The situation in the financial sector in the post-Soviet area, including Kyrgyzstan, is becoming increasingly tense. There is a paradigm shift, which is associated with changing standards in the global economy and financial system. Those systems that were previously built on the principles of the free movement of goods and money flows have faced the consequences of secondary sanctions that restrict these flows depending on geopolitical interests and preferences.

POST-SOVIET COUNTRIES' FINANCIAL VULNERABILITY

For decades, post-Soviet countries have been actively integrating into the global financial system, becoming members of such international organisations as the World Bank, the International Monetary Fund (IMF) and the World Trade Organisation (WTO).

"Many countries have implemented international financial systems and standards, such as SWIFT, which are regulated predominantly by Western countries. In a unipolar world where the developed Western countries are the main players, this creates dependence and vulnerability for weak economies, especially for countries that have to follow others‘ rules to maintain economic stability,’ Almaz Nasyrov, a former Principal of the Academy of Public Administration under the President of the Kyrgyz Republic, said.

These vulnerabilities are becoming increasingly apparent in the current environment, he believes, as economic sanctions and other geopolitical measures create significant barriers to the free movement of goods and capital. This situation makes it necessary for countries like Kyrgyzstan to reconsider their economic and financial interaction with external players.

ECONOMIC SITUATION IN KYRGYZSTAN: CHALLENGES AND OPPORTUNITIES

According to the expert, Kyrgyzstan, like many other post-Soviet countries, is characterised by a strong dependence on imports.

"At the end of August 2023, imports accounted for almost 80% of trade turnover (79.7%), while exports accounted for only 20%. This makes the country's economy vulnerable to external shocks and sanctions. It is important to note that Kyrgyzstan's key economic partners remain the Eurasian Economic Union and China, which account for the majority of trade turnover. In addition, a significant part of the country's income comes from labour migrants working in Russia and EAEU countries,' the economist spoke about.

He added that trade turnover between the EU and Kyrgyzstan in 2023 was about $3bn, but gold exports - one of the country's key natural resources - were relatively insignificant - only about $200m.

"This emphasises that the main sources of financial injections remain foreign markets and migratory remittances. However, the current configuration of global economic relations is changing and Kyrgyzstan must clearly define its priorities for future economic growth and sustainability,’ he continued.

In the face of these challenges, the country is confronted with the question of what to do with the national banking and financial system, which is trapped between the opportunity for profit and the constraints caused by international sanctions.

"Many countries have already started to move away from the dollar standard and are developing new interaction models, seeking a fair and more balanced financial relations system. For Kyrgyzstan, this is an existential moment that requires a deep revision of its economic strategy and financial system. It is important to consider options for integration into new financial blocs and configurations that can offer alternatives to existing international standards. One such way is more active participation in emerging alliances, such as BRICS, which are already declaring their intentions to form independent systems of currency exchange and financial interaction,’ Nasyrov shared.

As he sees it, in the current situation it is necessary to develop alternative approaches to the financial system regulation that can ensure stable economic flows and reduce dependence on external factors. This includes infrastructure development, reserve currency mechanisms and deeper integration with new economic blocs that do not depend on Western sanctions.

"Kyrgyzstan's future is conditioned on its ability to adapt to the new global financial realities. The country must urgently review its financial priorities and decide with whom it wants to build long-term economic and financial cooperation,’ Almaz Nasyrov concluded.

Following him, Anvar Abdraev, Head of the Union of Banks of Kyrgyzstan, continued the topic of economic development under secondary sanctions.

"In the context of sanctions and economic isolation that have affected Kyrgyzstan and many other countries, it is necessary to look for pragmatic solutions to maintain economic stability and the ability to make international payments. This situation was not created by Kyrgyzstan itself, its parliament or its government, but it has affected us due to external geopolitical factors. The world has divided into several camps, and many countries, including Kyrgyzstan, have found themselves between a hammer and an anvil,’ Abdraev described what is happening.

In his words, when a country experiences difficulties, such as the closure of correspondent accounts or the inability to make dollar payments through international banks, it jeopardises our economic activity.

"The last bank through which dollar payments were made stopped cooperation with Kyrgyzstan for reasons that have not been fully explained. Although the roots of the problem lie on the surface - these are sanctions and political decisions taken at a higher level,' the Head of the Union of Banks added.

According to Anvar Abdraev, many countries, especially those that depend on imports and international trade, face similar problems.

"Instead of blaming someone for this difficult situation, it is worth focusing on finding new ways and strategies. We already have experience of working through Russian banks when sanctions or other restrictions have hindered international transactions. It is important to develop other alternative routes that will help us maintain economic activity,’ he concluded.