Kyrgyz Republic: Second Review Under the Three-Year Arrangement Under the Extended Credit Facility, and Request for Modification of Performance Criteria—Informational Annex
Author: International Monetary Fund. Monetary and Capital Markets Department
Publication Date:
29 Jun 2016
eISBN:
9781475519198
Language:
English
Keywords:
ISCR; CR; Kyrgyz authorities; Kyrgyzstan; exchange rate depreciation; authority; SDR; Kyrgyz portfolio; SBS Kyrgyz Republic; public finance; Kyrgyz Republic from the ring-fenced list; resource allocation; External sector statistics; government primary market
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External shocks continue to shape both the outlook and policies. A weaker-than-expected external environment is hurting growth, straining the budget, and raising public debt and banking sector vulnerabilities. The authorities' response to shocks has focused on exchange rate flexibility and unorthodox stimulus measures, although the budget deficit in 2015 was well within the program target. For 2016, the authorities are undertaking additional efforts to adhere to the program's fiscal commitments. Financial sector vulnerabilities and risks are high and rising. Slow progress toward passing the Banking Law that aims to introduce a modern bank resolution system and increase the independence of the National Bank of the Kyrgyz Republic remains a concern. The change in the cabinet just six months after the elections underlines the fluidity of the country's political situation.

Abstract

External shocks continue to shape both the outlook and policies. A weaker-than-expected external environment is hurting growth, straining the budget, and raising public debt and banking sector vulnerabilities. The authorities' response to shocks has focused on exchange rate flexibility and unorthodox stimulus measures, although the budget deficit in 2015 was well within the program target. For 2016, the authorities are undertaking additional efforts to adhere to the program's fiscal commitments. Financial sector vulnerabilities and risks are high and rising. Slow progress toward passing the Banking Law that aims to introduce a modern bank resolution system and increase the independence of the National Bank of the Kyrgyz Republic remains a concern. The change in the cabinet just six months after the elections underlines the fluidity of the country's political situation.

Relations with the Fund

(As of April 30, 2016)

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Latest financial arrangements:

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Projected payments to Fund1/

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

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When a member has overdue financial obligations outstanding for more than three months, the amount of such arrears will be shown in this section.

Status of HIPC and MDRI assistance

On November 30, 2011, the Executive Board considered the addition of income and indebtedness criteria for end-2010 to the HIPC Initiative framework, which resulted in the removal of the Kyrgyz Republic from the ring-fenced list of eligible countries.

Safeguards assessments

An update assessment with respect to the new ECF approved by the IMF Board on April 8, 2015 was completed on October 5, 2015. The assessment concluded that the National Bank of the Kyrgyz Republic (NBKR) continues to have significant vulnerabilities in the legal structure, particularly in governance arrangements. The audit committee’s authority remains limited, as it only has an advisory role vis-à-vis the NBKR Board. Further, the internal audit mechanism is in need of improvement. The NBKR, in coordination with the government, should actively pursue and advocate the prompt enactment of the Banking Law. Previous assessments were completed in October 2011, April 2009, October 2005, and January 2002.

Exchange rate arrangements

The currency of the Kyrgyz Republic has been the som (100 tyiyn = 1 som) since May 15, 1993. The de jure exchange rate arrangement is floating arrangement. The NBKR participates and intervenes in the interbank foreign exchange market to limit exchange rate volatility as necessary. The de facto exchange rate arrangement is classified as other managed arrangement. 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 calculated as the daily weighted average of the exchange rates used in the purchase and sale transactions of dollars conducted in the foreign exchange market through the Trade Information Electronic System (TIES) of the NBKR for the reporting period from 3:00 pm of the previous trading day to 3:00 pm of the current trading day. The government uses the official exchange rate for budget and tax accounting purposes as well as for all payments between the government and enterprises and other legal entities. The Kyrgyz Republic maintains a multiple currency practice (MCP), which predates the arrangement, arising from the use of the official exchange rate for government transactions. The official rate may differ by more than 2 percent from market rates because it is based on the average transaction weighted rate of the preceding day. In practice, the official and market rates have never differed by more than 2 percent. The new trading software that is currently being tested will enable automatic matching and settlement of transactions and will eliminate the existing segmentation of the foreign exchange market. The software is expected to be rolled out to banks over the next few months and to remove the MCP. Staff does not recommend approval of this MCP.

