The Kyrgyz Republic’s request for an 18-month Arrangement under the Exogenous Shocks Facility is discussed. International commodity prices continued to rise through much of 2008, resulting in a surge in inflation to more than 30 percent by mid-year and a widening of the current account deficit. A major shortfall in domestic hydropower capacity owing to low water levels is causing power shortages and necessitates the import of larger volumes of fuel and electricity, increasing the current account deficit further.


The Kyrgyz Republic’s request for an 18-month Arrangement under the Exogenous Shocks Facility is discussed. International commodity prices continued to rise through much of 2008, resulting in a surge in inflation to more than 30 percent by mid-year and a widening of the current account deficit. A major shortfall in domestic hydropower capacity owing to low water levels is causing power shortages and necessitates the import of larger volumes of fuel and electricity, increasing the current account deficit further.

Annex I. Kyrgyz Republic—Relations with the Fund

(October 31, 2008)

I. Membership Status: Joined: 05/08/1992; Article VIII

II. General Resources Account:

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III. SDR Department:

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IV. Outstanding Purchases and Loans:

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V. Latest Financial Arrangements

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VI. Projected Payments to Fund

(SDR million; based on existing use of resources and present holdings of SDRs)

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VII. Status of HIPC and MDRI Assistance

The Executive Board considered the preliminary HIPC document on October 13, 2006. However, in 2007, the authorities have decided not to avail themselves of HIPC and MDRI assistance. The updated LIC DSA shows that the Kyrgyz Republic does not qualify for HIPC debt relief.

VIII. Safeguards Assessments

Under the Fund’s safeguards assessments policy, the National Bank of the Kyrgyz Republic (NBKR) is subject to an update assessment in conjunction with an upcoming arrangement under the high-access component of the Exogenous Shocks Facility. The update assessment is underway. Previous assessments were completed in October 2005 and in January 2002. The 2005 assessment found that the NBKR’s safeguards framework had been strengthened, but recommended further steps to solidify progress achieved. In particular, the assessment proposed improving oversight of the audit processes and internal control systems by establishing an audit committee, and further strengthening of the internal audit function.

IX. Exchange Rate Arrangements

The currency of the Kyrgyz Republic has been the som (100 tyiyn =1 som) since May 15, 1993. The National Bank of the Kyrgyz Republic (NBKR) participates and intervenes in the interbank foreign exchange market to limit exchange rate volatility as necessary. Effective March 1, 2007, the exchange rate arrangement has been reclassified to a conventional pegged arrangement from managed floating with no predetermined path for the exchange rate. During September–November, 2007 the som appreciated by about 10 percent against the U.S. dollar. Thus, effective October 1, 2007, the exchange rate arrangement has been reclassified to managed floating with no predetermined path for the exchange rate. The NBKR publishes daily the exchange rate of the som in terms of the U.S. dollar, which is determined in the interbank foreign exchange market. The official exchange rate of the som against the dollar is defined as the weighted average of the exchange rates of the interbank foreign exchange market transactions for the week.

The Kyrgyz Republic maintains an exchange system that is free of restrictions on the making of payments and transfers for current international transactions, except for exchange restrictions maintained for security reasons relating to the restriction of financial transactions and the freeze of accounts of certain individuals or organizations associated with terrorism pursuant to (i) relevant UN Security Council resolutions and (ii) the list of current terrorist organizations designated by the U.S. Secretary of State. The authorities have notified these measures to the Fund pursuant to Executive Board decision No. 144-(52/51) in May 2007.

X. Article IV Consultations

The Kyrgyz Republic is on the 24-month consultation cycle. The last Article IV consultation discussions were held in August 2006 and were completed by the Executive Board in November 2006 (see Country Report No. 07/135).

XI. FSAP Participation and ROSC Assessment

An FSAP update mission in October 2006 reviewed progress since the 2002 assessment, and the Board considered the Financial System Stability Assessment (FSSA) along with the 4th PRGF review in May 2007. A fiscal ROSC mission was held in March 2001 and the ROSC Fiscal Transparency Module was published on March 13, 2002. A data ROSC mission was held in November 2002 and the ROSC Data Module was published in November 2003. A fiscal ROSC reassessment was held in September 2007.

