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PUBLIC DEBT

OF THE KYRGYZ REPUBLIC

Prepared by A.A. Bektenalieva


Head of Public Debt Management Unit
of the Public Debt and Assets Department

Kuala Lumpur, November 2009


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Contents

„ I. Background: public debt in the Kyrgyz Republic


„ II. Goals of public borrowings

„ III. Public debt structure

„ IV. Legal framework

„ V. Measures taken to reduce debt burden

(Reasons and outcomes of applying to the Paris Club)


„ VI. Public Debt Management Policy in the Kyrgyz
Republic

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I. Background: Public Debt in the Kyrgyz
Republic

„ Prior to 1992 - no experience in attracting external


credits and loans
„ Prior to 1992 - no administrative and institutional
standards for external financing
„ 1992 - Central Bank of Russia provided short-term,
interest free technical credits to a number of SIC
countries to finance their trading transactions
„ 1993 – Russian Government suspended extension of
technical credits, while already provided loans were
consolidated in convertible currency at market
interest rate and market ruble exchange rate. CIS
countries signed a number of credit agreements.

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Financing of Structural Reforms in the
Kyrgyz Republic by International Finance
and Credit Institutions

„ IMF, WB, EBRD, ADB, IBR


„ Donor countries (Japan, Germany,
Switzerland)
„ Outcome – more than 140 state
enterprises turned into joint-stock
companies

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II. Goals of Public Borrowings

1. Financing of the state budget deficit


2. Financing of public investments
3. Covering public debt related costs, and
refinancing of public debt
4. For other purposes provided for in the
legislation of the Kyrgyz Republic

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III. Kyrgyz Republic: Public Debt
Structure
(as of 31.12.2008)
Public debt of the Kyrgyz Republic totaled
2 319 395 thousand USD, out of which:
(thousand USD)
„ Bilateral concessionary 414 567
„ Bilateral non-concessionary 259 594
„ Multilateral concessionary 1 446 191
„ Multilateral non-concessionary 1 020
„ Contingent liabilities 6 513
„ Domestic debt 191 510
→ % of GDP - 45,3%
Note: Discount rate of the National Bank: 1 USD = 39.4181 soms as of 31.12.2008

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Kyrgyz Republic: Public Debt
Structure
31.12.2008

M ultilate ral
conce s s ionary
62.35%

Dom e s tic de bt
8.26%

Bilate ral
conce s s ionary
17.87%

Bilate ral
non-conce s s ionary
11.19%
Continge nt M ultilate ral
liabilitie s non-conce s s ionary
0.28% 0.04%
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Динамика освоения внешнего долга

300

250
млн.долл.США

200

150

100

50

0
1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006
годы

Двусторонние кредиторы Гарантии МВФ Многосторонние

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Debt currency profile as of the end
of 2008
(million USD equivalent and percentage)

9,14
0,4%
87,66 SDR
3,8%
USD

Local currency
1 396,78
38,38 KWD
60,2%
1,7% 303,08
13,1% KRW
JPY

ID
13,58 191,51
8,3% EUR
0,6% 262,68
11,3% CNY

16,59 9
0 7%
Macroeconomic indicators

45% 140,0%

40%
120,0%
35%
100,0%
30%

25% 80,0%

20% 60,0%
15%
40,0%
10%
20,0%
5%

0% 0,0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Inflation GDP growth Public debt/GDP

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Allocation of External Assistance
in 2008
Agreed amount % of the
№ Sector million USD total

1 Public Administration 48.3 2.1


2 Industry 117.9 5.1

3 Agriculture and irrigation 410.1 17.9


4 Social 254.7 11.1

5 Transport and communications 400.5 17.4


6 Tourism 6.0 0.3
Support to the budget and balance
7 payments (national currency) 763.3 33.2
8 Private 71.6 3.1
9 Energy 204.9 8.9
10 Environment 18.4 0.8
Total 2 295.7 100.0
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Public Debt Service Profile
for debt outstanding on 31.12.2008

120,00

100,00

80,00
Domestic Debt
Bilateral Debt
млн.USD

Multilaterral Debt
60,00

40,00

20,00

-
09

11

13

15

17

19

21

23

25

27

29

31

33

35

37

39

41

43

45
20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20
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Public Debt Service and
Disbursement in 2008
(million USD)

Interest 25.7
External debt 16.3
Domestic debt 18.9
Principal 87.6
External debt 31.4
Domestic debt* 63.5
Disbursements 116.9
External debt 95.1
Domestic debt* 67.0
*contains items that are borrowed and repaid
several times within the year (e.g. 3,6 months T-
bills)
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External Debt Sustainability
Indicators

Indicators 2004 2005 2006 2007 2008

External public debt / GDP 87% 78% 66% 53% 45%

External debt service to export 13% 19% 5% 3% 3%

External debt service to budget


revenues 14% 26% 10% 7% 4%

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IV. Key regulatory legal acts regulating
public debt management
We have a legal framework for public
debt management
„ LAW OF THE KYRGYZ REPUBLIC
«On Public and Non-public Debt of the Kyrgyz Republic»

