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Middle East and Central Asia > Kyrgyz Republic

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Cover IMF Working Papers
Drivers of Inflation in the Caucasus and Central Asia
Maria Atamanchuk
,
Alejandro Hajdenberg
,
Dalia Kadissi
,
Giulio Lisi
, and
Nasir H Rao
In parallel with global developments, inflation in the Central Asia and Caucasus (CCA) has exhibited large swings in recent years. This paper investigates inflation dynamics in the CCA and its main drivers and derives conclusions that can inform policymaking. The analysis is based on three empirical approaches. Inflation drivers and its dynamics are investigated through the estimation of a Phillips curve augmented with foreign factors and a panel vector autoregression. The paper also assesses the role of monetary policy in steering inflation outcomes by estimating a local projection model. The paper finds that external factors play a major role in determining CCA inflation dynamics, although domestic factors (e.g., demand conditions, expectations) also contribute. Monetary policy is found to have a statistically significant effect on inflation, including by moderating the impact of external drivers. The findings point to the need to continue strengthening policy frameworks to steer expectations and improve the effectiveness of monetary policy, while establishing adequate social safety nets to cushion the impact from global shocks.
Keywords:
Inflation; Caucasus and Central Asia; Phillips curve; panel VAR; local projection method; monetary policy; CCA inflation dynamics; inflation driver; Phillips Curve estimation; inflation development; inflation outcome; Food prices; Output gap; Nominal effective exchange rate; Oil prices; Global; Central Asia and the Caucasus
Cover Regional Economic Outlook, Middle East and Central Asia, October 2024
Regional Economic Outlook, Middle East and Central Asia, October 2024
Navigating the Evolving Geoeconomic Landscape
International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Economic growth in the Middle East and North Africa and Caucasus and Central Asia regions is projected to strengthen in the near term, but only to the extent that current challenges abate. Ongoing conflicts and oil production cuts are dampening economic performance, and medium-term growth prospects have weakened over the past two decades. Moreover, high uncertainty looms, with key risks including escalating conflicts, increased geoeconomic fragmentation, and commodity price volatility. To boost growth and create jobs—especially for women and youth—reform priorities include strengthening governance, encouraging private sector investment, and advancing financial development.

Keywords:
Middle East; North Africa; Caucasus; Central Asia; Gaza; Sudan; Lebanon; trade patterns; economic growth; reforms; growth prospects; shocks; conflicts; uncertainty; economic performance; growth prospects; risks; oil production cuts; OPEC+; investment; geoeconomic fragmentation; IMF; governance; medium-term; capital deepening; women; youth; employment; commodity price volatility; private sector; financial development; CCA region; CCA economy; CCA country; IMF staff calculation; oil exporter; Total factor productivity; Financial sector development; Oil exports; Inflation; Labor force participation; East Africa; Central Asia and the Caucasus; Global
Cover IMF Staff Country Reports
Kyrgyz Republic: Selected Issues
International Monetary Fund. Middle East and Central Asia Dept.
This Selected Issues paper undertakes a detailed analysis of the inflation dynamics and its determinants in the Kyrgyz Republic to shed light on the unprecedented inflationary surge since 2021. It employs two complementary methodologies to model a complex interplay between domestic and global factors, and policy variables. The paper constructs a new comprehensive measure of inflation expectations, encompassing both adaptive and forward-looking components, and as an additional novelty introduces external variables to the Phillips curve framework. The empirical analysis suggests that in addition to global food prices, which have historically driven inflation in the country, the role of domestic factors have become more prominent. On the other hand, the paper finds a much stronger contribution of liquidity conditions to inflation. This suggests a disconnect between policy interest rates and market liquidity, which needs to be addressed for better functioning of monetary policy transmission. The main policy implication is that to strengthen the effectiveness of monetary policy and support National Bank of Kyrgyz Republic’s intended transition to an inflation-targeting framework, excess liquidity needs to be drained and brought in conformity with the policy rate. This will require discontinuation of central bank’s participation in the domestic gold market, which is the main source of liquidity injections.
