Kyrgyzstan and the Eurasian Economic Union: The view from Bishkek

Kyrgyzstan has signed documents on its accession to the Eurasian Economic Union (EEU) and is set to join the union by the end of the month. Despite the government’s steps towards bringing the Kyrgyz Republic into the union, the debate around the country’s entry is still live and highly political.

Kyrgyzstan is one of the weakest states in the region. Its stagnant domestic economy primarily depends on foreign financial aid and on remittances from Kyrgyz migrant workers in Russia and Kazakhstan. Official reports on the number of migrants working in Russia indicate that over 500,000Kyrgyz nationals, out of the country’s population of 5.7 million, travel abroad to find work. The real number may well be up to a million. Seasonal workforce remittances to Kyrgyzstan from Russia and Kazakhstan, both EEU member states, amount to 25-30 percent GDP every year. According totheWorld Bank, over 2.1 million Kyrgyz citizens lived below the poverty line in 2013. And because of the economic crisis in Russia, many migrants are now returning home due to lack of work abroad.

An overwhelming majority of the migrants believe that they will benefit from Kyrgyzstan’s accession into the EEU. The Russian authorities, they believe, will lift the restrictions imposed on workers from the Kyrgyz Republic. Additionally, the country’s agricultural sector is optimistic about economic benefits from the union, which is projected to ease trade barriers for farmers who export their products to neighbouring Kazakhstan and may grant new opportunities for business in the Russian market.

However, not every Kyrgyz citizen is happy about joining the EEU. Within the EEU, higher tariff rates will be placed on imports from non-member states. Therefore, retail businesses are concerned, because they are heavily dependent on the resale of cheap Chinese merchandise. Communities in the southern provinces, whose main income comes from commercial trade with neighbouring Tajikistan and Uzbekistan, are also worried. It remains unclear whether the country has put in place socio-economic relief for these groups of citizens, but it has been reported that Russia and Kazakhstan are providing relief aid in the amount of $300 million to soften the negative impact of the transition period for Kyrgyzstan.

The lingering questions over the EEU's fate in light of the Russia's confrontation with the West, economic sanctions, falling oil prices, and the Kremlin’s “hybrid war”in Ukraine have caused a backlash in Kyrgyzstan. The Kazakh currency, the tenge, is expected to be devalued after the presidential elections in Kazakhstan, which were held in April. Experts predict that this will raise concern about the stability of the Kyrgyz currency, the som. Asian Development Bank analysis shows that the Kyrgyz currency’s depreciation of 19 percent has already pushed inflation levelsto 7.5 percent. Inflation is likely to reach or exceed 10 percent this year. Kyrgyz economic growth is projected to decline further, to 1.7 percent in 2015, due to external factors such as the contraction of the Russian economy and the slowdown in Kazakhstan. For now, the Kyrgyz government assumes that EEU markets will rebound in 2016, which should encourage domestic growth. Whether this projection is justified or not, observers and financial institutions believe that any economic resurgence is highly dependent on external economic players rather than domestic factors. This vulnerability to outside developments leaves Kyrgyzstan in a risky position.

Questions about the compatibility of the Kyrgyz Republic’s laws with EEU regulations are causing confusion in the media and expert community. In essence, EEU barriers could complicatethecountry’s current and future grand infrastructure projects, which are financed by China. The issue is about future loans and imported materials from China. Discrepancies in legal issues between Kyrgyzstan and the EEU are still unresolved and some analysts believe these barriers could narrow Kyrgyzstan’s options in borrowing from China. China has been massively expanding in the region over the last decade and Beijing’s ongoing “Silk Road”initiative has seen much progress in Kazakhstan, which is promoting itself as a regional logistics hub for markets in the East and West. While China’s presence is having visible benefits for some states, Kyrgyzstan is seen as an outcast (as is Tajikistan) within regional power structures because of its weak governance and inability to find common ground with neighbouring states. This has caused the Kyrgyz political elite to seek political and economic support from the Kremlin, as was starkly demonstrated last year when Uzbekistan cut supplies of natural gas to South Kyrgyzstan. The Uzbek government ignored Kyrgyz calls to renegotiate the terms of the gas contract; instead, Uzbekistan’s President Islam Karimov set the record straight with Vladimir Putin.

Political tensions in the Kyrgyz Republic flared up recently over the unresolved restructuring agreement on the largest gold mine in Central Asia, Kumtor, a project that is managed and operated by the Canadian mining company, Centerra Gold. As a result, yet another prime minister resigned (the fourth since 2010) after the Kyrgyz parliament demanded the renegotiation of the terms of the latest deal with the Canadians (the third since 2003). The political crisis does not seem to concern Kyrgyz President Almazbek Atambayev,who has thrown his full support behind joining the EEU on 9 May.