Statement by the Staff Representative on the Kyrgyz Republic, December 3, 2012

The Kyrgyz Republic has stabilized with the formation of a new coalition, but political uncertainty remains. Despite a slump in gold production and delays in donor financing, monetary and fiscal policies remained prudent. Improving the business climate, good governance, and strong institutions remain key to sustaining strong growth over the medium term. Fiscal consolidation with strong revenue measures and prudent expenditure policies are instrumental in safeguarding macroeconomic stability. More forceful reform efforts are needed to ensure long-term viability of the banking sector.

Abstract

The Kyrgyz Republic has stabilized with the formation of a new coalition, but political uncertainty remains. Despite a slump in gold production and delays in donor financing, monetary and fiscal policies remained prudent. Improving the business climate, good governance, and strong institutions remain key to sustaining strong growth over the medium term. Fiscal consolidation with strong revenue measures and prudent expenditure policies are instrumental in safeguarding macroeconomic stability. More forceful reform efforts are needed to ensure long-term viability of the banking sector.

1. This statement provides an update on recent developments since the issuance of the staff report. It does not alter the thrust of the staff appraisal.

2. On November 7, Centerra Gold Inc., the parent company of the Kumtor gold mining company, released lower projections for this year’s gold production. If the new projections materialize, overall GDP growth would decline to 0 percent this year compared with 1 percent projected in the staff report. The revenue shortfall would be 0.1 percent of GDP. Staff has consulted with the Ministry of Finance which intends to cut non-priority expenditures to ensure that the end-December 2012 fiscal deficit target will be met.

3. On November 16, the office of the Prime Minister of the Russian Federation announced that Russia will provide a budget support grant to the Kyrgyz Republic toward the end of this year amounting to US$25 million (0.4 percent of GDP). Under the program agreed with the authorities, the grant would be saved in the first instance, reducing the 2012 fiscal deficit while strengthening net international reserves. For 2013, these additional resources will be important in helping ensure that the government’s priority expenditures can be readily financed.

Kyrgyz Republic: Third Review Under the Three-Year Arrangement Under the Extended Credit Facility and Request for Modification of Performance Criteria—Staff Report; Staff Supplement and Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Kyrgyz Republic.
Author: International Monetary Fund. Middle East and Central Asia Dept.