XII. Resident Representative

The seventh resident representative of the Fund in the Kyrgyz Republic, Mr. McHugh, took up his post in Bishkek in late September 2006.

Annex II. Kyrgyz Republic—Relations with the World Bank Group

(As of November 1, 2008)

The new Joint Country Support Strategy (JCSS) covering FY07–10 was approved by the Board on June 19, 2007. The WB Country team jointly with four development partners (ADB, DFID, SWISS, and UN Agencies) developed JCSS to support implementation of the Country Development Strategy. The JCSS is closely aligned with the Government’s development goals. The strategic choices agreed among the development partners are: (i) focus on areas where support for reforms is already embedded; (ii) mitigate risks associated with high indebtedness and growth volatility; (iii) focus on basic reforms, as opposed to complex operations; and (iv) focus on economic and sector work and capacity building.

The World Bank Group Program within JCSS. The WBG program contributes to the strategic goals outlined in the JCSS, with a particular focus on supporting the Government’s efforts to improve the environment for business and economic growth and improve the quality of and access to basic services (health, education, water and sanitation). The WBG strategy emphasizes greater selectivity given the limited IDA resources and limitations placed on the Government’s own public investment program. Building on lessons learned, and in line with the principles of the JCSS, the Bank Program will build on successful results achieved in first generation projects, target activities where the Bank can show visible results to the population, and leverage our lending and analytical work to attract financing from other development partners. The proposed annual allocation for the Kyrgyz Republic under JCSS 2007–2010 is about $30 million U.S. dollars.

The JCSS progress report is due in May 2009, and the Country Office has initiated the discussion with other development partners.

IDA allocation: The World Bank has upgraded the status of the Kyrgyz Republic under IDA-5 program. from ‘red light’ to ‘yellow light,’ which means that the country is now under moderate risk of debt distress, assessed based on the latest WB/IMF debt sustainability analysis (DSA). The Kyrgyz Republic is assessed to be at moderate risk of debt distress because, starting in 2007, all external debt indicators in the baseline are projected to stay below the indicative threshold over the DSA horizon. Therefore, future IDA allocations for the Kyrgyz Republic will be on a 45% grant /55% credit basis.

The total IDA-15 envelope for the Kyrgyz Republic is 79.7 million USD; final FY09 allocation is 25.6 million USD, and indicative FY10 and FY11 allocations are 26.7 and 27.4 million USD correspondingly

IDA Portfolio As of September 2008 active World Bank portfolio in the Kyrgyz Republic comprise 19 operations with total commitments of US$ 214 million of which US$108.4 million remains to be disbursed. In addition to 19 projects financed by IDA, the World Bank manages EFT-FTA funds and donors TFs for Health & Social Protection SWAP.

Four new projects - Bishkek-Osh Infrastructure, Agricultural Investment and Services, Real Estate and Land Registration-II and Economic Management TA were approved by the Board FY08. There are currently three projects under preparation–Energy Emergency project, Osh- Isfana Road and Rural Water Sanitation-II. These projects are undergoing various stages of preparation process.

In addition to the four projects, the Board approved amendments in amount of 10 million USD to two ongoing projects Health & Social Protection SWAP and AISP as a response to food price crisis. Both the Health SWAp portion ($6 million) and the agriculture support part ($4.0 million) have been declared effective and actual disbursement for the Unified Monthly Benefit top-ups should commence with effect from October 1.

The Government has been highly appreciative of the World Bank’s speedy response to the food price crisis and its targeted nature

In addition to the country portfolio, the Kyrgyz Republic also benefits from the regional HIV/AIDS project.

In overall, the World Bank own portfolio is in good shape with a disbursement ratio of 27.7% in FY08, and percent of projects at risk being a low 5.6

IFC Program and Portfolio: Since becoming a member of IFC in 1993, the Kyrgyz Republic has received commitments totaling more than $70 million from IFC’s own funds to finance more then 20 projects in the financial, oil and gas, food and beverage, pulp and paper sectors. The committed IFC portfolio as of September 1, 2008 stands at $20 million, with $13.4 million disbursed (68% in financial markets, 26% in general manufacturing and 6% in agribusiness). In 2005-2008, IFC investments amounted to US$30 million. In FY 2008, IFC approved and committed investments for Altyn-Ajydar for the production of construction materials, with a loan size of US$1.6 million, and financing for Kyrgyz Investment Credit Bank (US$4 million) to expand their activities. Currently, IFC is reviewing financing for a number of other projects in banking and finance sector. In addition, IFC intends to support the agribusiness sector by providing credit lines through local commercial banks for agribusiness companies. IFC is also considering possibilities of providing financing to two gold mining projects. In FY 2009 IFC plans to invest more than $20 million dollars into the Kyrgyz economy.

