The Executive Board of the International Monetary Fund (IMF) today completed the third review of Kyrgyz Republic’s economic performance under the program supported by a three-year, SDR 66.6 million (about US$102.3 million) Extended Credit Facility arrangement that was approved by the IMF’s Executive Board on June 20, 2011 (Press Release No. 11/245). The Executive Board’s decision enables the immediate disbursement of an amount equivalent to SDR 9.514 million (about US$ 14.6 million) to the Kyrgyz Republic. This would bring total disbursements under the arrangement to SDR 38.056 million (about US$58.5 million).

In completing the review, the Board approved the authorities’ request for a downward modification of the quantitative performance criteria (QPC) on the general government overall deficit target and on the net international reserves held by the National Bank of the Kyrgyz Republic (NBKR) for end-December 2012, reflecting the external financing shortfalls with the subsequent modifications in the QPC on the NBKR’s net domestic assets. Moreover, in light of the successful renegotiation of the borrowing terms on the second phase of the foreign-financed energy infrastructure project, the Board approved a modification of the debt limit by introducing a zero ceiling on contracting or guaranteeing of new nonconcessional external debt by the public sector.

Following the Executive Board’s discussion, Mr. Min Zhu, Deputy Managing Director and Acting Chair, stated:

“Implementation of sound policies under the Fund-supported program has helped the Kyrgyz Republic to preserve macroeconomic stability. Growth this year has been adversely affected by the deferral of gold production to outer years. The Kyrgyz Republic also faces a number of challenges going forward, including from a potential further deterioration in the global economic environment and rising inflation due to pressures from higher food prices.”

“The authorities are committed to fiscal consolidation in the medium term to reduce vulnerabilities, rebuild fiscal policy buffers, and ensure fiscal and debt sustainability. The government will restrain current spending while preserving social and capital outlays to balance the need for macroeconomic stability with the need to increase the economy’s long-term growth potential. Reforms in tax policy and administration are expected to boost revenues, while public financial management reforms will strengthen fiscal governance and transparency.”

“The central bank will maintain a tight monetary policy stance to mitigate underlying inflationary pressures. While key banking indicators have been improving, ongoing efforts to enhance the resilience of the financial sector, including the swift resolution of Zalkar Bank, and to reduce the government footprint in the sector are critical. The authorities intend to finalize the envisaged legal reform to strengthen the bank resolution framework.”

“Good governance and sound institutions remain key to create a level play field, improve investor confidence and lay the foundation for strong private sector-led growth. The authorities remain committed to ensuring that all regulations of the State Development Bank (SDB) are consistent with international best practices and that all public resources to the SDB will be channeled through the budget.”