Published: 13 January 2014 г.
Deputy Chairman of the EDB Management Board, ACF Manager, Sergey Shatalov spoke to VB about the status and prospects of Kyrgyzstan’s cooperation with Eurasian Development Bank and EurAsEC Anti-Crisis Fund (ACF).
- Today, Kyrgyzstan is a member state of both Eurasian Development Bank and the EurAsEC Anti-Crisis Fund, whose resources are managed by EDB. But isn’t the republic, unlike other partner countries, faced with a deficit of attention from both of these organisations?
- I wouldn’t agree with this position. For an investment bank working with companies, it is certainly easier to find projects in big markets. But EDB’s office in Bishkek is operating and actively developing the prospects of joint initiatives. We are currently looking into projects in infrastructure, energy, and agricultural processing and exports.
- And what are the prospects there?
- In particular, at the beginning of December, the Anti-Crisis Fund Council will hold a meeting to discuss a large project related to the transportation sector – the project of North-South road rehabilitation. We are planning to be engaged in that project in a consortium with other international institutions. Another project implemented jointly with the Ministry of Finance and Aiyl Bank involves agricultural machinery leasing. Two more projects are in the pipeline. I wouldn’t be speaking about them since they have not yet received preliminary approval of the Council. Although preparatory work is underway.
- Then tell us more about the other two projects.
- In the first case, we are speaking about rehabilitation of some segments of the main highway of Kyrgyzstan running from Bishkek to Osh. It is a large project, costing nearly one percent of GDP. The contribution of the Anti-Crisis Fund will make US $50-60 million. The second project is related to the supply of over four thousand pieces of agricultural machinery produced in the EurAsEC countries for Kyrgyz farmers. A team of our experts is currently working in Kyrgyzstan. This project is smaller in the size of financing involved. But it is still significant and quite complex, as it covers quite a large number of client farms.
- Not a long time ago, the government of Kyrgyzstan requested US $400 million from the Anti-Crisis Fund. What is the current status of the issue?
- I will be going to Bishkek next week, and we’ll be discussing the issues of the investment loans and the financial credit and will assess the fiscal stance in Kyrgyzstan. Broadly speaking, it looks rather good this year. But there are long-term development needs. The task is to select the strategic priorities and areas to be financed. So, the discussion will be very focused.
- In its time, Kyrgyzstan requested a loan of US $106 million from the Anti-Crisis Fund. It took many months to consider the issue with no effect.
- The current satiation is different in two respects. Kyrgyzstan was then only joining EDB. And the first problem was that the country then had old unsettled liabilities in its debt portfolio. According to its Statute, the Anti-Crisis Fund may not lend to a country with unsettled and overdue liabilities. Now this issue has been resolved. The second, very significant, problem at the time Kyrgyzstan when submitted the said request was that the republic was not yet an EDB member.
- Does it mean that now the KR meets all the requirements of EDB and the Anti-Crisis Fund?
- I think, yes. We have some positive dynamics today. Our technical teams have visited Bishkek twice already to discuss the credit and the measures to be taken. A budget stabilisation credit, naturally, should not be used merely to cover the deficit. Such a credit should support specific measures, reforms aimed at making the fiscal system more sustainable in the future. In other words, it is not only about budget deficit financing, but about reducing the vulnerability of Kyrgyzstan’s fiscal system.
- How vulnerable is it, according to your estimates?
- We know, for instance, that this system largely depends on export revenues, where a significant share is accounted by gold exports. The gold price is volatile (a statistical financial indicator characterising the price variability. -vb.kg). Therefore, it should be discussed how to stabilise the flow of revenues from the flagship enterprise generating a significant part of the country’s exports. It is quite an important topic since certain risks arise if the budget is planned, say, based on excessively optimistic gold price projection. On the other hand, if price assumptions are too conservative, it would be more difficult to meet huge development needs of Kyrgyzstan and its society. Thus, a golden middle should be found.
- Speaking about gold. You must be aware of the long-lasting collisions around that very flagship mining enterprise of the country – “Kumtor".
- Certainly.
- The social and political unrest related to “Kumtor” adds to the already long list of conflicts with foreign investors in Kyrgyzstan. Doesn’t it create the image of a not very reliable partner within EDB?
- Judging by the progress of our dialogue with Kyrgyzstan’s Government, with all the ministries and agencies, different branches of power, the republic appears to be a very promising and serious partner. We can be doing many things together. Suffice it to say that we are currently developing one more project to put in place a logistics system for agricultural exports from Kyrgyzstan to the markets of its northern neighbours, i.e. Kazakhstan and Russia.
- And what could be the consequences of such an uproar about “Kumtor"?
- The key thing all investors, including those from member states of the Customs Union, as well as from third countries, are looking for is predictability. And this predictability should be long-term, as investors always work on a long-term basis. Let us put it this way: sharp changes in the investment climate clearly prevent them from planning their activities. If there is a specific issue with a specific enterprise, it should be explained, disclosed, analysed, investors should be talked to. And sharp changes in the regime would not benefit the inflow of new investments.
- There are different types of investors.
- It is true. Among those already operating in the republic, there are Russian power companies, the ones, which built large power facilities in the republic in the Soviet Union times and continue their successful cooperation with the country today. They have an understanding of how to work in this market. Kyrgyzstan is certainly not an investment destination easiest to work with in the world, not the most straightforward investment market. But, I would say once again, certain investors, in particular those from the partner countries of the Customs Union, have an understanding of how to work in this market, which makes cooperation smoother. But if the investment regime deteriorates, it will be difficult for any investor to work. And then, the projections of foreign direct investment inflow should probably be somehow adjusted.