IFC has completed and is implementing 17 technical assistance projects in the areas of (i) institutional and capacity building in the financial sectors including leasing, microfinance, (ii) creating favorable business environment for SMEs, (iii) improvement of investment climate, and (iv) developing capacity building for tourism. IFC PEP Central Asian Primary Market Development Project has been launched in 2005, and the second phase of IFC PEP Central Asian Regional Leasing Project was started. By the end of 2007, IFC plans to start regional TA project to improve corporate governance in enterprises of Central Asia including Kyrgyzstan.

MIGA: has supported private sector development in the Kyrgyz Republic by extending guarantees to foreign direct investments in four projects in the manufacturing, services, and mining sectors. MIGA’s current portfolio in the Kyrgyz Republic consists of two projects, financed by Austrian and Italian investors, in support of the country’s services sector. The combined gross exposure from these projects is US$14.8 million.

Two claims have been filed relating to projects guaranteed by MIGA. One of them is the Kyrgyz Airlines project in which the Government of the Kyrgyz Republic cancelled the airline's license to operate, alleging that the investor breached material obligations under the license agreement. The case is in arbitration in London. The second dispute relates to the Manas Management Company project which handles the catering and cargo operations of the Manas International Airport in Bishkek. MIGA is seeking to settle the dispute through mediation, and is in close contact with both the Kyrgyz authorities and the investors for this purpose. The total amount of foreign direct investment facilitated by MIGA guarantees is over $360 million. At present, there are no projects involving the Kyrgyz Republic in MIGA’s FY08 pipeline.

World Bank contacts:

Roland Clarke (, Sr. Country Economist. Phone No.

(7-7272) 980580

Dinara Djoldosheva (, Sr. Country Officer.

Phone No. (996312) 610650

Annex III. Kyrgyz Republic—Relations with the Asian Development Bank (ADB)

(As of September 15, 2008)

ADB has been the second largest development partner in the Kyrgyz Republic since its joining in 1994. The current Joint Country Support Strategy (JCSS) for the period 2007–10 was prepared by ADB together with the United Kingdom’s Department for International Development, Swiss Cooperation, United Nations agencies, and the World Bank Group 4. The priority areas for JCSS are identified as its main pillars: (i) promoting private sector and economic growth, (ii) good governance and reducing corruption, and (iii) improving health, education and other social services. In line with the Government’s own 2007–10 Country Development Strategy, ADB’s future program will focus on (i) promoting economic management consistent with strong and sustained pro-poor growth; (ii) improving governance; promoting effective public administration and reducing corruption; (iii) building sustainable human and social capital; and (iv) ensuring environmental sustainability and natural resources management. It will be premised on ensuring environmental sustainability, private sector development, and regional cooperation.

The new country operations business plan (COBP) 2008–2011 is currently under preparation. While consistent with JCSS, the COBP entails some adjustments to ADB assistance program in the next few years. Two recent developments have necessitated making these adjustments. In January 2008, President Bakiev announced the New Economic Policy (NEP), calling upon the nation to refocus on economic growth and development after years of political uncertainty and languishing economic growth. In May 2008 ADB adopted Strategy 2020, which requires ADB to be more effective through more focused operations in five core areas. The adjustments made in the forward program are compliant with this approach.