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 the MCP discussed above and 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 U.N. 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 in May 2007.

Article IV consultations

The Kyrgyz Republic is on the 24-month consultation cycle. The 2015 Article IV consultation discussions were held in September 2015 and were completed by the Executive Board in December 2015 (see Country Report No. 16/55).

FSAP participation and ROSC assessment

An FSAP update mission in July 2013 reviewed progress since the 2007 assessment, and the Board discussed the Financial System Stability Assessment (FSSA) along with the fifth ECF review in December 2013. The FSSA was not published. 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.

Resident representative

The tenth resident representative of the Fund in the Kyrgyz Republic, Mr. Said, took his post in Bishkek in March 2016.

Relations with the World Bank Group

(As of May 19, 2016)

The Performance and Learning Review of the joint WB/IFC Country Partnership Strategy (CPS for FY14–17) for the Kyrgyz Republic for the period FY14–15 was reviewed by the Board on March 22, 2016. The overarching objective of the CPS is strengthened governance. This governance-oriented approach focuses on three dimensions of the relationship between the state and the citizen, which correspond to three broad areas of engagement—public administration and public service delivery, business environment and investment climate, and the management of natural resources and physical infrastructure. IFC’s role in the WBG Country Partnership Strategy for the Kyrgyz Republic is to support the development and diversification of the private sector, contributing to country’s greater competitiveness, and improving employment opportunities.

Since the Kyrgyz Republic joined the World Bank in 1992, the Bank has approved US$1.3 billion for International Development Association (IDA)-funded projects and Recipient Executed Trust Funds (RETFs), out of which US$1.1 billion has been disbursed. To date, 50 IDA investment operations for US$1.2 billion have been completed and closed. The Kyrgyz Active Portfolio includes nine IDA projects and 20 RETFs for a total amount of US$201.8 million. From 1992 until 2000, the Kyrgyz portfolio had a significant focus on budget support; since 2001, however, there has been a gradual shift toward investment projects till 2010. To achieve macroeconomic stability in the country after political turmoil in April 2010, the Kyrgyz government requested the Bank to provide budget support. There have been three budget support operations since the July 2010 Donors Conference. Further, the multiyear programmatic budget support program is envisioned till FY17; the first in a series of two Programmatic Development Policy Operations—the Programmatic Governance and Competitiveness Development Policy Operation—has been negotiated on May 19, 2016 and is scheduled for the Board approval in June 2016.

IDA financed operations: Under the CPF, two operations were delivered in FY16: Integrated Forest Ecosystem Management Project (US$12 million equivalent) and the Urban Development Project (US$12 million equivalent). The Governance and Competitiveness Development Policy Operation (US$24 million equivalent) is scheduled for the Board approval in June 2016.

The following operations are planned to be delivered in FY17, the Rural Water Supply and Sanitation Project 3 (US$13 million equivalent) and the Integrated Dairy Productivity Improvement Project (US$5 million equivalent).

Trust funds: In addition to the IDA portfolio, the Kyrgyz program includes a significant number of stand-alone trust funds (TFs). Currently, the RETFs Portfolio has a total value of about US$53.4 million, out of which US$12 million has been disbursed. Three sectors—Health, Education, and Water—receive most of the TFs. The largest trust funds are the Kyrgyz Global Partnership for Education (US$12.7 million equivalent), the Swiss TF for the Kyrgyz Second Health and Social Protection Project (US$11.9 million equivalent), the Kyrgyz Health Results Based Financing (US$11 million equivalent), and the National Water Resources Management Project (US$7.8 million equivalent). Additionally, the Global Agriculture and Food Security (GAFS) RETF Agriculture Productivity and Nutrition Improvement Project (US$38 million equivalent) has been approved by the Bank and is going through the process of becoming effective. TFs are mainly provided to co-finance IDA operations and to support capacity-building activities. The main contributors to the TFs have been Switzerland and Russia.

