Kyrgyzstan. Save the economy

Kyrgyz economy after April bloody upheavals develops not of the best efforts. Business community having lost thumping damages due to closed borders (some of the state borders were closed since 7^th April) and general political situation in the country. Anyway life goes on and restoring of the economy demands much energy. It will depend not only on business sector itself, but also discretionary decisions of the new authorities. Thus, they are expressing a wish for cooperation. But what makes us puzzled? Whether it as a race for more points and a fight for confidence among businessmen in electoral race or it is really an attempt to stabilize economy? It is still remains unknown. 

Budgetary gap

The fact is that: business activity shall be restored by all means. It demands specific resources including financial, the one the government experiences famine. April 2010 ended with a budget deficit 1 billion soms, moreover a gap amounted to $20 million was closed by the Russian grant. May also did not bring relief to the economy sector. The deficit gap increased to 2 billion soms as the government must pay to teachers. In addition to direct budget expenses arises dozens unforeseen expenses. Thus the government has paid to the families of April victims 100 million soms.

June is expected to be also less promising. According to tentative forecasts budgetary gap makes up 1 billion 315 million soms. The interesting point is that the time of promised increase of salary to the law enforcement officers and frontier guards. Kambarata-2 HPP also continues to draw money from the budget. However there are plenty things for interim government to have headache about.

Another big problem is tax collection since many of entrepreneurs fail to make it timely due to the month of dead time. Hotel business may face $6 million loses in 2010. The rest sectors of the economy also faced significant backlog of investment of the last year. Businessmen demand a help, but the budget is unlikely to provide it.

A delay

Kyrgyz officials have developed some recommendation on economical stabilization. They suggested a review of system of taxation for business sector in Issyk-Kul. That is obvious that number of tourists will drop down. Business sector needs a delay in tax payments until restoring of the situation.

However the delay, that would have saved business, will form successive black hole in the budget. This time authorities have chosen a beaten path – international donor organizations. In the course of the independence years of constant loan Kyrgyzstan bogged down in debt pit. Credits and grants provided to Kyrgyzstan left the economy of the republic in knock-out.

Cold truth

“Kyrgyzstan shall give up practice of money loan abroad and use domestic financial resources. In spite of contrary opinion Kyrgyzstan has money that may be mobilized and used in economy development. In 2009 the survey revealed that Kyrgyzstanis have around 4 billion soms that do not work and stay idle. Mobilization of monetary assets might be provided by allocation in state and municipal securities that, in turn, would sufficiently reduce budget gap.

Holes packing in the budget would let the government to act more confident in the sphere of fiscal regulation as well as provide a possibility for stable development of business sector. In fact it is a good sign for not only those working in the real economy, but also for potential investors.

On a conservative estimate Kyrgyzstanis have 60-70 percent of money supply external of banking, that is 20 billion soms. As of 18 May, 2010, volume of currency in hands made up 34,143 billion soms. However, some increase of depositary base did not sufficiently change the situation in banking. Anyway they prefer use less spec deals with state treasury bills.

Single gate game play

In the whole world banks are chief players on the security market. Their income is guaranteed by payments on government bills. In point of fact they do operate between each other and it does not contribute much to the government. Thus, it should be noted that the government shall attract investment banks and investing on stock markets, the report said.

Stock market may become an extremely efficient tool in attracting investments to the economy of the republic, unfortunately Kyrgyzstan do not learn yet how to make use of this.

The spoon of honey in the barrel of tar

Business is uninterested in solving socioeconomic problems of the government and do not give its assets. A different matter is a problem of the business sector. The government is to set process of state-private partnership, where they could solve many problems on mutually profitable conditions.

Kyrgyzstan does not have a possibility for serious state expenses and business sector would be the best contributor. The government may attract private companies to the infrastructure projects in exchange for tax remissions or other possible preferences.

If money flows could be involved to the economy by means of transparent and fair way, they would bring profit. This means that local authorities will be able to clench the matter of budgetary, grocery and financial safety, preserve business activity in the republic and draw new investing public.

A Coordinating Council may become a first step toward state-private partnership. Only when business sector will understand that help provided to the government may save the economy and will feel real effect, it would lead up the ball.

Irina DUDKA

Информационное агентство «24.kg»

http://eng.24.kg/business/2010/06/02/11808.html