Front Matter

Front Matter Page

© 2009 International Monetary Fund

July 2009

IMF Country Report No. 09/209

Kyrgyz Republic: 2009 Article IV Consultation and First Review Under the 18-Month Arrangement Under the Exogenous Shocks Facility—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 the combined discussion of the 2009 Article IV consultation and the first review under the 18-Month Arrangement under the Exogenous Shocks Facility with the Kyrgyz Republic, the following documents have been released and are included in this package:

  • The staff report for the combined 2009 Article IV consultation and First Review Under the 18-Month Arrangement Under the Exogenous Shocks Facility, prepared by a staff team of the IMF, following discussions that ended on March 18, 2009 with officials of the Kyrgyz Republic on economic policies. Based on information available at the time of these discussions, the staff report was completed on May 11, 2009. 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 IMF/World Bank debt sustainability analysis.

  • A Public Information Notice (PIN) and Press Release summarizing the views of the Executive Board as expressed during its May 22, 2009, discussion of the staff report on issues related to the Article IV consultation and the review, respectively.

  • 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*

  • Technical Memorandum of Understanding*

  • *Also be included in Staff Report.

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

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

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International Monetary Fund

Washington, D.C.

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Staff Report for the 2009 Article IV Consultation and First Review Under the 18-Month Arrangement Under the Exogenous Shocks Facility

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

Approved by David Owen and Ranil Manohara Salgado

May 11, 2009

Discussions were held in Bishkek during March 4–18, 2009. The team comprised Mr. van Rooden (head), Ms. Bacalu, Ms. Jardaneh (all MCD), Ms. Kongsamut (MCM), and Mr. Wu (SPR), and was assisted by Mr. McHugh (the Fund’s Resident Representative in the Kyrgyz Republic). The team met with Prime Minister Chudinov, Deputy Prime Minister for Labor and Social Protection Abdullaeva, Minister of Finance Sultanov, Minister of Trade and Economic Development Japarov, National Bank Chairman Alapaev, other senior officials, and representatives of the donor community and the financial sector.

The last Article IV consultation was concluded on November 3, 2006. The exchange rate regime is classified as an other managed arrangement. The Kyrgyz Republic has accepted the obligations under Article VIII, Sections 2, 3, and 4, and maintains an exchange system free of restrictions on payments and transfers for current international transactions.

The Executive Board approved an 18-month arrangement under the high-access component of the Exogenous Shocks Facility (ESF) on December 10, 2008, in the amount of SDR 66.6 million (about $100 million), or 75 percent of quota. The authorities had requested the arrangement to support their economic program to address the consequences of the exogenous shocks that had hit the economy and to manage the effects of the slowdown in regional growth and spillovers from the global financial crisis. A first disbursement of SDR 16.65 million (about $25 million) was made following Board approval.

Staff recommends the completion of the first review under the ESF arrangement, based on the authorities’ strong performance and the strength of their policy commitments expressed in the attached supplementary Letter of Intent. A second disbursement of SDR 16.65 million (about $25 million) would become available upon completion of the review.

Data provision is adequate for surveillance and program monitoring, although data could be improved in some areas (Annex VI). The Kyrgyz Republic subscribes to the SDDS.


  • Executive Summary

  • I. Background

  • II. Recent Developments

    • A. Spillovers from the Global Crisis: Economic Activity Slows Rapidly

    • B. Financial Spillovers: Pressures Emerge

    • C. Program Implementation: the Program is on Track

  • III. Outlook: A Challenging Year Ahead

  • IV. Policy Discussions: Managing the Impact of the Global Crisis

    • A. Fiscal Policy: Room for Stimulus

    • B. Monetary and Exchange Rate Policy: Safeguarding External and Internal Stability

