Kyrgyzstan is currently experiencing deep political and economic crises. The list of negative factors, in particular the pandemic-induced lockdowns, sharp decline in migrant remittances, and reduction in external demand for its basic exports significantly contributed to the economic decline. The country’s tourism sector, one of the main contributors to its economy and employment, dropped by 80-90%. In 2019, the tourism sector’s exports reached $610 million, its gross value added equaled $430 million and it attracted $400 million investments. The sector did not achieve even half of all these indicators in 2020 as the number of trips and tours to the republic decreased by more than 90% [24.kg, 2020].
Resignation of the president Sooronbay Jeenbekov due to mass protests and controversial procedures of the appointing a new government decreased international trust for the country. Business takeovers, including companies in the mining and tourism sector, self-appointments in several state-owned and other enterprises undermined the investment attractiveness and business climate of Kyrgyzstan. International community suspended their grants and loans, which are vital for the country with high dependence on foreign aid. For instance, the European Union refused to provide the approved €6 million for digitalization projects [Kabar, 2020]. Even Russia suspended a $100 million loan transfer through the Eurasian Fund for Stabilization and Development, which are in high importance given the expected 40-45 billion som ($400-450 million) budget deficit [Sputnik, 2020]. As a result, the newly appointed minister of foreign affairs of Kyrgyzstan Ruslan Kazakbaev made his first visit to Russia. The media of Kyrgyzstan also report that the acting president and the prime minister of the country Sadyr Japarov plans to visit Russia. Therefore, it is important to analyze how Russia is economically important for Kyrgyzstan, not taking into consideration political and military cooperation including the Kant Air Base.
Russia is one of the top trade partners of Kyrgyzstan. In 2019, Kyrgyzstan imported goods from Russia worth $1.4 billion, while its exports equaled $0.28 billion. As a result, trade balance amounted to minus $1.12 billion. Kyrgyzstan’s exports mainly consist of agricultural products, apparel and clothing, while its imports is more diversified and includes a wide range of products such as mineral fuels, metals, agricultural goods and products of the industrial sector. As the Figure 1 shows, Kyrgyzstan’s imports far exceeds its exports, and differences started to occur in the early 2000s. Increasing prices for mineral fuels contributed to these changes and made the country more dependent on suppliers of energy products. In 2019, the shares of Russia in Kyrgyzstan’s total exports and imports equaled 14.2% and 28.1%, respectively.
Figure 1. Kyrgyzstan’s bilateral trade with Russia, million $
Source: The Author’s compilation based on data from the National Statistical Committee of Kyrgyzstan (2020a)
The Figure 2 shows top investment partners of Kyrgyzstan. Canada is a leading country, which in 2019 invested $3.6 billion. Its interests are connected with the Kumtor Gold Mine, which significantly contributes to the country’s exports and GDP. Russia’s investment increased from $158 million in 2004 to $1.4 billion in 2019. Its investment in Kyrgyzstan peaked in 2015 and reached almost $2 billion. China, in turn, invested $0.87 billion in 2019. The share of Canada in total investments in Kyrgyzstan increased from 28.4% in 2004 to 49.2% in 2019. For the same period, the indicator of Russia grew from 10.4% to 19.1%, while China’s share changed from low 0.6% to 11.9%.
In terms of migration and remittances, Russia’s role for Kyrgyzstan is vital. According to different sources and estimates, the number of migrants from Kyrgyzstan working in Russia varies from 700 thousand to one million people [Sagynbekova, 2017]. Their remittances allow the country to support internal demand and pay for its imports. According to data from the National Bank of Kyrgyzstan (2020), in 2018 and 2019, migrant remittances were equal to $2.7 billion and $2.4 billion, respectively, of which 98% came from Russia. The World Bank (2020) data shows that those volumes of remittances accounted for 32.5% and 28.5% of the country’s GDP for the same period.
Figure 2. Foreign direct investment in Kyrgyzstan by selected countries, million $
Source: The Author’s compilation based on data from the National Statistical Committee of Kyrgyzstan (2020b)
Another area of cooperation is in the field of aid, where Russia uses different tools. One of the most important schemes through which Russia provides aid to Kyrgyzstan is via creation of joint development funds. In 2014, before Kyrgyzstan accessed the Eurasian Economic Union, Russia formed Russian-Kyrgyz Development Fund (RKDF) and allocated $500 million for its investment purposes. Moreover, it planned to lend additional $500 million [The Moscow Times, 2015]. The 2019 annual report of the RKDF (2020) shows that it became an important contributor to the industrialization of Kyrgyzstan. By the end of 2019, the fund approved 491 projects in the industrial and manufacturing sectors worth $114.7 million. The number of projects in the agricultural sector equaled 1343, for which the fund approved $87.1 million. The RKDF also supported 140 projects in the tourism sector and provided them with $46.4 million. The shares of these three sectors in total volume of the fund’s financing correspondingly equaled 30.2%, 23% and 12.2%. Other areas of the RKDF activity include transport, infrastructure, finance, communication and information technologies. By January 1, 2020, the fund’s assets exceeded $574 million, while its capital equaled $532 million.
