Prime Minister Amangeldy Muraliev told reporters in Bishkek in the last week of 1999 that Kyrgyzstan was on the verge of defaulting on its foreign debt (Reuters, December 28). Although during the second half of 1999 Kyrgyzstan showed signs of recovery from the sharp economic slowdown which followed Russia’s August 1998 financial crisis, Muraliev’s statement indicates that the return of economic growth may not be enough to forestall a fiscal crash in Bishkek.
Kyrgyzstan’s US$1.5 billion external debt is at the root of the problem. The foreign debt is much larger than the country’s annual GDP, which totaled only 43.5 billion som (US$978) through the first eleven months of 1999. The US$87 million in foreign debt service which Kyrgyzstan must pay this year represents about 40 percent of the 2000 budget’s expenditures, and does not include additional spending to service Bishkek’s domestic debt. Russia, by contrast, only devoted 25 percent of its budget to debt servicing during the first ten months of 1999.
To avoid a default, Muraliev’s government is seeking to further constrict Kyrgyzstan’s already tight fiscal policy. Bishkek reduced its fiscal deficit from 1.6 billion som (5.2 percent of GDP) in 1997 to 1.0 billion som (3.1 percent of GDP) in 1998, and–despite a slowing economy–seemed likely to further reduce the deficit in 1999. The amended 2000 budget which parliament approved on December 15 actually calls for a surplus of 0.3 percent of GDP, via both 100 million som worth of budget cuts, and revenues from the anticipated privatization of the KyrgyzEnergo and KyrgyzTelekom energy and telecom monopolies. If implemented as planned, this budget would allow the government to avoid fresh borrowing in 2000. Bishkek is also attempting to restructure its government-to-government debt, and has concluded an agreement to reschedule its US$157 million debt to Russia. Debt restructuring negotiations are currently being conducted with Pakistan and Turkey as well.
…UNLESS ECONOMY RECOVERS QUICKLY.