Analytical advisory activities: These include among others debt management reform plan, Custom Union and competitiveness analysis, roadmap for improving social safety net administration, national private sector development strategy, business environment enhancement technical assistance, and capacity building for public sector accounting reform.

IFC program: Since becoming a member of IFC in 1993, the Kyrgyz Republic has received commitments totaling more than US$123 million from IFC’s own funds to finance 39 projects in the financial sector, including banking and microfinance, mining, agribusiness, as well as in the pulp and paper sectors. As of June 30, 2015, IFC’s committed portfolio stood at US$27.4 million, which includes investments in financial markets and manufacturing sectors. IFC prioritizes activities aimed at improving the investment climate, increasing access to finance and promoting corporate governance, while at the same time exploring a greater role in energy efficiency and renewable energy and developing opportunities for public private partnerships jointly with IDA. In the banking sector, IFC aims to increase access to finance for MSMEs by improving regulatory framework, strengthening local financial institutions, expanding microfinance organizations, and providing financing for MSME financing to local banks. In the real sector, IFC aims to improve corporate business practices, while looking for emerging opportunities to invest across variety of sectors, particularly in agribusiness, mining, and infrastructure.

IFC advisory programs implemented in the Kyrgyz Republic focus on: i) improving financial markets infrastructure, specifically credit information sharing systems and risk management; (ii) promoting the institutional and capacity building of financial intermediaries; (iii) promoting microfinance and housing microfinance development; (iv) enhancing the investment climate and tax administration; (v) improving corporate governance of local companies, including SMEs and succession planning; (vi) developing agri-finance and agricultural value chains with focus on dairy; (vii) helping producers improve food safety standards; and (viii) developing public-private partnership (PPP) projects, currently in the health sector.

MIGA program: MIGA’s current portfolio in the Kyrgyz Republic does not have any projects. The last one project, financed by Austrian and Italian investors, in support of the country’s manufacturing and services sector expired in June 2015.

ICSID: The Kyrgyz government lost an ICSID supported lawsuit relating to an expropriated hotel and defaulted on the required payment. In October, the Canadian court approved the confiscation of Kyrgyz holdings on the Toronto Stock Exchange. The Kyrgyz government has contested this decision.

Relations with the Asian Development Bank (ADB)

(As of December 31, 2015)

The Kyrgyz Republic joined ADB in 1994. ADB approved the current Country Partnership Strategy (CPS) 2013–17 for the Kyrgyz Republic in August 2013. The CPS is aligned with the National Sustainable Development Strategy, 2013–17 approved by the President of the Kyrgyz Republic in January 2013 (NSDS). The overarching goal of the CPS is poverty reduction through inclusive economic growth. The CPS supports the government in addressing key constraints to growth and equitable access to economic opportunities. It focuses on: (i) public sector management for private sector development; (ii) transport and logistics, focusing on rehabilitation of a regional corridor and maintenance of the road network.; (iii) the energy sector, focusing on rehabilitating and upgrading a major hydropower plant, and institutional and technological reform to improve sector efficiency; (iv) education and training, focusing on improvement of the availability and quality of a skilled workforce, and employability of the population; and (v) water supply and sanitation (WSS), responding to the government’s request and commitment to sector reform. ADB has been active in these areas and within each sector will focus more strongly on addressing regional disparities. The Country Operations Business Plan (COBP) 2016–18 was endorsed by the Board in September 2015. The COBP 2017–19 is being prepared.

ADB is one of the major development partners in the country. The Kyrgyz Republic is a Group A developing member country and has access to Asian Development Fund (ADF) resources and concessional ordinary capital resources (OCR). The indicative ADF and concessional OCR resource allocation for 2016–18 is US$283.8 million, including US$60.0 million from sub-regional pool. The final allocation will depend on available ADF resources and concessional OCR, and the outcome of the country performance assessments. In addition, co-financing and funding from other sources, including the ADF and concessional OCR sub-regional pool, will be explored. The 2014 debt distress classification of the Kyrgyz Republic was assessed as moderate risk of debt distress. In accordance with the ADF grants framework, the country is to receive 50 percent of its country allocation in grants during 2015–16, subject to a 20 percent volume discount of the grant portion of the country allocation. The nonlending program includes US$4.9 million of technical assistance grants for 2016–18.

