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© 2007 International Monetary Fund
November 2007
IMF Country Report No. 07/369
Kyrgyz Republic: Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility—Staff Report; Staff Supplement; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Kyrgyz Republic
In the context of the fifth review under the three-year arrangement under the Poverty Reduction and Growth Facility with the Kyrgyz Republic, the following documents have been released and are included in this package:
The staff report for the Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, prepared by a staff team of the IMF, following discussions that ended on August 30, 2007 with the officials of the Kyrgyz Republic on economic policies. Based on information available at the time of these discussions, the staff report was completed on November 2, 2007. 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 on the joint World Bank/IMF debt sustainability analysis.
A staff statement of November 16, 2007 updating information on recent economic developments;
A Press Release, summarizing the views of the Executive Board as expressed during its November 16, 2007 discussion of the staff report; and
A statement by the Executive Director for the Kyrgyz Republic.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of the Kyrgyz Republic*
Memorandum of Economic Policies by the authorities of the Kyrgyz Republic*
*Also included in Staff Report
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 publicationpolicy@imf.org.
Copies of this report are available to the public from
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INTERNATIONAL MONETARY FUND
KYRGYZ REPUBLIC
Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility
Prepared by the Middle East and Central Asia Department
(in cooperation with other departments)
Approved by David Owen (MCD) and Scott Brown (PDR)
November 2, 2007
Executive Summary
The economy is rebounding, but inflation has picked up sharply. Economic recovery, combined with firm fiscal discipline, has improved the country’s debt indicators, which are now below HIPC thresholds. Performance under the PRGF-supported program has generally been good, with all end-June performance criteria met. In the calmer political environment of recent months, there has also been renewed progress on structural reforms. The main challenge for the authorities is to sustain the recovery by further building reform momentum, while preventing the recent upsurge in inflation—mostly the result of higher international wheat prices—from becoming entrenched.
Tight monetary policy and continued fiscal restraint are needed to contain inflation. Following the mission, the authorities have raised interest rates, cut back on intervention, and allowed a sharp appreciation of the exchange rate. They have also committed to undershoot the program’s 2007 fiscal deficit target and maintain a cautious fiscal stance in 2008.
Progress on the reform agenda will underpin sustained growth and help to reduce vulnerabilities. Resolution of constitutional issues after October referendum should allow for closer cooperation between government and parliament in advancing critical reforms in the energy sector, as well as measures to foster good governance and transparency in public sector operations. Vigilance is needed regarding potential banking sector weaknesses, including any signs of contagion from banking sector problems in neighboring Kazakhstan.
Staff recommends completion of the 5th review under the PRGF-supported arrangement. Continued compliance with the program’s quantitative performance targets, the policy response to the recent uptick in inflation, and an improving political environment for reform all suggest that risks remain manageable. To permit Board consideration of the 6th review and disbursement of the final tranche, staff supports the authorities’ request for an extension of the existing arrangement to May 31, 2008. Staff looks forward to discussing modalities for future engagement with the Fund after expiry of the current arrangement.
Contents
I. Recent Developments and Performance Under the Program
II. Policy Discussions
A. Overview
B. Fiscal Issues
C. Monetary Policy and Financial Sector Reforms
D. External Sector
E. Other Issues
III. Staff Appraisal
Figures
1. Real GDP Growth and CPI Inflation, 2001–07
2. Consumer Price Inflation, 2005–07
3. Exchange Rate Developments, 2003–07
4. Monetary Developments, 2006–07
5. Interest Rate Developments, 2006–07
Tables
1. Quantittative Program Targets for 2006–07
2. Structural Conditionality, 2006–07
3. Selected Economic Indicators, 2005–08
4. Summary of General Government Fiscal Operations, 2005–08
5. General Government Finances, 2005–08
6. State Government Finances, 2005–08
7. Social Fund Operations, 2005–08
8. Medium-Term Expenditure Framework for General Government by Functional Classification, 2005–09
9. NBKR Accounts, 2005–08
10. Monetary Survey, 2005–08
11. Balance of Payments, 2005–10
12. Indicators of Fund Credit, 2005–12
13. Prospective Use of Fund Resources, 2006–12
14. Reviews and Disbursements Under the Three-Year PRGF Arrangement
Attachments
I. Letter of Intent
II. Memorandum of Economic Policies
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INTERNATIONAL MONETARY FUND
KYRGYZ REPUBLIC
Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility—Informational Annex
November 2, 2007
Contents
I. Relations with the Fund
II. Relations with the World Bank Group
III. Relations with the Asian Development Bank
IV. Relations with the European Bank for Reconstruction and Development
V. Technical Assistance Provided by the Fund
VI. Statistical Issues
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INTERNATIONAL MONETARY FUND
KYRGYZ REPUBLIC
Joint World Bank/IMF Debt Sustainability Analysis
Prepared by the staffs of the International Monetary Fund and the World Bank
Approved by David Owen and Scott Brown (IMF) and Cheryl Gray and Mark Thomas (World Bank)
November 2, 2007
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November 16, 2007
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Press Release No. 07/264
FOR IMMEDIATE RELEASE
November 16, 2007
International Monetary Fund
Washington, DC 20431 USA
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November 16, 2007
