24.02.2021 Author: Valery Kulikov

Life in Debt in the Former Soviet Space


The world is standing on the edge of a very real debt pit: according to calculations of the Institute of International Finance (USA), the total world debt is approaching $275 trillion, or 365% of world GDP. Because of the high level of debt of governments, businesses, and the population, the world economy is on the brink of a massive crisis. The problems of the banking sectors of individual countries pose risks to the international financial system as a whole. Whether the worldwide habit of living on credit will cause a new Great Depression is a concern that currently occupies the minds not only of economists and financiers, but also of politicians and ordinary citizens around the world, especially in the face of serious financial problems in the United States.

The size of the national debt is influenced by many factors, such as the country’s population, the size of the economy, the failure of the government’s policies, and others.

Given the diversity of countries and the problems each of them faces, let us look at the situation in the countries of the so-called post-Soviet space and, above all, in those of them that make up the CIS, as well as the Eurasian Economic Union (EAEU).

The traditional leader in indebtedness among the former Soviet republics is Ukraine, where the total public debt grew only in 2020 by 6.98%, amounting to $90.26 billion, according to the Ministry of Finance of the country. Already in 2019, it passed 90% of GDP. In 2021, Ukraine has to pay back almost $1.7 billion of debts to the International Monetary Fund only, and Kiev can count on only two tranches of $1.4 billion.

Ukraine’s indebtedness has been growing particularly rapidly since 2014. The economic value of the pro-European course that Ukraine has been following since 2014 has turned out to be not so happy: the loss of the markets of Russia and most other CIS countries in pursuit of European mirages could not help but have a significant drop in the balance of trade. As noted by the Ukrainian media, the real cost of a free trade zone with the EU is the degradation of the remnants of industry in the national economy, the archaization of the model of the division of labor and the ultimate loss of the minimal industrial base in production with a slide towards the model of an agrarian country. Corruption and weak governance scared away foreign investors, which, along with the pandemic, had a negative impact on economic performance last year, Bloomberg points out.

Given the negative financial and economic indicators of Ukraine, more than 71% of its citizens believe that life in the country is getting worse with every next president, as evidenced by the survey conducted by the Center of Social Monitoring. Earlier, from the results of the survey of this center it became known that more than 45% of Ukrainians were in favor of holding early presidential elections. More than 70% of Ukrainians believe that things in the country are going in the wrong direction, according to the Kiev International Institute of Sociology (KIIS).

The situation in Georgia is becoming quite complicated. According to Georgian mass media, as of October 1, Georgia’s state debt reached $8.9 billion (which is 54.6% of its GDP), and the country’s total external debt amounted to $19.7 billion, of which $8.3 billion was owed by the private sector.

Like Georgia, Armenia also has considerable debts — more than half of its GDP. Moldova has about 35%. Azerbaijan, thanks to its successful extraction and export of energy resources, has until now remained a country with a state debt of almost negligible — no more than 18% of GDP.

According to the Ministry of Finance of Kazakhstan, as of October 1, 2020, the national debt of the republic was $45.8 billion; 80% of this amount was owed by the government, while the state foreign debt amounted to $12.3 billion.

Kyrgyzstan also has a large amount of public debt (73.5% of GDP).

In October 2020, Tajikistan’s public debt was $3.7 billion (44.9% of GDP) — 80% of it consists of external debt, the rest is domestic debt. While in 1997 Russia and Uzbekistan were Tajikistan’s major creditors, with 52% and 31% respectively, the Export-Import Bank of China (Eximbank) has remained Tajikistan’s largest creditor over the past 12 years. China began lending to Tajikistan’s projects in 2007 within the framework of the Shanghai Cooperation Organization, providing loans for the construction of high-voltage power lines, as well as for the rehabilitation of the Dushanbe-Chanak highway (the total cost of this project alone was $304.5 million).

The conditions under which Tajikistan receives loans are usually not disclosed. Nevertheless, it is noted that with the arrival of Chinese loans, Tajikistan also received a workforce from the PRC, along with such major companies as CNPC, China Road and Bridge, Zijing Mining, and others. They implement projects in Tajikistan that are financed by the Chinese government. Chinese labor can also be seen in the agricultural sector of the country.

In 2011, Tajikistan ceded part of its territory to China after the Tajik parliament ratified a protocol on border demarcation that gave China 1,100 square kilometers of disputed territory in the east of the country. Experts speculate that this part of the Pamir Mountains contains deposits of not only gemstones, but also uranium. And it may have been one of the conditions for granting concessional Chinese loans to Tajikistan.

As of October 1, 2020, Uzbekistan’s public debt, attracted under the state guarantee in foreign and domestic markets, was $20.8 billion (36.8% of GDP); external public debt is $18.5 billion.

In the early 1990s, after the Central Asian states began to pursue independent policies, China’s influence in the region began to grow, driven by Beijing’s desire to maintain peace in the states bordering it. In this connection, especially recently, the number of loans to Central Asian states from China has also increased, which was very jealously received primarily by the United States, which did not want to see the strengthening of China’s position in the region. This gave rise to the information warfare actively promoted by Washington in Central Asia through the Western and US-influenced local media, in which special emphasis was placed on compromising Beijing’s credit policy in the region, in creating a false impression in Russia of China’s alleged competition with it.

Today, China does give out a lot of loans and credits, and their size has already reached almost $3 trillion. However, the share of Central Asia in this amount is small. If we compare the Central Asian countries with other states, they are not in the risk group at the level of falling into the “debt trap,” although, of course, the situation is different in the countries within the region. For example, almost 50% of Tajikistan’s foreign debt is owed to China, while Kyrgyzstan’s is 45%, although in both cases the amount owed to China is only about 20% of the countries’ GDP. China’s share of Kazakhstan’s foreign debt is 7%. There is no reliable information about the situation in Turkmenistan, although some articles in the media claim that Ashgabat has been exporting Turkmen gas to China for several years for free because their debt to China is very high.

There is no reliable information about the situation in Turkmenistan, although some articles in the media claim that Ashkhabad has been exporting Turkmen gas to China for several years at no profit because of their extremely heavy debt to China. Finance Ministers and Central Bankers of the G20 on April 15, 2020 have agreed to temporarily stop collecting debts from the poorest countries in the world. Originally it was 6 months, but then the deadline was extended to June 2021. The list first included 25 of the world’s poorest countries, then it was expanded, and Tajikistan was given the right to suspend payments on foreign debt.

Russian President Vladimir Putin, during a meeting of the working group to prepare amendments to the Constitution in February 2020, said that Russia as the legal successor of the USSR undertook to pay the debts of all former Soviet republics, and did so. “We, in my opinion, have paid 16 billion for Ukraine alone,” Putin clarified. According to him, the payment of the debt was carried out in exchange for foreign assets, but not all countries that had become independent handed them over.

With regard to responsibility for the problems of increasing public debt in individual countries, Chinese Foreign Ministry spokesman Zhao Lijian said at a departmental press briefing in October 2020 that most of the debt of many countries is their growing debt to the United States and other developed countries, as well as loans provided to them by international financial institutions. In this context, the Chinese diplomat stressed that China will intensify measures to reduce the debt burden of countries experiencing economic difficulties. “Given the requests of a number of countries, Beijing has decided to relieve them of their outstanding debts,” he added, recalling that China supports the initiative put forward by the G20 to freeze debt service payments until the end of the year for the world’s poorest countries affected by the coronavirus.

Valery Kulikov, political expert, exclusively for the online magazine “New Eastern Outlook“.