As of 15 September 2008, the country has received 26 loans worth $603.5 million and 5 ADF grants worth $66.1 million. Seven out of 26 loans are program loans totaling $199.5 million provided to support policy reforms to facilitate the transition to a market economy. The remaining 19 project loans and grants (worth $470.1 million) were provided to support various investment activities. At present, 7 loans and 5 grants with approved amount of $219.4 million are ongoing. These loans and grants have an un-disbursed balance of $124.7 million as of 15 September, 2008. All assistance provided to the Kyrgyz Republic is from concessional ADB’s special fund resources—Asian Development Fund (ADF). The Kyrgyz Republic has also received 7 grants from Japan Fund for Poverty Reduction (JFPR grants) amounting to $7 million. The transport and communications sectors account for the largest share of ADB assistance, followed by the multisector, and law, economics and public policy.

In addition to loans and grants, ADB had provided 70 technical assistance (TA) projects amounting to $40.351 million as of today. Of these, 21 are project preparatory TAs amounting to $13.35 million and the remaining 49 TAs for $27 million are advisory TAs for capacity building, policy advice, institutional strengthening and training.

The performance of ADB’s portfolio is generally satisfactory with no loan rated at risk. The scarcity of budgetary resources, and ceilings on the externally funded PIP constituted the biggest risks to the country portfolio. ADB and the World Bank have thus sought the removal of quarterly disbursement ceilings, which delay project implementation. In August 2005, IMF agreed to be more flexible in determining annual targets for the PIP, which is expected to improve portfolio performance.

ADB’s annual lending began with $40 million in 1994 and reached the peak level of $89 million in 1997. Thereafter, lending declined as the Government’s debt reduction strategy limited the size of its externally funded PIP to about 3 percent of GDP.

Since 2005, up to 50 percent of ADF assistance to the country was provided in the form of grants in view of the heavy external indebtedness of the country. In September 2007, the new grants framework was approved by ADB’s Board of Directors, which enables the Kyrgyz Republic to receive 100 percent of its annual ADF allocation in grants. Access to grants will depend on the county’s debt repayment capacity, which will need to be assessed periodically. As debt sustainability of the country strengthens, the Kyrgyz Republic will again be eligible for 50 percent grant and 50 percent loan starting from 2009. The allocation for the block of two years 2009–10 is determined at $120.54 million.

The Kyrgyz Republic was selected as one of the pilot countries during the February 2003 Rome Conference on Harmonization. Since then key development partners have learned to better coordinate and harmonize procurement procedures, oversee financial management and monitoring, share project implementation units, and conduct joint country portfolio reviews. The JCSS for the Kyrgyz Republic has been prepared by five funding agencies. Kyrgyz Resident Mission participated actively in the harmonization working group and contributed to the development of the National Action Plan for Harmonization which was approved by the Government in February 2005. The areas identified for harmonization in the immediate future are: (a) procedures for procurement of goods and services; (b) financial management and monitoring of projects; and (c) project implementation units. World Bank and ADB procurement documentation has been harmonized in these areas.

ADB cooperates extensively with civil society organizations in the Kyrgyz Republic to strengthen the effectiveness, quality, and sustainability of the services it provides.

Annex IV. Kyrgyz Republic—Relations with the European Bank for Reconstruction and Development (EBRD)

(As of October 1, 2008)

The EBRD facilitates the transition to a market-based economy through its direct support for private sector investment and key infrastructure, and targeted technical assistance. Under the Early Transition Countries’ Initiative (ETCI) introduced in 2005, the Bank is able to more innovatively respond to the Kyrgyz economic requirements. Therefore, the Bank is considering smaller, “more challenging” projects. Under the ETCI, the Bank also provides technical cooperation (TC) in support of investment development.

In accordance with the Strategy for the Kyrgyz Republic approved in June 2007, the Bank’s priorities are: (a) fostering the private sector; (b) strengthening the financial sector; (c) support for critical infrastructure; and (d) policy dialogue to improve the investment climate and support reform efforts.

As of October 2008, the Bank had approved 64 investment projects (including restructurings) with total financing of €776 million. The Bank has provided more than €209.1 million of this amount.

During the past three years, the Bank expanded its activities in the financial sector including the following:

Other major investments by the Bank during its operations in KR include:

The Bank provided the Kyrgyz Republic with sovereign guaranteed loans in the past and continues to monitor the development of key infrastructure projects in the public sector. The Bank is currently working with the Government for the possible EBRD financing of selected transport and municipal environmental infrastructure projects to be blended with concessional financing from other IFIs and bilateral donors. The Bank is also considering the possible non sovereign financing for airports, telecoms, gas pipeline projects to be financed on a commercial basis.