Keywords:
frontier analysis; dynamics in the Kyrgyz Republic; trade fragmentation; inflation expectation; Kyrgyz export; Inflation; Value-added tax; Income and capital gains taxes; Personal income tax; Global
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 Working Papers
Taming Financial Dollarization: Determinants and Effective Policies – The Case of Uruguay
Mr. Mauricio Vargas
and
Jesus Sanchez
With some of the most significant levels of financial dollarization in the Western Hemisphere, Uruguay is characterized by extensive dollarization in both deposits and loans. While traditional factors like high inflation and substantial devaluations have been associated with such outcome, the enduring nature of dollarization in Uruguay also underscores the importance of structural elements. In formulating a holistic strategy to reduce dollarization, not only should there be an enhancement of the monetary policy framework aimed at maintaining low, stable inflation, but it should also consider the calibration of prudential policies such as currency-differentiated reserve requirements and foreign-currency credit repos.
Keywords:
Dollarization; Prudential Policies; Monetary Policy; Uruguay; Peru.; deposit dollarization; dollarization trend; credit repo; financial dollarization; dollarization level; Inflation; Reserve requirements; Exchange rates; Currencies; Global; South America; Caribbean; Western Hemisphere
Cover Departmental Papers
Strengthening Monetary Policy Frameworks in the Caucasus and Central Asia
Mr. Tigran Poghosyan
,
Klakow Akepanidtaworn
,
Maria Atamanchuk
,
Ezequiel Cabezon
,
Mr. Selim Cakir
,
Mr. Vahid Khatami
,
Ms. Filiz D Unsal
,
Mariarosaria Comunale
,
Mrs. Marina Conesa Martinez
, and
Omer Faruk Akbal
Amidst a global backdrop of persistent post-COVID inflation and spillovers from Russia’s war in Ukraine, the countries of the Caucasus and Central Asia (CCA) region have faced strong price pressures in recent years. Inflation is estimated to have peaked in early 2023, but still exceeds central bank targets. In particular, core inflation remains stubbornly high reflecting a combination of second-round effects, surges in global energy and food prices, and domestic demand pressures. More broadly, uncertainty and downside risks also weigh on the economic outlook, including due to regional tensions, financial turmoil related to international monetary policy normalization, and a growth slowdown in key trading partners. In this context, CCA countries’ ability to contain inflationary pressures and anchor inflation expectations hinges on the credibility and effectiveness of their monetary policy frameworks. Since gaining independence in the 1990s, countries in the CCA region have made considerable progress in modernizing their monetary policy frameworks. CCA central banks have strengthened their legal frameworks and established broad de-jure independence. Armenia, Georgia, Kazakhstan, the Kyrgyz Republic, and Uzbekistan are transitioning to inflation targeting regimes, while the central banks of Azerbaijan, Tajikistan, and Turkmenistan rely on the exchange rate as an operational target. However, the post-COVID surge in inflation has highlighted the limitations of current frameworks and triggered a fresh policy debate on the need to strengthen monetary policy effectiveness in the CCA. This paper reviews the CCA region’s monetary policy landscape, highlights challenges in monetary policy design and implementation, and identifies areas that warrant strengthening. It draws on original surveys of country authorities, IMF country teams, and the work by Unsal and others (2022). It uses novel empirical work to analyze monetary policy transmission, the link between foreign exchange interventions and exchange rate dynamics, the drivers of financial de-dollarization, and the effects of central bank communication in the CCA.
Keywords:
Caucasus and Central Asia; Monetary Policy Transmission Mechanism; Exchange Rate Management; Dollarization; Central Bank Communication and Transparency; Central Bank Credibility; CCA country; CCA central banks; monetary policy transmission; CCA economy; CCA region's monetary policy landscape; monetary policy effectiveness; Exchange rates; Monetary policy frameworks; Inflation; Inflation targeting; Exchange rate arrangements; Central Asia and the Caucasus; Middle East and Central Asia
Cover Regional Economic Outlook, April 2020, Middle East and Central Asia
Regional Economic Outlook, April 2020, Middle East and Central Asia
International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Countries of the Middle East and Central Asia region have been hit by two large and reinforcing shocks, resulting in significantly weaker growth projections in 2020. In addition to the devastating toll on human health, the COVID-19 pandemic and the plunge in oil prices are causing economic turmoil in the region, with fragile and conflict affected states particularlyhard-hit given already large humanitarian and refugee challenges and weak health infrastructures. The immediate priority for policies is to save lives with needed health spending, regardless of fiscal space, while preserving engines of growth with targeted support to households and hard-hit sectors. In this context, the IMF has been providing emergency assistance to help countries in the region during these challenging times. Further ahead, economic recoveries should be supported with broad fiscal and monetary measures where policy space is available, and by seeking external assistance where space is limited.

