EFSD Working paper WP/20/3 «Tajikistan and the Kyrgyz Republic Post-COVID‑2019: Debt Sustainability, Financing Needs, and Resilience to Shocks»

27 August 2020

The COVID-19 outbreak has revealed the sensitivity of economies and their debt positions to a wide range of disruptions: not only financial shocks may hamper economic growth, but health, political and environmental emergencies may also bring economic suffering.

In this context, experts estimated developing countries’ debt sustainability and their financing needs by considering the Kyrgyz Republic and Tajikistan. In the baseline scenario, we calculated that a 4.3% contraction in GDP in the Kyrgyz Republic and a 2.8% slowdown in Tajikistan might increase countries’ gross financing needs (consisting of debt servicing and budget balance). In Tajikistan, financing needs  are expected to increase from 3.8% of GDP in 2019 to 7.7% by the end of 2020, while in the Kyrgyz Republic they are projected to reach 10.9% compared to 4.5% in 2019. In the long run, the gross financing needs of both countries are expected to remain within 10% of GDP.

In order to shed light on how much debt Tajikistan and the Kyrgyz Republic can sustain and how the situation may change their financing needs, we consider three alternative, more adverse scenarios: (1) a protracted global crisis, (2) a slow economic recovery in the region (mainly, Russia), and (3) a natural disaster shock.