As of 31 December 2015, the country received US$1,464.3 million consisting of 40 loans for US$981.7 million and 34 grants for US$482.6 million, including two nonsovereign loans for US$20.0 million and 8 Japan Fund for Poverty Reduction grants for US$8.5 million. About 22 percent (US$324.0 million) of the total funding resources had been provided through thirteen program operations to support policy reforms and facilitate economic transition.

As of 31 December 2015, the total portfolio included 16 projects totaling US$584.8 million which were being implemented through 10 ADF loans (US$307.2 million) and 13 ADF grants (US$276.1 million) and one grant financed by the Japan Fund for Poverty Reduction grant (US$1.5 million). Transport and energy are the top two sectors in terms of ADB financing volume accounting for about 70 percent of the total active portfolio. Four projects, namely: Investment Climate Improvement Program (ICIP), Subprogram 3 for US$22 million; Strengthening Education System Sector Development Program and Project for US$12 and US$10 million; Toktogul Rehabilitation Phase 2 Project for US$110 million (US$65.5 million loan and US$44.5 million grant); CAREC Transport Corridor I (Bishkek-Torugart Road) Project 3—Additional financing for US$15.1 million (US$10.8 million loan and US$4.3 million grant) were approved in 2014. In 2015, CAREC Corridors 1 and 3 Connector Road Project, Project Design Advance (PDA) for US$3 million and the Second Investment Climate Improvement Program (Subprogram 1) for US$20 million were approved.

ADB has also provided 90 technical assistance (TA) projects amounting to US$51.9 million as of today. ADB also provides TA through the regional technical assistance facility. Among the most recent assistance is technical assistance for developing an e-procurement strategy for the Kyrgyz Republic, Support for Strategic Assessment of the Kyrgyz Economy, and Strengthening Government Capacity for Managing Development Projects. Two TAs were approved in 2015: project Advisory TA (PATA) for Accession to the Eurasian Economic Union—Capturing the Opportunities and Addressing the Risks for US$0.5 million, and project Preparatory TA (PPTA) Central Asia Regional Economic Cooperation Corridors 1 and 3 Connector Road for US$1 million.

The year-end performance of ADB’s portfolio was satisfactory in 2015 with 90 percent projects on track. Contract awards and disbursements as of 31 December 2015 reached US$88.2 million and US$71.7 million (153 percent and 250 percent of year’s projections), respectively.

The Kyrgyz Republic is a strong advocate for regional economic cooperation, and is an active participant in the Central Asia Regional Economic Cooperation (CAREC) Program. The Kyrgyz Republic has benefited significantly from regional road development. Following CAREC initiatives in key areas approved at sector meetings, the Kyrgyz Republic is taking measures in trade policy and trade facilitation sectors to increase trade and transport flow. The reconstructed roads ensure safer and faster year-round travel to Kazakh, Tajik, and Chinese borders. Investments in energy will expand energy production and distribution. CAREC transport and trade facilitation projects are expected to support the government’s goal of developing external trade activities. ADB is also helping to develop procedures and technical tools to enhance land acquisition and resettlement practices to foster more effective infrastructure development in the region.

By the end of 2015, cumulative direct value-added official co-financing for the Kyrgyz Republic since 1997 amounted to US$216.6 million for eleven investment projects and US$4.13 million for eight technical assistance projects.

ADB private sector operations in the Kyrgyz Republic began in 2012 with the signing of a US$10 million SME loan to the Kyrgyz Investment and Credit Bank. ADB’s Trade Finance Program (TFP) fills market gaps in trade finance by providing guarantees and loans through over 200 partner banks in support of trade. In December 2012, three banks in the Kyrgyz Republic signed TFP agreements including Demir Kyrgyz International Bank, Kyrgyz Investment and Credit CJSC, and RSK Bank OJSC. In 2015, a US$10 million Senior Unsecured Loan to Bai Tushum Bank for Broadening Access to Finance was approved.

