with a simultaneous recovery in remittances from expatriate workers (one-sixth of the population, living mainly in Russia), is expected to provide greater support for household consumption and exports in 2018. However, the contribution of investment will remain limited, and investment financing will rely heavily on multilateral institutions – both for infrastructure projects financed by the ADB, as well as for the small and medium-sized enterprises receiving loans from the Russian-Kyrgyz Development Fund (RKDF) – thus weakening the impact of the expansionary monetary policy on bank credit and economic activity.

On the supply side, the rally in industrial production is expected to continue in 2018, thanks to production of gold (about one-third of total industrial output and 40% of exports), textiles and agri-food, as well as the performance of the construction and transport sectors. This is because infrastructure projects, like the construction of the North-South motorway, will help the country to diversify its sources of growth at a time when gold could lose its attractiveness for investors, and when its price could fall if world economic conditions improve. Agriculture – focused on cotton, tobacco, and livestock, and accounting for a third of GDP and half of jobs – will continue to play an important role.

Postponed until 2018, electricity price increases are expected to maintain the inflationary pressures observed in 2017, which were initially fueled by higher prices for food and tobacco and the alignment of customs duties with Eurasian Economic Union norms.

Undermined by its Twin Deficits

Fiscal consolidation efforts will continue in 2018 thanks to contained public spending. The financing of the countercyclical fiscal policy through external borrowing conducted in 2016 has not pushed up the public debt ratio thanks to the som’s appreciation against the US dollar. However, Kyrgyzstan’s heavy public debt burden remains sensitive to exchange rate risks, and to an increase in the state’s contingent liabilities; particularly in the energy sector, where structural reforms are expected to close the gap between the cost of the utility and the price passed on to users.

Higher private transfers – which account for about 30% of GDP – and an improved trade balance should help reduce the current account deficit slightly in 2018. However, considering the country’s energy and food dependence and poor sectoral diversification of exports, it is likely to remain high. The foreign exchange reserves, equivalent to 4.1 months of imports of goods and services, may not be sufficient to withstand an external shock.

First Democratic Transfer of Power Since Independence

Former Prime Minister Sooronbay Jeenbekov won the October 2017 presidential elections, supported by the outgoing President Almazbek Atambayev (ineligible to stand for a second term), gaining 54.3% of the votes cast compared with his 33.4% for main rival, businessman Omurbek Babanov who was also Atambayev’s former Prime Minister. Despite the problems flagged up by the Organization for Security and Co-operation in Europe, this is the first democratic transfer of power in a country which has already experienced two revolutions since gaining independence. As his own Social Democratic party only holds 38 out of 120 seats, Mr. Jeenbejov will have to work with a tripartite parliamentary coalition, Prime Minister Sapar Isakov, whose power was recently reinforced by a referendum, and the former president likely acting as figurehead.

The country benefits both from close co-operation with Russia (which has a military base in the country) as a member of the Eurasian Economic Union, of which Kyrgyzstan became a member of the Executive body in 2017, and from its strategic position on the Eurasian trade routes which China wants to develop as part of its “One Belt, One Road” project. However, the mediocre business climate, characterized in particular by high levels of corruption, is likely to continue to deter foreign investment, as will the arbitration proceedings on profit sharing currently being brought against the state by the Canadian company Centerra (the country’s leading taxpayer, with turnover equivalent to 10% of GDP), which operates the Kumtor gold mine. Relations with neighboring Kazakhstan remain conflictual.


Coface (01/2018)