„ LAW OF THE KYRGYZ REPUBLIC


«On the National Bank of the Kyrgyz Republic»

„ LAW OF THE KYRGYZ REPUBLIC


«On Basic Principles of the Treasury of the KR»

„ LAW OF THE KYRGYZ REPUBLIC


«On Budget Law Basic Principles in the KR»
„ Public Debt Management Strategy of the KR for 2009-2011, №400, dated June 23, 2009
„ Country Development Strategy for 2009-2011

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V. Why the Issue of the External
Debt Became so Relevant?
Economic reforms in the Kyrgyz Republic, - mainly financed
at the expense of external borrowings, - were aimed at
implementation of the Public Investment Program,
structural reforms and covering the budget deficit.

As a result, the external public debt increased from 36% to


the GDP in 1995, to 136% - in 1999.

This resulted in the problem with liquidity and debt


sustainability; to solve this problem, the Kyrgyz Republic
applied to the Paris Club requesting for the relief of bilateral
debt.

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Debt restructuring under the
Paris Club in 2002
Main objective of the Paris Club -1:
Resolution of the medium-term liquidity problem

Outcomes of the PC-1:


Consolidation of payments subject to payment from December
2001 to December 2004, and extension of repayment period

Reduction in the amount of service:


from 109 million USD subject to repayment for 2001-2004 to
7.5 million USD

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Debt Restructuring under the
Paris Club in 2005
Main objective of the Paris Club-2:
Settlement of the solvency problem for the medium-term period

Outcome of the PC-2:


Reduction in the accumulated bilateral external debt at Net
Present Value (NPV)

Reduction in the amount of debt:


50% at nominal value – 20 million USD;
50% at Net Present Value – 102 million USD
Extension of the grace period and repayment period
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Measures taken to reduce the
external debt
As a result of negotiations, a number of bilateral creditors
provided debt relieve:
„ Pakistan: 9.58 million USD
„ China: 6.65 million USD
„ Germany: 0.78 million euro (debt swap)
„ India: 1.02 million USD
„ Russia: 193.5 million USD (part of the debt as a debt-
equity swap)
Transactions on swapping the debt for public shares in
enterprises, and implementation of projects under Chinese
loan (8.12 million USD) and Germany (2.25 million euro)
are under negotiation.
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Measures taken to reduce the
external debt
In order to reduce the burden of the external debt for
the budget, in compliance with Resolution of the
Government of the KR No. №135-р dated 24.05.07,
People’s Account for Repayment of the External
Debt of the KR was opened with the National Bank
for the national and foreign currencies.
As of 01.10.2009, the total amount in this account
reached: 803 816 soms and 350 US dollars

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Medium-term Public Debt
Management Strategy

„ The current Medium-term Public Debt Management Strategy


is for 2009-2011
The Strategy is aimed at achieving the following results:
„ Reduce the level and the share of the external public debt;

„ Attract new external borrowings with, at least 35% grant

element (reduction from 45%);


„ Increase in the share of domestic borrowings in public

debt;
„ Implementation and strengthening of Risk Management

„ Developing of secondary market

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DSA. EXTERNAL DEBT SUSTAINABILITY ANALYSIS
„ The Kyrgyz Republic is rated as a medium
performer based on the World Bank’s
Country Performance and Institutional
Assessment Index for low income countries.
The relevant policy-dependent thresholds
for countries in this category are 40 percent
for the PV of the debt-to-GDP ratio, 150
percent for the PV of debt-to-exports ratio,
250 percent for the PV of debt-to-revenue
ratio, 20 percent of the debt service-to-
exports ratio, and 30 percent of the debt
service-to-revenue ratio.
Source: from most recent IMF/WB DSA 22
A. Baseline
„ The baseline scenario points to a cautiously favorable
improvement in the external debt outlook over time.
Already by end-2008, the PV of debt-to-exports and the PV of
debt-to-revenue ratios, at 43 and 94 percent respectively, were
well below their policy-based indicative thresholds.2 Only the PV
of PPG debt-to-GDP ratio, at 27 percent, is closer to its relevant
threshold of 40 percent in 2008. Over the DSA horizon, all debt
ratios move steadily on a downward path underpinned by
steady growth, fiscal consolidation, and prudent debt
management.

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„ Debt service is expected to remain manageable
throughout the DSA horizon. This reflects the high
concessionality of both the outstanding multilateral debt and the
assumed new borrowing over the medium term. The PPG debt
service ratio would increase slightly from 3.5 percent of exports
(5.3 percent of revenues) in 2008 to 7.5 percent of exports
(11.4 percent of revenues) in 2029, driven by less-concessional
new borrowing and the repayment of the previously
restructured bilateral debt.

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Thank you for the attention!

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