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.

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

Relations with the European Bank for Reconstruction and Development (EBRD)

(As of September 30, 2015)

Overview of EBRD activities to date

The Bank has been actively supporting the transition in Kyrgyz Republic since 1995. From 1995 to the end of September 2015, the Bank signed 128 projects accounting for a net cumulative business volume of €516 million. The Bank’s portfolio amounted to €209 million in 54 active projects. The current private sector portfolio ratio (as a percentage of the total portfolio) is 68 percent which is well above the Bank’s 60 percent mandated ratio.

On 25 February 2015 the EBRD Board of Directors approved a new country strategy for the Kyrgyz Republic which will guide the Bank’s operations in the country for the next four years. The key strategic priorities include (i) fostering sustainable growth by strengthening regional cross-border linkages; (ii) enabling SMEs to scale-up and bolster competitiveness; and (iii) promoting sustainability of public utilities through commercialization and private sector participation. In addition, the Bank will seek to support through the above priorities the reduction of regional economic disparities, by increasing its outreach to less developed rural areas, in particular in the southern regions, and addressing inclusion gaps in relation to gender and youth across sectors.

Fostering sustainable growth by strengthening regional cross-border linkages:

As a landlocked economy with a limited domestic market, the Kyrgyz Republic would benefit greatly from deeper regional integration, given its important energy export potential, as well as good regional trade and transit position. The country is engaged in several regional integration processes, which create opportunities in terms of export markets and potential inwards investments.

  • In that context, the Bank aims to help facilitate economic and trade cooperation and integration with the region, by supporting rehabilitation of critical infrastructure. In 2014 and 2015 the Bank completed physical implementation of US$35 million project to rehabilitate a section of Osh-Isfana road, an important trade and transport corridor in the Fergana valley and has been exploring opportunities for further involvement in the road sector.

  • The Bank helped local SMEs to develop export potential by providing direct business advice involving both local and international consultants, organizing specialized seminars, trainings to promote trade finance instruments and equip consultant with much needed knowledge on export promotion.

  • The Bank continued its engagement with the government on public procurement improvement under the joint EBRD–UNCITRAL technical cooperation project designed to upgrade public procurement regulation in the CIS to the new UNCITRAL Model Law on Procurement of Goods, Construction, and Services. The Bank continues working with the government on helping to open negotiations and join the GPA to comply with requirements of both WTO and Eurasian Economic Union in terms of public procurement.

Enabling SMEs to scale-up and bolster competitiveness:

The Bank’s operations in support of local SMEs took advantage of the ETC Initiative and recently created SME Department, which was instrumental in enabling the Bank to deliver a number of small projects with significant transition impact, particularly in the areas of corporate governance and business conduct. In 2014 and first nine months of 2015 the Bank signed nine corporate sector projects all with local SMEs.

  • Under the Direct Finance Facility, in 2014 the Bank financed a local retail chain to support expansion and improve shop conditions; and a local property and hotel developer to complete the major construction and refurbishment works.

  • Under the Risk-sharing Facility (RFF), jointly with local partner banks the Bank supported expansion to Jalalabad of one of the leading flour producing companies; financed two local construction companies, one to invest into expansion of its stone crushing and mortar product lines to increase efficiency and ensure acceptable product quality, and another to increase own fleet to maintain a continuous raw materials supply; financed one of the largest manufacturing enterprises in the country supplying radiators and other spare parts to its partners in Russia and Kazakhstan helping to improve health and safety standards at the site as well as modernize production facilities; supported a local resort to help modernize its wastewater treatment facility with the aim to reduce energy consumption and improve the resort’s area and facilities; provided financing to a local fuel trader to expand the network of fuel stations across the country; and supported a local producer of confectionery in the southern area to refurbish its manufacturing workshop.

