Front Matter

Front Matter Page

© 2005 International Monetary Fund

February 2005

IMF Country Report No. 05/47

Kyrgyz Republic: 2004 Article IV Consultation and Request to Extend the PRGF Arrangement—Staff Report; Staff Supplement; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for the Kyrgyz Republic

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of a combined discussion of the 2004 Article IV consultation with the Kyrgyz Republic and request for an extension of the arrangement under the Poverty Reduction and Growth Facility (PRGF), the following documents have been released and are included in this package:

  • the staff report for the combined 2004 Article IV consultation and request to extend the PRGF arrangement, prepared by a staff team of the IMF, following discussions that ended on October 6, 2004, with the officials of the Kyrgyz Republic on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on November 5, 2004. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.

  • a staff supplement of November 15, 2004 updating information on recent economic developments.

  • a Public Information Notice (PIN) and Press Release, summarizing the views of the Executive Board as expressed during its November 19, 2004, discussion of the staff report on issues related to the Article IV consultation and the IMF arrangement, respectively.

  • a statement by the authorities of the Kyrgyz Republic.

The documents listed below have been or will be separately released.

  • Ex Post Assessment for Longer-Term Program Engagement

  • Statistical Appendix

The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.

To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to

Copies of this report are available to the public from

International Monetary Fund • Publication Services

700 19th Street, N.W. • Washington, D.C. 20431

Telephone: (202) 623-7430 • Telefax: (202) 623-7201

E-mail: • Internet:

Price: $15.00 a copy

International Monetary Fund

Washington, D.C.

Front Matter Page



Staff Report for the 2004 Article IV Consultation and Request to Extend the PRGF Arrangement

Prepared by the Middle East and Central Asia Department (in cooperation with other departments)

Approved by Julian Berengaut and Donal Donovan

November 5, 2004

  • The 2004 Article IV discussions were held in Bishkek, August 13-25, 2004, and Washington, September 30-October 6, 2004. Staff representatives were Mr. Saavalainen (head), Mr. McDonald, Ms. Mylenko (EP), and Ms. Weikert (sr. admin. ass’t.) (all MCD), Mr. Ogata (FAD), Mr. Roache (EP, PDR), and Mr. Kenjeev (interpreter—BLS). Mr. Segni (World Bank) worked closely with the mission on financial sector issues. Mr. Zurbrügg, Executive Director, participated in key meetings. Mr. Mered (resident representative) and Mr. Dubashev assisted the Bishkek mission, which met with President Akayev, Prime Minister Tanaev, Deputy Prime Minister Otorbaev, Minister of Finance Abildaev, National Bank Chairman Sarbanov, senior officials, parliamentarians, and representatives of civil society and business.

  • The Ex Post Assessment of Longer-Term Program Engagement accompanies this report.

  • The Kyrgyz Republic accepted the obligations of Article VIII, Sections 2(a), 3, and 4, in 1995 and maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions, other than restrictions for security reasons, which the authorities will soon notify to the Fund pursuant to Executive Board Decision No. 144-(52/51).

  • In concluding the 2002 Article IV consultation on February 20, 2003, Directors commended the authorities’ prudent monetary and fiscal policies, noting that growth had reduced poverty, particularly in rural areas. The managed float exchange rate policy had been successful. The external debt strategy was on track, and in this context Directors encouraged the authorities to continue their fiscal consolidation. They pointed to a likely decline in gold exports and the need to diversify the economy by strengthening the business environment, and emphasized this would require redoubling efforts to reduce corruption and improve governance, as well as reforms to improve tax administration. The fifth review under the Kyrgyz Republic’s PRGF-supported program was completed on a lapse of time basis in June 2004.

  • Relations with the IMF and World Bank are summarized in Appendices I and II and recent IMF technical assistance is described in Appendix III. The periodicity, availability, and quality of economic statistics are satisfactory and are discussed in Appendix IV. Annex I presents the staff’s debt sustainability analysis. An updated Fiscal Transparency ROSC is provided in Attachment I and the authorities’ request to extend the PRGF arrangement in Attachment II.

  • The authorities have indicated they consent to the IMF publishing this staff report. Outreach work conducted by area department missions and the resident representative comprises media contacts and meetings with representatives of civil society and the diplomatic and business communities.


