BISHKEK (TCA) — The US dollar has most significantly depreciated against the national currency in Kyrgyzstan among the countries of the Eurasian Economic Union since the beginning of 2016, the Statistics Department of the Eurasian Economic Commission said.
The average rate of the US dollar to the Kyrgyz som was 67.31 som, 12.7% lower than in December 2015. The Russian ruble holds the second place with the average rate 64.33 rubles to the US dollar, 8.28% lower compared to December 2015.
At the same time, the Kazakh tenge and Belarusian ruble have depreciated against the dollar. The tenge has lost 5.3% since the beginning of 2016, and the Belarusian ruble fell by 8.4% against the dollar.
Leading position
Over the past five years, Kyrgyzstan’s banks have been holding the leading position in the EEU in terms of assets return, the Eurasian Economic Commission said.
At the end of 2015, the assets’ profitability of Kyrgyzstan’s commercial banks was 1.5%, while it was 1.01% in Kazakhstan, 1% in Belarus, and 0.25% in Russia. Armenian banks showed a negative indicator (-0.63%).
According to the National Bank of the Kyrgyz Republic (NBKR), the country’s commercial banks have issued most loans to the agricultural sector and trade – 5.77 billion soms, or 58.7% of the total loans. The loans in soms were twice as much as in foreign currency. In June, the banks issued loans worth 9.83 billion soms, which is 37% more than in December 2015.
Kyrgyz citizens now prefer deposits in the national currency. The largest volume of deposits in the national currency was in July (20.71 billion soms, or 55.6% of the total). From January to July, local bank clients put 241.2 billion soms on deposit accounts, which is 14.6% more than in the same period of 2015.
The deposit portfolio of Kyrgyzstan’s commercial banks totaled 101.23 billion soms in July.
Kyrgyzstan has the highest bank lending rates among the EEU countries. Some experts explain this by high cost of banks’ resources. The banks attract deposits under up to 17%, and 5% goes to operating expenses, and 2-3% for profits. As a result, the interest rate of loans is about 28%.
Tight monetary policy
The dynamics of the US dollar to the som was multidirectional. Its rate increased in early January 2016 and decreased in March.
The situation is now relatively stable in the foreign exchange market. Since the beginning of 2016, the US dollar has decreased by 9.9% against KGS. Recall that the US dollar rose by 28.9 percent in 2015.
Kyrgyzstan’s accession to the EEU, the sharp devaluation of the Kazakh tenge, and consequences of the global financial crisis made the Kyrgyz som extremely vulnerable last year. However, there are no reasons for a dramatic growth of the dollar now, experts say.
Kyrgyzstan has conducted a tight monetary policy. The NBKR controls the situation to avoid sharp exchange rate jumps but it does not indicate a good state of the economy. Many enterprises are idle and imports prevail over exports.
The complicated EEU technical regulations do not allow exporting Kyrgyz products to the EEU countries. Businesses are trying to adapt to the new environment but it takes time. As a result, the US dollar is not in demand.
In the past, when the re-export economic model was flourishing in the country, dollars were necessary to purchase goods abroad. The situation has changed after joining the EEU. The country should aim at the development of industrial production but it has not happened so far.
Road to nowhere
Simply restraining foreign-currency exchange rates without changing the economy’s structure is a road to nowhere, and the longer this situation lasts, the more devastating the consequences would be, experts believe. The national currency’s stability should be provided by an increase in exports and reduction of the country’s external liabilities.
The situation in the economy is ideal when cheap raw materials are imported and the manufacturing sector is intensively developing, resulting in the export of goods with high value added. Unfortunately, this development model is currently impossible in Kyrgyzstan.
Even with the strong som against the currencies of neighboring countries, increasing imports are “killing” domestic producers, and the tight administrative control over the exchange turnover boosts the illegal market.
The direct administrative intervention in the foreign exchange turnover, which is now happening in the country, and further reduction in the population’s demand are destructive for the economy, experts say. The uncertainty of the economy’s future deters entrepreneurs from investing in business development.