  • Improving access to finance by developing local financial sector remained a priority for the Bank in supporting SMEs. In 2014–15 the Bank signed ten new loan agreements with local banks and MFIs, including eight loan agreements in local currency as part of the Bank’s Local Currency and Local Capital Market Initiative, a risk-sharing program supported by donor grants to catalyze local currency lending in the early transition countries (ETC). In September 2015 EBRD has approved US$33 million financing package to OptimaBank, the largest bank in the country. This includes credit line for support of MSMEs, limits opened under Trade Facilitation Program and Risk–sharing Facility.

  • Loans to local financial institutions also included the energy efficiency credit lines to four participating financial institutions provided under the US$20 million Kyrgyz Sustainable Energy Efficiency Facility (KyrSEFF) which is an example of an integrated approach combining policy dialogue, financing and TC-supported capacity building at local intermediaries, benefiting from donor-funded investment incentives. KyrSEFF offers to provide financing for small-size energy efficiency improvements in the residential, service, agribusiness, SME, and industry sectors. Based on the success of KyrSEFF, EBRD works on mobilizing additional US$35 million of credit resources to be directed for energy efficiency but also water efficiency and management.

  • The Bank also engaged in policy dialogue with the National Bank of the Kyrgyz Republic (NBKR) on supporting development of mobile banking regulation, and strengthening the NBKR capacity in monetary policy implementation (inflation targeting TC Program). Jointly with KfW, the Bank initiated a technical assistance project to support further development of the local capital market.

  • Small Business Support (SBS) connects small and medium-sized enterprises to the expertise that can help transform their businesses. Depending on the nature of the company’s needs, SBS works by providing business advice, supporting short-term specific projects with local consultants, or through industry expertise, using longer-term projects that help senior managers develop new business skills and make the structural changes their companies need to thrive.

    • SBS works with international advisers with more than 15 years’ experience in a particular industry or field. In visits over the course of 12–18 months, the advisers strive to transfer their know-how to receptive managers. The teaching of international best practices is tailored to the needs of the client, and can cover anything from restructuring, to marketing and design or financial management. SBS has undertaken 55 projects in the Kyrgyz Republic with companies in manufacturing, ICT, tourism, and agriculture. The majority of projects focused on improving marketing and sales, organization, operations, and financial management. The total donor commitment for these projects was approximately €3.2 million.

    • SBS helps companies work with qualified local consultants on a range of projects, covering concerns from market research to strategic planning, quality management and certification or energy efficiency and environmental management. These projects are undertaken on a cost-sharing basis. SBS also work with the local consultancy sector, supporting professional capacity building to develop the skills of local consultants to enable them to serve the SME sector on a sustainable basis, and to introduce more sophisticated advisory services in areas such as quality management and energy efficiency. As of 23 September 2015, SBS Kyrgyz Republic has undertaken 893 projects, engaging 202 consultants. More than 65 percent of the enterprises assisted are located outside the main cities. Despite the difficult business climate, turnover increased in nearly 66 percent of SBS beneficiary companies in the year following project completion, while 57 beneficiaries secured external investments, for a total investment of €31 million. SBS Kyrgyz Republic is funded by the Swiss and the U.S. Governments and the EBRD Shareholders Special Fund which have contributed €4.5 million, €0.7 and €1 million respectively.

Promoting sustainability of public utilities through commercialization and private sector participation:

To build the institutional framework for sustainable operations of municipal services, the Bank strengthened its activities in municipal infrastructure projects and worked on implementation of a €20 million framework to improve water supply and wastewater treatment supported by co-financing grants from bilateral and multilateral donors. The framework was fully utilized by the end of 2014. In 2015 the Bank extended the original framework by approving new €20 million to cover additional sub-projects in the following cities: Naryn, Batken, Cholpon-Ata, Balykchi, Karakol, Kara-Suu, Uzgen, Kizil-Kiya, Toktogul, Mailu-Suu and second phases of water projects in Osh, Jalal-Abad and Talas.