    • C. Financial Sector Policies: Maintaining the Banks’ Health

    • D. Structural Reforms

  • V. Risks

  • VI. Program Issues

  • VII. Staff Appraisal

  • Tables

  • 1. Selected Economic Indicators, 2006-14

  • 2. Balance of Payments, 2006-142

  • 3. NBKR Accounts, 2006-09

  • 4. Monetary Survey, 2006-09

  • 5. General Government Finances, 2007-12

  • 6. General Government Finances, 2007-12

  • 7. State Government Finances, 2007-12

  • 8. State Government Finances, 2007-12

  • 9. Social Fund Finances, 2007-12

  • 10. Indicators of Capacity to Repay the Fund, 2007-15

  • 11. Reviews and Disbursements Under the 18-month ESF Arrangement

  • 12. Millenium Development Goals

  • Figures

  • 1. Kyrgyz Republic: Macroeconomic Developments

  • 2. Kyrgyz Republic: External Sector Developments

  • 3. Kyrgyz Republic: Monetary and Exchange Rate Developments

  • 4. Fiscal Developments

  • Boxes

  • 1. The Authorities’ Response to Past Fund Advice

  • 2. Tax Revenue Developments

  • 3. Exchange Rate Assessment and Competitiveness

  • 4. Determinants of Inflation in the Kyrgyz Republic

  • 5. Financial Sector Assessment

  • Attachments

  • I. Letter of Intent

  • II. Revised Technical Memorandum of Understanding

Executive Summary

The outlook for the Kyrgyz economy has worsened as the region has been swept up by the global economic crisis. The crisis is hurting the Kyrgyz economy mainly through trade and remittance channels. Russia and Kazakhstan remain key trading partners of the Kyrgyz Republic and the main source of remittances. With these countries in recession, Kyrgyz growth is expected to almost come to a halt this year, before recovering modestly in 2010. Inflation has come down sharply to 13.6 percent in March 2009, as world commodity prices eased, and is expected to slow further to about 10 percent by year-end.

Policy implementation under the ESF program approved in December 2008 has been strong. All end-2008 performance criteria and structural benchmarks were observed. Policies have been aimed at supporting growth and the poor, while reducing inflation and maintaining financial sector stability.

The authorities’ economic policies for 2009, together with large donor support, will help mitigate the impact of the crisis on the Kyrgyz economy. Sizable assistance received from Russia—including $450 million in highly concessional budget support—allows fiscal policy to accommodate the large shortfall in government revenues expected this year, while creating some room for an increase in capital and social spending. The resulting fiscal easing will provide a strong boost to the economy and help to avoid a recession. The assistance will more than cover the balance of payments and fiscal needs that were emerging for 2009.

The NBKR will allow continued exchange rate flexibility to absorb the large external shocks and limit foreign exchange reserve losses. The spread of the financial crisis resulted in strong depreciation pressures. The NBKR remains concerned about a loss in confidence in the national currency that could arise from a sudden and disorderly depreciation and will continue to intervene to smooth extreme volatility. Provided that inflation continues on a downward path and exchange rate pressures ease, interest rates could be gradually reduced.

Banks have held up well to the global financial crisis. Bank capitalization and liquidity remain high. Kazakh banks have so far maintained funding of their Kyrgyz subsidiaries. Credit growth, however, has come to a halt and nonperforming loans have started to rise. Stress tests indicate vulnerabilities to credit and concentration risks. The high level of capitalization of banks provides some cushion to these risks.

The authorities have taken a proactive approach to prepare for possible financial sector problems. They have put together a crisis preparedness plan, including plans for injecting capital into systemic banks if needed, funded from the budget. Emergency liquidity facilities are in place. The introduction of deposit insurance is being advanced and deposit insurance levels have been increased. The NBKR has also required banks to prepare their own contingency plans and has stepped up monitoring of the banks.

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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 Ranil Manohara Salgado (IMF) and Luca Barbone and Carlos Alberto Braga (World Bank)

May 11, 2009

Based on the joint World Bank-IMF Low-Income Country Debt Sustainability Framework, the Kyrgyz Republic is assessed to be at a moderate risk of external debt distress.1 Compared to the previous joint DSA, the long-term debt outlook did not change. Some stress tests suggest that the country is still vulnerable, particularly to a combination of exogenous shocks. Further improvement of the debt outlook will depend on maintaining sound macroeconomic policies; including prudent borrowing, as well as ensuring continued concessional financing to support the country’s large development needs.

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Staff Report for the 2009 Article IV Consultation and First Review Under the 18-Month Arrangement Under the Exogenous Shocks Facility—Informational Annex

May 11, 2009


  • 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 (EBRD)

  • V. Technical Assistance Provided by the Fund

  • VI. Statistical Issues

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Public Information Notice (PIN) No. 09/82

International Monetary Fund


700 19th Street, NW

May 29, 2009

Washington, D. C. 20431 USA

IMF Executive Board Concludes 2009 Article IV Consultation with the Kyrgyz Republic

On May 22, 2009 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Kyrgyz Republic.1

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Press Release No. 09/184

International Monetary Fund


Washington, D.C. 20431 USA

May 22, 2009

IMF Completes First Review Under Exogenous Shock Facility with the Kyrgyz Republic and Approves US$25.5 Million Disbursement