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Middle East and Central Asia > Kyrgyz Republic

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Cover IMF Working Papers
Monetary Policy Frameworks and Communication in the Caucasus and Central Asia
Omer Faruk Akbal
,
Klakow Akepanidtaworn
,
Ezequiel Cabezon
,
Mariarosaria Comunale
,
Mrs. Marina Conesa Martinez
, and
Ms. Filiz D Unsal
Central banks in Caucasus and Central Asia (CCA) have been enhancing their monetary policy frameworks in the last decade, and are at different stages of the transition to a type of inflation targeting regimes. This paper documents their progress and the current state of their monetary policy framework, utilizing the IAPOC index developed by Unsal and others (2022) covering Independence and Accountability, Policy and Operational Strategy, and Communications, as well as drawing from central banks’ laws and websites. Additionally, an analysis of press releases from CCA central banks is conducted to evaluate their features, content, and tones. The findings highlight the need for further improvements in the areas of Independence and Accountability, as well as Communications, despite some recent advancements in the latter.
Keywords:
Caucasus and Central Asia; Monetary Policy Frameworks; Communication.; CCA inflation; central banks in Caucasus and Central Asia; IMF working paper No. 2023/251; IAPOC Index; CCA country; Monetary policy communication; Inflation targeting; Inflation; Market interest rates; Central Asia and the Caucasus
Cover IMF Staff Country Reports
Kyrgyz Republic: 2021 Article IV Consultation-Press Release; and Staff Report
International Monetary Fund. Middle East and Central Asia Dept.
The Kyrgyz economy is highly dependent on remittances and foreign aid and does not have access to international capital markets. Inequality is relatively low, but poverty is widespread. The COVID crisis led to a sharp recession with output contracting by 8.6 percent in 2020, public debt rising by 16.5 percent of GDP to 68 percent, and the som depreciating by 19 percent against the US$. Under the assumption that the global pandemic begins to decisively recede this year, a rebound in growth is expected in 2021–22. However, significant uncertainty surrounds the baseline outlook and the recovery could be delayed if downside risks materialize. In the medium to long term, the main challenge is to create jobs for about 65,000 new jobseekers annually and to reduce labor out-migration. This will require deep structural reforms to transform the economy from a reliance on remittances to more diversified and private sector-led growth that is underpinned by higher investment and exports.
Keywords:
expenditure reallocation; investor confidence; Kyrgyz authorities; staff report projection; gold production; External sector statistics; Debt sustainability analysis; Global; Central Asia
Cover IMF Working Papers
Estimating the Neutral Interest Rate in the Kyrgyz Republic
Iulia Ruxandra Teodoru
and
Asel Toktonalieva
This paper estimates the neutral interest rate in the Kyrgyz Republic using a range of methodologies. Results indicate that the real neutral rate is about 4 percent based on an average of models and 3.7 percent based on a Quarterly Projection Model. This is higher than in many emerging markets and is likely explained by higher public debt and an elevated risk premium, low creditor rights and contractual enforcement, and low domestic savings. The use of an estimate of the neutral interest rate provides useful guidance to monetary policy and enhances transparency and independence of the central bank. Our estimate provides a quantitative benchmark for the monetary policy stance in the context of a central bank that is building analytical capacity, integrating additional insights in its decision-making process, and working to improve its communication. Strengthening the monetary transmission mechanism will be critical to enhance the effectiveness of monetary policy, including by allowing more exchange rate flexibility to support the transition to a full-fledged inflation targeting regime, and reducing excess liquidity to enhance the credit channel, reducing dollarization and high interest rate spreads that adversely affect the transmission of the policy rate to the economy.
Keywords:
WP; interest rate; neutral rate; interest rate gap; transmission mechanism; inflation target; risk premium; policy rate; food inflation; inflation expectation; Inflation; Real interest rates; Central bank policy rate; Output gap; Exchange rates; Global; neutral interest rate; monetary policy stance; Taylor rule; quarterly projection model; general equilibrium model; federal funds rate; effectiveness of monetary policy; Inflation targeting; Middle East and Central Asia
Cover IMF Working Papers
Do Remittances Enhance Financial Inclusion in LMICs and in Fragile States?