The Bank also implements grant-funded TC in support of investment projects, including the following ones in the FI (including MSFF consultants among others), natural resources/environment, agribusiness and infrastructure sectors:

The Bank actively promotes policy dialogue and implements selected TC activities to improve the business climate. The Bank supported the creation of an Investment Council to ensure high-level policy dialogue between the government and business community. ETC Fund resources ensures professional management of the Council, and the Bank participates in the process together with domestic and foreign private investors, as well as other donors.

Annex V. Kyrgyz Republic—Technical Assistance Provided by the Fund

February 2003–November 2008

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List of Resident Advisors

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Annex VI. Kyrgyz Republic—Statistical Issues

1. Data provision is adequate for surveillance. The four institutions responsible for collecting, compiling and disseminating macroeconomic statistics—the National Statistics Committee (NSC), the Ministry of Economic Development and Trade (MOEDT), the Ministry of Finance (MOF), and the National Bank of the Kyrgyz Republic (NBKR)—have legal and institutional environments that support statistical quality, and their respective staff are well-versed in current methodologies. Unlike staff resources, however, computer and financial resources are generally not commensurate with current needs and therefore constrain statistical development, especially for the NSC.

2. The NSC maintains a comprehensive and regularly updated website with data that largely incorporate international methodological recommendations with adequate coverage and timeliness ( In February 2004, following improvements in compilation and dissemination of the reserves template and external debt data, the Kyrgyz Republic subscribed to the SDDS.

3. A data ROSC mission in November 2002 concluded that the quality of the macroeconomic statistics had improved significantly in the last few years. The authorities had established a good track record of implementing recommendations of past technical assistance and had demonstrated commitment to pursue plans and programs to further improve their statistics. The mission recommended that a program of regular intersectoral consistency checks be introduced to reduce the sometimes significant unexplained discrepancies between the government finance, monetary, and balance of payments datasets. The authorities’ response to the data ROSC (posted on the IMF website ( includes an update on the status of implementation of the ROSC recommendations.

National accounts

4. In general, dissemination of national accounts statistics is timely. Technical assistance has been received from the IMF, EUROSTAT, OECD, the World Bank, and bilateral donors. While significant progress has been made in improving the national accounts estimation process, problems persist regarding the quality of the source data, due mainly to excessively tight collection deadlines associated with the release schedule. Efforts are needed to improve the quality of the source data for quarterly GDP estimates. Moreover, while the quarterly GDP estimates are disseminated on a discrete basis for SDDS purposes, these estimates are still derived from cumulative data. Difficulties also remain in properly estimating the degree of underreporting, especially in the private sector. To improve the coverage and reliability of primary data, work has been undertaken to introduce sampling procedures. Improved sampling procedures have been adopted for household surveys and new report forms have been introduced for the enterprise survey. The NSC has established a division of sample surveys, which would assist in improving the sampling techniques.

Price and labor market statistics

5. The concepts and definitions used in the CPI, which has been published since January 1995, are broadly consistent with international standards. The price index covers all urban resident households of all sizes and income levels, but needs to cover rural households, which comprise the majority of the population.

6. The PPI, which has been published since October 1996, is compiled broadly in accordance with international standards, although its coverage needs to be improved. The coverage of the PPI was broadened in May 1997 and is expected to be further expanded in the coming years.

7. Progress has been made in computing unit value indices for imports and exports. Work continues with regard to computation of these indices using a standard index presentation and the development of an export price index. However, problems in customs administration have led to incomplete coverage of trade and the lack of an appropriate valuation system. Moreover, the data processed by customs have suffered due to the use of an outdated computer software system.

8. Problems exist in the compilation of the average wage, especially with respect to the valuation of payments in kind and the coverage of the private sector. Monthly and annual data are not comparable because of different coverage and classifications. These problems extend to employment data as well. The coverage of unemployment includes an estimate of unregistered unemployed.

