Kyrgyzstan: Tax revenues declining, unemployment and poverty persist

BISHKEK (TCA) — Kyrgyzstan has ensured macroeconomic and social stability and achieved GDP growth in the first four months of 2019, the Kyrgyz Economy Ministry reported. The GDP growth was 5.3%, and excluding enterprises developing the Kumtor gold field — 1.4%.

However, many experts do not trust official information about positive developments in the country’s economy.

“Investments reduced in 2018 compared with the previous year, unemployment is growing and new jobs are not created. What positive shifts can we talk about?” Parliament Deputy Aaly Karashev said and urged the Government to carry out drastic reforms.

For many years, the country’s economy depends on the results of the Kumtor Gold Company and the remittances of labor migrants. In January-April 2019, their remittances reached $740.5 million, $30.2 million more compared to the first four months of 2018, the National Bank of the Kyrgyz Republic reported.

More than 90% of remittances were from Russia ($726.6 million) and the U.S. ($9.2 million). Remittances from other countries amounted to $4.4 million.

Due to poor economic development, social issues have not been solved so far. The State cannot create jobs and reduce unemployment.

Poverty and unemployment

According to the National Statistics Committee, the unemployment has increased by 19.2% since the beginning of the year compared to the same period last year.

About 80 thousand unemployed were registered in the country as of April 2019, and almost half of them were women. Most of the unemployed live in the south of the country — in the Jalal-Abad, Osh and Batken oblasts.

Last year, more than 1.4 million citizens, 22.4% of the population of Kyrgyzstan, lived below the poverty line. Of these, 35 thousand people lived in extreme poverty. About 68% of citizens living in poverty are villagers, the National Statistics Committee reported.

The Ministry of Labor and Social Development proposes to allocate up to 100 thousand soms ($1,500) to low-income families to overcome poverty. Last week, the Ministry submitted for public discussion a draft Government resolution on providing one-time social assistance to poor and low-income families on the basis of a social contract to be valid from August 1, 2019 to December 31, 2022.

The project will require the allocation of 300 million soms annually to the Labor Ministry’s budget. Entrepreneurs willing to create new jobs for able-bodied citizens from among the poor and low-income families will be provided with a lump sum free of charge.

According to the project, poor and low-income families and territorial divisions of the Labor Ministry will sign social contracts, under which the families should undertake certain obligations, and the state will provide assistance to them.

“The money will be given in exchange for active family actions,” the Ministry explained. A prerequisite for receiving one-time assistance will be the implementation of activities under the Social Adaptation Program by applicants.

Tax revenues declining

According to the Ministry of Finance, the tax plan for the first four months of 2019 was not fulfilled by 2.2 billion soms (6.8%). This happened for the first time since 2011 when the Finance Ministry began to openly publish reports on the national budget.

According to the results for January-April 2019, total revenues of the state budget of Kyrgyzstan amounted to 47.48 billion soms. Of these, 35.72 billion soms were provided with tax revenues. Taxes collected were 1.1 billion soms less compared to the same period last year.

Tax service and customs service bring the bulk of tax revenue to the state budget. Earlier, tax revenue grew annually. Even in 2012, when the country’s GDP dropped dramatically due to a twofold decline in gold production at Kumtor, tax collection increased by 3.1 billion soms compared to 2011.

The largest increase in tax revenue for the first four months was in 2018, with an increase of 5.55 billion soms.

The Government should openly admit that it has problems with the public budget, MP Elvira Surabaldiyeva believes.

There are no significant factors that could influence tax cuts, experts say. According to official data, GDP grew by almost 5.7% in the first four months of 2019, the dollar has remained steadily high, and inflation growth has been zero in the last three years.

To fulfill the tax collection plan, the Government has to resort to business assistance. Entrepreneurs from various economy sectors told Azattyk (Liberty) Radio that employees of the State Tax Service and State Customs Service asked large business to pay taxes in advance for the next few months.

This practice of “voluntary-compulsory partnership” has always existed and is not news for businesspeople, former head of the JIA Business Association Ruslan Akmatbek said. Most often, entrepreneurs cannot refuse the request, because they do not want to spoil relations with tax authorities, he added.

Parliament deputies were outraged by such implementation of plans for taxes.

About 720 thousand taxpayers are currently registered in Kyrgyzstan, but only 400 thousand of them work and submit reports, news agency said. MP Baktybek Turusbekov has information that out of these 400 thousand taxpayers, only 150 thousand pay taxes. The MP advised the Government to use this potential.

Shadow economy

SIAR Research & Consulting recently presented preliminary results of the first independent study of the non-observed economy of Kyrgyzstan. By the most conservative estimates, the shadow economy is 29.8% of GDP.

According to SIAR experts, the obtained indicator is based on a survey of only registered limited liability companies. Individual entrepreneurs, whose activities are less accountable, were not included in the research. That is why the 29.8% preliminary indicator of the shadow economy can be considered a threshold. The level of unobserved business activities is much higher, experts believe.

The unaccounted production sector causes enormous damage to the state budget, Prime Minister Mukhammedkaliy Abylgaziev said. The state does not receive about 40 billion soms of taxes annually. Even half of this money would be enough to solve the problems of lack of schools and kindergartens and improve the road infrastructure, he added.

Public debt

According to the Finance Ministry, the amount of public debt of Kyrgyzstan is more than $4.44 billion, 51.3% of the forecast GDP for 2019. External debt is more than $3.78 billion. The State owed the most money to the Export-Import Bank of China — about $1.7 billion, International Development Association, World Bank Group — $651.7 million, Asian Development Bank —$577.6 million, Japan International Cooperation Agency (JICA) —$237.8 million, and International Monetary Fund — $163.1 million.

Kyrgyzstan’s foreign debt liabilities for concessional loans are more than $3.72 billion, while ordinary loans — only $58.67 million.

According to the state budget forecast for 2020-2021, Kyrgyzstan plans to spend 28.3 billion soms to service its public debt. This is almost a fifth of the state budget revenues. Debt payments will increase every year, from 20.6 billion soms in 2018 to 36.5 billion in 2021.

For a country with a weak economy, the growth of external debt to GDP is quite dangerous. Kyrgyzstan’s Government and MPs proposed to limit the debt-to-GDP ratio by 70%. To maintain the national security, they plan to introduce a rule that the share of borrowing from a single lender should not exceed 50% of the entire national debt.

The peak of public debt payments will be in 2027, when the country will have to pay $400 million from the state budget.

Investment project results

The Government has no results on investment projects and does not protect business interests, said MP Azamat Arapbayev, who assessed the Government’s report on attracting investments as “unsatisfactory.”

Most MPs did not support him and rated the Cabinet’s work as “insufficient.” The deputies gave the Government time until November 1, 2019 to fulfill their orders related to attracting investment.

Many economists agreed with MP Arapbayev. Investment projects are not being implemented, and jobs are not created in the country, economist Asylbek Ayupov told

“If we exclude Kumtor from reports on the results of the first four months of this year, there is no economic growth in the country,” expert Azamat Akeneev concluded.