This is a translation of the post that appeared earlier this week on our Russian version. Inga here is exploring causes and consequences of such a widespread Kyrgyz phenomenon as shadow economy.

Kyrgyzstan is again on alert these days. The mission of the IMF is in the country causing fears and headaches of officials in the White House. The procedure seems to be normal: IMF experts would show up in Kyrgyzstan, Kyrgyz bureaucrats would present them formal reports and economic programs and the mission would leave the country satisfied, probably marking some remarks on the slight progress and promising future for cooperation in the years ahead.

Though it’ll hardly change anything for the real economy of the country that tends to function mainly in the shadow nowadays. According to analysts the figures of the shadow economy in Kyrgyzstan equal the figures of the official. According to some estimates shadow economy in the country assumes 40% of Kyrgyz GDP. Rafkat Hasnov, expert of «Investments Round Table», recently shared this information in the TV program “Open Kyrgyzstan”. It didn’t turn out to be an earth shattering revelation, though. We sort of got used to the fact that one third of businessmen in the country work under the “protection” of influential officials. According to statistics the practices of shadow economy are widely spread in such spheres as trade, services of different kinds, tourism industry, etc. Predictably enough, shadow economy spurs corruption that is sometimes is appreciated and supported by businessmen themselves.

One of the entrepreneurs doing business in Kyrgyzstan states :

“It’s easier and cheaper for me to give bribes and do whatever I need afterwards. If I start paying all your taxes and dealing with paperwork it will take me a fortune and I won’t be able to get any profit from my business”.

Indeed, as it was emphasized many times by experts and practitioners the main reason for businesses to hide in Kyrgyzstan are issues of taxation. Analysts agree that if the burden of taxes was eased lots of business entities would agree to work legally. The State itself would also benefited from such changes a lot since it’d be easier to face IMF inspections with less to hide in terms of the figures of entities choosing to work in the shadow.

As Rafkat Hasanov emphasizes :

“We can only achieve certain progress in terms of our economic growth if we are able to attract investors. Though when those ready to invest into the country here about our system of taxation and corrupt practices stemming from that they will probably be rather hesitant to enter Kyrgyzstan with their money and ideas.»

So the question now is whether it is realistic to make entrepreneurs in Kyrgyzstan to step out of the shadow economy zone. Businessmen and experts addressing this question are rather pessimistic. The main issue is the lack of any official will to contribute efforts and ideas into this endeavor. As a matter of fact the discussion about the amnesty of funds and financial assets has been in place. With no particular results, though. Recently president Bakiev also made an appeal to stop multiple illegal inspections of entrepreneurs. The appeal has vanished in the air.

The main problem here is that the web of illegal financial interdependencies got solidified during the recent years. Majority of officials and bureaucrats themselves keep benefiting from the system where the amount of bribe defines ones success in business practices. Some of them already came up with an interesting statement about obvious benefits of the shadow economy creating additional jobs for unemployed citizens?!

Once economists manage to decipher what this exactly means we can probably state a Kyrgyz know how and than present it next time IMF experts show up here. May be it will pave us a wave to the economic breakthrough never before experience by other countries utilizing less innovative approaches.