Government finance statistics

9. The scope of central government statistics falls short of international standards because it excludes data for the Social Fund and the externally financed Public Investment Program (these data are published separately). Other limitations involve the exclusion of financial transactions with domestic banks and the discrepancies between the deficit and financing data. While revenue and expenditure data generally accord with the GFSM 1986, there are misclassifications in both categories (for example, some nontax revenues are classified as taxes, and certain expenditure items are misclassified in the budget and treasury accounts). Monthly GFS data are reported to STA for publication in the IFS; the latest data reported for publication in the GFS Yearbook were for 2006, and covered general government and its subsectors; the data were compiled using the GFSM 2001 analytical framework.

10. The provision of data on public external debt service has improved. Data on actual debt service, guaranteed debt service, outstanding debt and revised debt projections, are provided on a monthly basis. The quality (including timeliness) of external debt data is adequate. The External Debt Division of the MOF is now solely responsible for monitoring external debt, and has benefited from on-site training provided by a Swiss-financed long-term consultant and the computerization of its database.

Monetary and financial statistics (MFS)

11. The 2002 data ROSC mission found that: (a) the residency criterion was not uniformly applied, as the currency denomination was used to classify some transactions with foreign and domestic units; (b) deposits with banks in liquidation were included in broad money; and (c) source data did not provide sufficient information for a more detailed sectoral breakdown (e.g., subsectorization of nonbank institutions as recommended in the MFSM.

12. The April/May 2004 STA mission on MFS found that the NBKR had made substantial progress in implementing ROSC recommendations pertaining to monetary statistics. To address the outstanding issues, the mission further recommended that the NBKR (a) improve the basic source data to allow for proper classification of the transactions with foreign and domestic units; (b) fully implement the MFSM’s methodology concerning accrual accounting; (c) exclude deposits with banks in liquidation from monetary aggregates and classify them as restricted deposits; and (d) set up a working group to follow up on consistency between monetary and balance of payments statistics. The mission also recommended expanding the current broad money survey to include the accounts of credit unions and microfinance companies.

13. Monetary data have been reported electronically to STA using Standardized Report Forms (SRFs). STA identified classification issues in the reported SRF data, which were communicated to the authorities. The data will be published in IFS and IFS Monetary and Financial Statistics Supplement as soon as these issues are resolved.

External sector statistics

14. Data on the balance of payments and international investment position are compiled and disseminated on a quarterly basis. The 2002 data ROSC mission noted that the compilation of balance of payments statistics broadly follows the methodology recommended in the BPM5. The NBKR has good arrangements with other agencies to ensure timely data flow. However, because of legal issues related to secrecy provisions, high value transactions cannot be verified with respondents, limiting the ability to cross-check the accuracy of data. Although the data collection program has been expanded in the recent past, coverage deficiencies remain with respect to trade, services, and foreign direct investment. The NBKR enterprise surveys lack an up-to-date register and have inadequate coverage of enterprises, particularly those in free economic zones. There is also a need to improve compilation procedures for achieving temporal consistency of data, and investigating and reconciling discrepancies.

15. The NSC conducts a quarterly sample survey for the estimation of shuttle trade, and uses customs records on the number of people crossing the border with CIS countries to derive the sample. The State Customs Inspectorate has introduced the customs receipt order for shuttle traders that simplifies and improves recording of imports of goods by shuttle traders. However, the high value limits applied for free import of goods by individuals have fostered a large shuttle trade, which has complicated estimation of this activity. The March 2004 STA mission on balance of payments statistics noted that while progress had been made in several areas, further improvements were needed in the international transactions reporting system; data sampling methods; and data validation and coverage, particularly on trade, services, private sector external debt, and foreign direct investment. The mission developed a questionnaire for collecting data on foreign direct investments and provided guidelines on the collection of data on external debt.

Kyrgyz Republic: Table of Common Indicators Required for Surveillance

(As of November 17, 2008)

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Includes reserve assets pledged or otherwise encumbered, as well as net derivative positions.

Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign and domestic financing only.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); Not Available (NA).

Reflects the assessment provided in the data ROSC (published in November 2003, and based on the findings of the mission that took place during November 2002) for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), or not observed (NO).

Same as footnote 7, except referring to international standards concerning source data, statistical techniques, assessment and validation of source data, assessment and validation of intermediate data and statistical outputs, and revision studies


Two other development partners, namely the European Commission and the German Government joined the JCSS in December 2007.