  • Under this framework, the Bank signed new water and wastewater projects for Tokmok, Naryn and Batken in 2015. The new loans in total amount of €5.5 million (€2.0 million for Tokmok, €2.0 million for Naryn and €1.5 million for Batken) are co-financed by capital grants in total amount of €8.8 million (€3.1 million for Tokmok, €3.2 million for Naryn and €2.5 million for Batken) from the European Union’s Investment Facility for Central Asia (EU IFCA), Swiss State Secretariat for Economic Affairs (SECO) and the EBRD Shareholder Special Fund (SSF) respectively for Tokmok, Naryn and Batken and will be used to finance critical water and wastewater infrastructure improvements in these cities. The capital expenditure grants are required to meet conditions for non-concessional lending and mitigate affordability constraints. Projects in the water sector enabled the Bank to make progress with water tariff reforms, implementing IFRS accounting standards, and promoting efficiency in the water companies.

  • In 2015 the EBRD declared effective the €11 million loan to finance critical solid waste investments in Bishkek, which is the first project supporting solid waste management in the country. The loan is co-financed by €3 million capital grant from the Bank’s Shareholder Special Fund (SSF) and €8 million from the EU IFCA. The project is expected to improve the city’s solid waste management, including collection across the city, investment in an urgently needed sanitary landfill, and the closure of the existing dumpsite, which is at the end of its economic life. The project will help optimize solid waste collection including via acquisition of new trucks and containers and is expected to result in an improved level of public service, the introduction of waste recycling and environmental improvements. In addition, substantial TC has been mobilized to assist the Bishkek municipality with development and implementation of resettlement and livelihood restoration in connection with the existing landfill. By end of 2015 the Bank intends to provide new loans of €3.5 million in total to finance critical solid waste investments in Osh and Jalal-Abad cities. The Bank loans will be co-financed by €7 million loans from the European Investment Bank and €9 million capital grants from EU IFCA.

  • The Bank continued implementation of the Bishkek Public Transport project with 79 new high- and low-floor trolleybuses delivered to Bishkek by the end of 2014 and in the same year provided a new loan of €5.7 million for improvement of public transport system in the City of Osh. The loan was co-financed by €3.1 million capital grant from EBRD Shareholder Special Fund. For all municipal projects gender was taken into consideration with respect to improving equality of access to the new services. By the end of 2015 the Bank intends to provide additional loan of €5 million in total to finance the second phase of the Bishkek Public Transport project for procurement of additional up to 60 new trolleybuses. The Bank loan will be co-financed by €3.4 million capital grant from EBRD SSF.

Policy dialogue:

EBRD is continuing support to the Business Development and Investment Council, which has been providing local and international business representatives (representing the mining, industry, agro-processing and tourism sectors) with a platform to discuss the main barriers to doing business with top officials of the government.

  • The Bank continued to actively engage in policy dialogue with the government and local authorities to promote the further reform agenda in corporate and infrastructure sectors, in particular transport sector (road maintenance and financing) reform.

  • The Bank is providing support to the development of local capital markets through policy dialogue, TC deepening the market, and reducing financial institutions’ funding mismatches, including in local currency.

  • The Bank has been working on implementing TC to provide institutional capacity building support to the State Agency for Geology to support mining sector reform.

  • The Bank continues its support for renewable energy development including through TC to the Ministry of Energy and Industry to support the renewable energy framework, and a possible financing of a pilot mini-hydro project(s).

  • The Bank continued policy dialogue with the authorities and utility companies to improve employment opportunities and HR practices affecting women, youth and regional populations in utility and public transport. An initial study of impediments for creating equal opportunities for women’s employment in the mining sector has been produced which suggested a need for changes to be further discussed with the authorities.

Technical Assistance Provided by the Fund

(February 2003–May 2016)

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List of Resident Advisors

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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 Economy and Industry, the Ministry of Finance, and the NBKR—have legal and institutional environments that support statistical quality, and their respective staff are well-versed in current methodologies.

2. The NSC maintains a comprehensive and regularly updated website with data that largely incorporate international methodological recommendations with adequate coverage and timeliness (http://www.stat.kg). In February 2004, 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’ response to the data ROSC (posted on the IMF website www.imf.org/external/np/rosc) 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.