  • Basic Data

  • Executive Summary

  • I. Recent Economic Developments

  • II. Report on the Discussions

    • A. Economic Outlook

    • B. Ex Post Assessment

    • C. Policy Challenges and the Strategy Ahead

    • D. Monetary and Exchange Rate Policies

    • E. External Policies

    • F. Structural Policies

    • G. Statistical and Other Issues

  • III. Staff Appraisal

  • Boxes

  • 1. Highlights of the Ex Post Assessment

  • 2. Determinants of Private Investment

  • 3. The Kyrgyz Shadow Economy

  • Text Tables

  • Selected Economic Indicators, 2000–03

  • Growth Performance, 1999–2004

  • Selected Financial Soundness Indicators, 2001–04

  • Key Projections, 2004–07

  • Text Figures

  • Real GDP Growth and CPI Inflation, 2000–04

  • Exchange Rate Developments, 2000–04

  • Financial Depth and Credit to the Private Sector, 2002

  • Fiscal Deficit Measures, 2000–07

  • Tables

  • 1. Selected Economic Indicators, 2000–07

  • 2. General Government Finances, 2001–07

  • 3. State Government Finances, 2001–07 (In millions of soms)

  • 4. State Government Finances, 2001–07 (In percent of GDP)

  • 5. Social Fund Operations, 2001–07

  • 6. Medium-Term Expenditure Framework for General Government by Functional Classification, 2000–07

  • 7. NBKR Accounts, 2002–07

  • 8. Monetary Survey, 2002–07

  • 9. Medium-Term Balance of Payments, 2000–10

  • 10. Millennium Development Goals

  • Attachments

  • I. Fiscal ROSC Update

  • II. Request to Extend the PRGF Arrangement

  • Annex

  • I. Debt Sustainability Analysis (DSA)

  • Appendices

  • I. Fund Relations

  • II. Relations with the World Bank Group

  • III. Technical Assistance Provided by the Fund, 2003–04

  • IV. Statistical Issues

Kyrgyz Republic: Basic Data

article image
Sources: Kyrgyz authorities; National Statistical Committee; and Fund staff estimates.

Executive Summary

The Kyrgyz Republic faced severe macroeconomic imbalances following the 1998 Russian financial crisis. Disciplined policies during the current PRGF arrangement brought about a successful stabilization in 2001-03. Growth has strengthened and become more broad-based, inflation is low, and poverty rates have declined substantially. Heavy external borrowing in the 1990s and export growth far below projections created unsustainable external public debt levels, which the present PRGF-supported program has helped to reduce. Nevertheless, the debt burden remains among the country’s key macroeconomic challenges, along with the need to diversify the gold-dominated export structure. Staff simulations indicate a need for further Paris Club debt relief.

Discussions focused on the economic outlook and medium-term challenges. With continued sound macroeconomic policies and effective structural reforms, annual real growth of 5 to 6 percent appears likely, supported by good growth prospects among key trade partners. The authorities stressed the large shadow economy as the main development concern. The staff also stressed corruption and weak governance as contributors to informal activity and as key impediments to investment.

The medium-term fiscal strategy balances the spending needs associated with the Millennium Development Goals against the constraints imposed by high external debt. There was broad agreement on the desired pace of fiscal consolidation—including bringing the state government fiscal deficit to 3.7 percent of GDP by 2007—and that scope existed to reduce certain tax rates. Views within the government diverged as to whether and how quickly the staffs proposed payroll tax rate reductions could be implemented. The agreed fiscal path incorporates additional poverty and related spending (largely on investments) in the next five years, financed with proceeds from government shares in Centerra (owner of the Kumtor gold mine) without compromising the previously envisaged debt path.

Rapid remonetization of the economy is among the main recent macroeconomic achievements. Real money demand has grown at annual rates of about 20 percent since 2001. The staff and authorities agreed that the managed float exchange rate regime has worked well for the country. The staff emphasized that price stability should remain the main objective of monetary policy and that the level of international reserves provided scope to de-emphasize the further accumulation of reserves in the medium-term. The high rate of private sector credit growth and its potential impact on loan portfolios was seen as a medium-term risk facing the financial sector. It called for strengthening bank supervision and safeguarding central bank independence.

The staff’s Ex Post Assessment concludes that program implementation was uneven in the past but has improved significantly during the present PRGF arrangement. The reform agenda remains challenging and a low-access PRGF arrangement would be appropriate to support the government’s reform efforts.

Front Matter Page



Staff Report for the 2004 Article IV Consultation and Poverty Reduction and Growth Facility—Request for Extension of the Arrangement Supplementary Information

Prepared by Middle East and Central Asia Department (In cooperation with other departments)

Approved by Julian Berengaut and Donal Donovan

November 15, 2004

Front Matter Page

Public Information Notice (PIN) No. 05/4


January 14, 2005

International Monetary Fund

700 19th Street, NW

Washington, D. C. 20431 USA

On November 19, 2004, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Kyrgyz Republic.1

Front Matter Page

November 19, 2004

Front Matter Page

Press Release No. 05/25


February 10, 2005

International Monetary Fund

Washington, D.C. 20431 USA