Russia’s role is important for Kyrgyzstan in terms of low rate loans and grants. In 2018, Russia wrote off the entire debt of the country, which was equal to $240 million [TASS, 2019]. Since 2005, it has written off $700 million of Kyrgyzstan’s debt. In 2019, Russia financially assisted Kyrgyzstan’s economy by donating $30 million. Since 2012, Moscow has provided grants to Bishkek totaling $250 million. As it was noted above, in August 2020 Russia agreed to transfer the $100 million loan, but political crisis changed its plans [Tkachev et al., 2020].
It should be noted that corporations from Russia such as Gazprom are active in Kyrgyzstan. In 2014, the company bought Kyrgyzstan’s natural gas distribution system for a symbolic $1 and planned to invest $1.5 billion in its pipelines by 2030 [Putz, 2016]. The company implements important social and educational projects in Kyrgyzstan. It built a modern school in Bishkek, which started to work in September 2019.
In conclusion, Russia is one of the most strategically important allies of Kyrgyzstan. It is one of the leading trade partners and significant source of investments. Its role for Kyrgyzstan’s stability is vital in terms of migration and remittances, which equaled for a substantial share of the country’s GDP. Migrant remittances support internal demand and international trade flows. Therefore, they contribute to the social stability of the country. Russia finances industrial, agricultural and services projects through the Russian-Kyrgyz Development Fund. It wrote off the entire debt of Kyrgyzstan and provided grants and financial assistance for different purposes. Russia was ready to transfer additional loans, which due to political events in Kyrgyzstan were suspended. In the current circumstances of deep political crisis, Russia may become the single source of loans and financial assistance. Therefore, given the substantial aid, which Russia provides the country, Kyrgyzstan should use all obtained resources and direct its policy towards accelerated industrialization, higher support of agricultural and services sectors, which is achievable through the real fight with corruption, better business climate and guarantees of property rights. Otherwise, both economic and political costs for the country will be extremely high.
References
Kabar (2020). The EU canceled the decision to allocate €6 million to the Kyrgyz Republic for digitalization. The government made a comment. Retrieved from http://kabar.kg/news/es-otmenil-reshenie-vydelit-kr-6-mln-evro-na-tcifrovizatciiu-v-pravitel-stve-dali-kommentarii/. Accessed on 28.10.2020.
National Bank of Kyrgyzstan (2020). Remittances of individuals made through the money transfer system. Retrieved from https://www.nbkr.kg/index1.jsp?item=1785&lang=ENG. Accessed on 25.10.2020.
National Statistical Committee of Kyrgyzstan (2020a). International Economic Activity. Exports and imports of goods by countries. Retrieved from http://www.stat.kg/ru/statistics/vneshneekonomicheskaya-deyatelnost/. Accessed on 25.10.2020.
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Putz, Catherine (2016). Gazprom plans $1.5 billion investment in Kyrgyz gas pipelines. Retrieved from https://thediplomat.com/2016/06/gazprom-plans-1-5-billion-investment-in-kyrgyz-gas-pipelines/. Accessed on 25.10.2020.
Russian-Kyrgyz Development Fund (2020). Annual report (2019). Retrieved from https://www.rkdf.org/ru/o_nas/otchety/godovoy_otchet. Accessed on 22.10.2020.
Sagynbekova, Lira (2017). International Labour Migration in the Context of the Eurasian Economic Union: Issues and Challenges of Kyrgyz Migrants in Russia. University of Central Asia, IPPA, Working Paper №.39, pp. 1-29.
Sputnik (2020). Kyrgyz Republic’s budget deficit to reach $450 million by the end of the year – Foreign Minister. Retrieved from https://ru.sputnik.kg/economy/20201024/1050184700/kyrgyzstan-mid-ruslak-kazakbaev-deficit-byudzhet.html. Accessed on 24.10.2020.
TASS (2019). Russia will provide Kyrgyzstan financial aid in the amount of $ 30 million. Retrieved from https://tass.ru/politika/6264928. Accessed on 26.10.2020.
The Moscow Times (2015). Russian government approves giving $1 billion to Kyrgyz Development Fund. Retrieved from https://www.themoscowtimes.com/2015/03/27/russian-government-approves-giving-1-billion-to-kyrgyz-development-fund-a45230. Accessed on 25.10.2020.
Tkachev, Ivan, Starostina, Yulia and Natalia Anisimova (2020). Russia has suspended financial assistance to Kyrgyzstan. Retrieved from https://www.rbc.ru/economics/14/10/2020/5f8740519a794747a9369708?from=from_main_1. Accessed on 24.10.2020.
World Bank (2020). Personal remittances, received (% of GDP) – Kyrgyz Republic. Retrieved from https://data.worldbank.org/indicator/BX.TRF.PWKR.DT.GD.ZS?locations=KG. Accessed on 25.10.2020.
24.kg (2020). Volume of tourism business in Kyrgyzstan drops by 80-90 percent. Retrieved from https://24.kg/english/167156_Volume_of_tourism_business_in_Kyrgyzstan_drops_by_80-90_percent/. Accessed on 02.10.2020.
Note: The views expressed in this blog are the author’s own and do not necessarily reflect the Institute’s editorial policy.