The economy has a high debt burden, which presents serious risks to macroeconomic management in the short to medium term. Persistently high fiscal deficits in excess of 9 percent of GDP since 1993, a shortage of domestic savings to finance public debt, and a sharp devaluation of the som contributed to the sudden increase in outstanding debt. The debt-service burden will increase substantially in the years to 2005 because practically all nonconcessionary debt must be repaid and the grace periods for many concessionary loans will end. Rescheduling of bilateral debt will be required in the coming years to smooth out spikes in repayment burdens. The nonconcessionary loans are principally from the Russian Federation and Turkey, and include some guaranteed by the Government on commercial terms for the Kumtor gold mine.
Bilateral talks are under way to reschedule repayments of the nonconcessionary debt.
After classification, public investment in these projects will be reprioritized. The Government needs to take radical decisions to improve its fiscal consolidation efforts through additional mobilization of tax and nontax revenues to restore fiscal balance. Pursuit of public sector reforms, particularly in the energy, telecommunications, and transport sectors, is needed to better price the output from these sectors to generate additional internal resources for investment. The Kyrgyz Republic is a small open economy, with exports amounting to about 40 percent of GDP, and has made rapid progress in trade liberalization. It joined WTO in December 1998, the first of the former Soviet republics to do so.