Samy Ben Naceur
,
Mr. Ralph Chami
, and
Mohamed Trabelsi
This paper explores the relationship between remittances and financial inclusion for a sample of 187 countries over the period 2004-2015, using cross-country as well as dynamic panel GMM regressions. At low levels of remittances-to-GDP, these flows act as a substitute to formal financial channels, thereby reducing financial inclusion. In contrast, when remittance-to-GDP ratio is high, above 13% on average, they tend to complement formal access and usage channels, thus enhancing financial inclusion. This “U shaped” relationship highlights the role of remittance flows in financing household consumption at low levels, while raising formal household bank savings and allowing for more intermediation, at high levels of remittance-to-GDP.
Keywords:
WP; remittance inflow; Remittances; Financial inclusion; Financial Stability; Financial Development; remittance flow; squared remittance; effect of remittance; inflows to GDP; GMM estimator; Commercial banks; Financial sector development; East Asia; South Asia; Asia and Pacific; banking sector matter; income level
Cover Policy Papers
Poverty Reduction and Growth Trust-Review of Interest Rate Structure
International Monetary Fund. Finance Dept.
,
International Monetary Fund. Strategy, Policy, &amp
, and
Review Department
This paper reviews the Poverty Reduction and Growth Trust (PRGT) interest rate structure for the period July 2019–June 2021. Since the interest rate mechanism was first established in 2009, no interest has been charged on PRGT credit. In line with the package of reforms proposed in the parallel Review of LIC Facilities, this paper proposes to align interest rates on the SCF with those on the ECF. Based on the average SDR rate over the most recently observed 12-month period, the proposed revised interest rate mechanism would result in zero interest rates on both ECF and SCF credit for the period July 2019–June 2021.
Keywords:
PP; interest rate; PRGT interest rate mechanism; rate; PRGT interest rates; PRGT; PRGT financing; interest rate mechanism; SCF credit; Credit; Loans; SDR interest rate; Credit ratings; Poverty reduction strategy; Global
Cover IMF Staff Country Reports
Kyrgyz Republic: Fourth and Fifth Reviews under the Three-Year Arrangements under the Extended Credit Facility, and Request for Modification of Performance Criteria-Press Release; Staff Report
International Monetary Fund. Middle East and Central Asia Dept.
This paper discusses Kyrgyz Republic’s Fourth and Fifth Reviews Under the Three-Year Arrangement Under the Extended Credit Facility, and Request for Modification of Performance Criteria (PCs). Program performance has been mixed. All end-December 2016 and end-June 2017 quantitative PCs, and all but three indicative targets (ITs) were met. The December 2016 IT on tax revenue, the continuous IT on introducing new or renewing existing tax exemptions, and the June 2017 IT on reserve money were not observed. Six structural benchmarks were missed, of which five were proposed to be postponed or modified at the time of the fourth review. Resuming the reform agenda and pursuing consolidation efforts are essential to allow growth to reach its potential over the medium term.
Keywords:
ISCR; CR; Kyrgyz authorities; debt; government; deficit; NBKR independence; creating flow; executive board discussion Mr. Tao Zhang; import growth; private sector; Loans; Anti-money laundering and combating the financing of terrorism (AML/CFT); Central Asia
Cover IMF Staff Country Reports
Kyrgyz Republic: Third Review Under the Three-Year Arrangement Under the Extended Credit Facility, and Request for Modification of Performance Criteria-Press Release; Staff Report
International Monetary Fund. Middle East and Central Asia Dept.
This paper discusses the Kyrgyz Republic’s Third Review under the Three-Year Arrangement under the Extended Credit Facility (ECF) and the Request for Modification of Performance Criteria (PCs). Program conditionality has been broadly met. All end-June 2016 quantitative PCs and indicative targets have been met. All but two structural benchmarks were met. The review of subsidies was not completed on time owing to limited capacity. The authorities are requesting modification of PCs to reflect the revised macroeconomic outlook and the availability of the fourth disbursement on completion of the review. The IMF staff supports completing the third review of the authorities' program under the ECF arrangement.