5. The November 2008 STA mission on national accounts assisted the staff of the National Accounts Division in NCS to produce discrete quarterly GDP estimates at current and constant prices, using both the production and expenditure approaches. The mission made a number of recommendations, including: (a) need to introduce the new establishment surveys; (b) disseminate the industrial production index (IPI) as a chain-linked indices, in line with international standards; (c) investigate the inconsistency between the IPI and the producer price index (PPI); (d) fully computerize the calculation of volume estimates for agriculture in line with international practice; and (e) obtain time series data for loans and deposits of financial institutions. However, a follow-up April 2016 STA mission found deficiencies in the quarterly discrete data.

Price and labor market statistics

6. 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.

7. 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.

8. 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.

9. 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

10. The scope of central government statistics falls short of international standards because it excludes data for the Social Fund (these data are published separately). Other limitations involve the discrepancies between the deficit and financing data. Revenue and expenditure data generally accord with the GFSM 2001, but some deficiencies remain. The April 2016 GFS TA mission provided authorities with birding table for transition to GFSM 2014. Monthly GFS data are reported to STA for publication in the IFS; the latest data reported for publication in the GFS Yearbook were for 2012 and covered general government and its subsectors; and the data were compiled using the GFSM 2001 analytical framework.

11. 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 ministry of finance 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)

12. The MFS Technical Assistance (TA) mission visited the Kyrgyz Republic in April 2015 and assisted the National Bank of Kyrgyz Republic (NBKR) in migrating to the IMF recommended Standardized Report Forms (SRFs). The pilot data SRF 1SR for the NBKR and SRF 2SR for other depository corporations (which currently include operational commercial banks only) were developed and submitted to STA for review. STA identified classification and sectorization issues in the reported SRF data, which were communicated to the authorities. The data will be published in International Financial Statistics as soon as these issues are resolved. The April 2016 MFS TA mission focused on extending a coverage of SRF 2SR by including other deposit taking institutions as well as developing SRF 4SR for other financial corporations.

13. The NBKR submitted pilot data on Financial Soundness Indicators (FSIs) to STA. STA works with the NBKR to bring FSIs compilation practice in line with those outlined in the FSIs Compilation Guide.

External sector statistics

14. Data on the balance of payments and international investment position (IIP) are compiled and disseminated on a quarterly basis. The Kyrgyz Republic is one of the three beneficiary countries that are covered by the 18-month project on improving external sector statistics (ESS) finance by the Switzerland Government (SECO). Two technical assistance (TA) missions in ESS have been conducted during 2015 within SECO project. The missions noted that the compilation of balance of payments and IIP statistics broadly follows the methodology recommended in the BPM5; however, their coverage, compilation techniques, temporal consistency, and timeliness needed improvement. A specific concern was the accuracy of private sector external debt statistics. With the missions’ assistance, the BPM6 was implemented on an experimental basis for balance of payments for 2015: Q1–Q2, and the reporting of external debt data for all institutional sectors to the World Bank Quarterly External Debt Statistics database was resumed. While progress had been made in several areas, further improvements are needed in foreign direct investment, estimation of shuttle trade, and in remittances. Specific concerns are regarding the adjustment of trade statistics to the requirements of Custom Union (CU) whose member the Kyrgyz Republic became in 2015. There is need to reconcile the customs declarations database for the trade with CU members and with the rest of the world.

Kyrgyz Republic: Table of Common Indicators Required for Surveillance

(As of May 18, 2016)

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Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

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.

Same Series

Other IMF Content

Other Publishers

Cover IMF Staff Country Reports
Kyrgyz Republic: Second Review Under the Three-Year Arrangement Under the Extended Credit Facility, and Request for Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for the Kyrgyz Republic
Author: International Monetary Fund. Monetary and Capital Markets Department
Volume/Issue:
Volume 2016: Issue 186
Publisher:
International Monetary Fund
ISBN:
9781475519198
ISSN:
1934-7685
Pages:
126
DOI:
https://doi.org/10.5089/9781475519198.002