Central Asia’s Mounting Debt Burden: Risks and Policy Implications

Central Asia is entering a period of heightened fiscal vulnerability as public debt continues to rise across much of the region. The World Bank’s latest International Debt Report (IDR) underscored that rapid debt accumulation is not inherently problematic if borrowing is channeled into productive investment. However, when returns are weak, creditor exposure is concentrated, and transparency is limited, debt dynamics can quickly become destabilizing. These risks are increasingly evident in Central Asia, where amortization pressures are growing, fiscal buffers remain thin, and revenue bases are narrow.

The IDR emphasized the need for clearer borrowing strategies, stronger project selection, improved debt transparency, and systematic assessment of long-term fiscal risks before governments commit to new external loans. It also stressed that public investment should prioritize sectors with strong economic payoffs, such as export-oriented industries, energy efficiency, agriculture modernization, and digitalization, while limiting politically motivated or low-yield infrastructure projects. These recommendations are particularly relevant for Central Asian economies now facing rising debt-service obligations.

A Return to Debt Pressures in Kyrgyzstan

Kyrgyzstan’s current debt trajectory reflects long-standing structural challenges rooted in its post-Soviet transition. In the 1990s, Kyrgyzstan pursued rapid liberalization and reform, financing much of this effort through rapid external borrowing at a time when exports were weak and fiscal institutions underdeveloped. By the early 2000s, external public debt exceeded 100 percent of GDP, placing the country among those eligible for relief under the Heavily Indebted Poor Countries (HIPC) initiative.

Debt restructuring and write-downs under the HIPC and Multilateral Debt Relief Initiative restored a measure of fiscal stability, while rising GDP, supported by gold production and remittances, improved debt indicators. Over the past decade, however, external borrowing has again accelerated. Public external debt now stands near 55-60 percent of GDP, a concerning level given the country’s limited export base, heavy reliance on remittances, and vulnerability to external shocks.

A significant share of Kyrgyzstan’s debt is owed to China’s Exim Bank, increasing sensitivity to exchange-rate movements and global interest-rate conditions. Debt service already absorbs roughly 18-22 percent of government revenues, constraining spending on social programs and essential infrastructure. The IDR warned that when debt service exceeds 15-20 percent of revenues, governments often struggle to balance development priorities with repayment obligations. Kyrgyzstan is now approaching that threshold.

Tajikistan’s Growing Indebtedness Risks

Tajikistan faces comparable pressures. External public debt

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