Keywords:
ISCR; CR; Kyrgyz authorities; real GDP; Kyrgyzstan; exchange rate; national bank of the Kyrgyz Republic; expenditure measure; Kyrgyz government; policy slippage; authorities' effort; Loans; Anti-money laundering and combating the financing of terrorism (AML/CFT); Central Asia
Cover IMF Staff Country Reports
Kyrgyz Republic: Second Review Under the Three-Year Arrangement Under the Extended Credit Facility, and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for the Kyrgyz Republic
International Monetary Fund. Monetary and Capital Markets Department
External shocks continue to shape both the outlook and policies. A weaker-than-expected external environment is hurting growth, straining the budget, and raising public debt and banking sector vulnerabilities. The authorities’ response to shocks has focused on exchange rate flexibility and unorthodox stimulus measures, although the budget deficit in 2015 was well within the program target. For 2016, the authorities are undertaking additional efforts to adhere to the program’s fiscal commitments. Financial sector vulnerabilities and risks are high and rising. Slow progress toward passing the Banking Law that aims to introduce a modern bank resolution system and increase the independence of the National Bank of the Kyrgyz Republic remains a concern. The change in the cabinet just six months after the elections underlines the fluidity of the country’s political situation.
Keywords:
ISCR; CR; Kyrgyz authorities; Kyrgyzstan; exchange rate depreciation; authority; SDR; national bank of the Kyrgyz Republic; disbursement of SDR; Kyrgyz economy; Kyrgyz government; Loans; Anti-money laundering and combating the financing of terrorism (AML/CFT); Central Asia; Global
Cover IMF Staff Country Reports
Kyrgyz Republic: 2015 Staff Report for the 2015 Article IV Consultation and First Review under the Three-year Arrangement under the Extended Credit Facility, and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for the Kyrgyz Republic
International Monetary Fund. Middle East and Central Asia Dept.
The economy has shown some resilience in the face of adverse regional shocks but potential growth is constrained by persistent structural challenges, particularly lagging productivity and dependence on gold, remittances, and foreign aid. Satisfactory performance under the program during the first half of the year was followed by fiscal slippages in the run-up to the October elections and a delay in adopting the Banking Code, a key measure to strengthen central bank independence and the bank resolution framework. The combined impact of a large public investment program and currency depreciation has raised the public debt ratio markedly. Significant further depreciation could pose risks for the otherwise well capitalized, but highly dollarized, financial sector. The business environment remains weak, overshadowed by lingering disagreements between the authorities and the largest foreign investor.
Keywords:
ISCR; CR; Kyrgyz authorities; Kyrgyzstan; Kyrgyz authority; authority; Executive Board discussion Mr. Min Zhu; Kyrgyz government; disbursement of SDR; priority outlay; Credit; Loans; Central Asia; Global
Cover IMF Staff Country Reports
Kyrgyz Republic: Request for a Three-Year Arrangement Under the Extended Credit Facility
International Monetary Fund. Middle East and Central Asia Dept.
This paper discusses the Kyrgyz Republic’s Request for a Three-year Arrangement Under the Extended Credit Facility (ECF). Performance under the previous ECF arrangement, which expired last July, was good. Macroeconomic stability was restored, fiscal consolidation was stronger than planned, monetary policy was enhanced through a new interest rate-based framework, and supervision was strengthened in the financial sector. Although performance under the last ECF arrangement was good, new challenges have emerged, and some key reforms have yet to be implemented. The IMF staff supports the authorities’ request for a three-year arrangement under the ECF.
Keywords:
ISCR; CR; government; Kyrgyzstan; ECF arrangement; Kyrgyz authorities; debt management strategy; Extended Credit Facility arrangement; Kyrgyz government; development fund; Credit; Anti-money laundering and combating the financing of terrorism (AML/CFT); Central Asia; Europe