Keywords:
REO; MENAP oil exporter; CCA oil exporter; financial support; exporter
Cover Regional Economic Outlook, April 2020, Middle East and Central Asia
Regional Economic Outlook, April 2020, Middle East and Central Asia
International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Countries of the Middle East and Central Asia region have been hit by two large and reinforcing shocks, resulting in significantly weaker growth projections in 2020. In addition to the devastating toll on human health, the COVID-19 pandemic and the plunge in oil prices are causing economic turmoil in the region, with fragile and conflict affected states particularlyhard-hit given already large humanitarian and refugee challenges and weak health infrastructures. The immediate priority for policies is to save lives with needed health spending, regardless of fiscal space, while preserving engines of growth with targeted support to households and hard-hit sectors. In this context, the IMF has been providing emergency assistance to help countries in the region during these challenging times. Further ahead, economic recoveries should be supported with broad fiscal and monetary measures where policy space is available, and by seeking external assistance where space is limited.

Keywords:
REO; MENAP oil exporter; CCA oil exporter; financial support; exporter
Cover IMF Working Papers
Exchange Rate Pass-Through in the Caucasus and Central Asia
Mr. Tigran Poghosyan
This paper estimates the extent and speed of exchange rate pass-through (ERPT) in seven Caucasus and Central Asia (CCA) countries using monthly data over the January 1995–May 2020 period. The estimations are performed using the local projections method. We find that the average pass-through in the CCA is about 10 percent on impact and about 25 percent after 12 months. There is no evidence of asymmetric ERPT with respect to the size and the sign of exchange rate changes. The pass-through is broadly unchanged in fixed versus floating exchange rate regimes. There has been a downward shift in the speed of ERPT in the aftermath of the global financial crisis as CCA countries have entered a relatively low inflation environment. The pass-through estimates could be used by the CCA monetary authorities for inflation projections. The absence of non-linearities in the pass-through with respect to the exchange rate regime suggests that transition from fixed to floating exchange rate regimes in the region is not likely to impose additional inflationary costs.
Keywords:
WP; confidence interval; CPI inflation; CCA country; inflation environment; currency vis-à-vis; IMF staff estimation; Exchange rates; Exchange rate adjustments; Exchange rate pass-through; Exchange rate arrangements; Inflation; Global; Sub-Saharan Africa; Central Asia and the Caucasus; exchange rate regime; local projections; pass-through in CIS country
Cover IMF Working Papers
Remittances in Russia and Caucasus and Central Asia: the Gravity Model
Mr. Tigran Poghosyan
Remitances are an important source of external financing in low- and middle-income countries. This paper uses the gravity model to analyze remittance flows in Russia and Caucasus and Central Asia (CCA) countries. Standard gravity determinants, such as GDP in sending and recieiving countries, bilateral distance, existence of common borders and common official language, fit remittance flows well. Remittances also react to inflation and exchange rate movements in recipient countries to sustain their purchasing power. In line with the altruism hypothesis, remittances flow to countries with higher age dependency ratio. Remittances are countercyclical and help stabilize outputs in recipient countries. However, global shocks resulting in sharp output losses of sending countries would lead to large volatility and decline of remittance inflows in recipient countries. The results of the analysis can be used to assess the impact of the COVID-19 shock on projected remittance flows into CCA.
Keywords:
WP; remittance; country; remittance flow; international remittances; migration; gravity model; recipient country; country j; bilateral remittance; pair level; sending country; Remittances; Gravity models; Oil prices; Exchange rates; Outward remittances; Central Asia and the Caucasus; Global