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Investing.com -- Moody’s Ratings has changed the Kyrgyz Republic’s outlook to positive from stable while affirming its B3 long-term issuer ratings.
The improved outlook reflects Moody’s view that the country’s potential growth rate has increased and its fiscal metrics have improved beyond earlier expectations. The rating agency believes that with effective management and continued reforms, the economic and fiscal outlook could support a higher rating in the future.
Moody’s affirmed the B3 rating due to the country’s small, low-income economy and substantial exposure to Russia’s economy. The Kyrgyz Republic’s governance indicators remain relatively weak compared to peers, while both political and external vulnerability risks contribute to its susceptibility to event risks.
These challenges are partially offset by moderate fiscal deficits and relatively modest government debt compared to peers, though the debt remains vulnerable to local currency depreciation. Financing from development partners that keeps debt servicing costs low provides key support for the credit.
The country’s economic growth is expected to moderate from recent high levels and converge toward Moody’s increased estimate of potential growth of around 5.5% as re-exports normalize and major infrastructure projects are completed.
While the Kyrgyz economy remains largely driven by natural resources and remittances from citizens working abroad (predominantly in Russia), it is developing its tourism sector and has growing textile and manufacturing industries. This diversification is increasing the economy’s resilience to shocks.
The reliance on remittances has gradually reduced from 30% of GDP pre-pandemic to 17% in 2024. Russia still dominates the remittance landscape at 93% of inbound remittances in 2024, down from 98% in 2019, with other sources emerging including the US, South Korea, and Turkey.
Government debt as a share of GDP has declined from around 64% in 2020 to approximately 37% in 2024. Moody’s expects this ratio to increase moderately to around 39% by 2029, which compares favorably to the peer average of about 46%.
Moody’s anticipates a balanced budget in 2025, followed by moderate deficits of approximately 2.0% of GDP in 2026-28, partly reflecting investments in hydroelectric and rail infrastructure projects.
Factors that could lead to an upgrade include demonstrated outcomes from economic and structural reforms that lead to sustained improvement in medium-term economic growth prospects, continued strong fiscal metrics, and reduced external vulnerabilities.
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