IMF Executive Board Completes the Third Review Under the Extended Credit Facility Arrangement for the Kyrgyz Republic

Third Review Under the Three-Year Arrangement Under the Extended Credit Facility,


Third Review Under the Three-Year Arrangement Under the Extended Credit Facility,

On December 14, 2016, the Executive Board of the International Monetary Fund (IMF) completed the third review of the Kyrgyz Republic’s economic performance under the three-year Extended Credit Facility (ECF) arrangement. The Board’s approval enables the immediate disbursement of SDR 9.514 million (about US$12.9 million). This would bring total disbursements under the arrangement to SDR 38.056 million (about US$51.5 million). The ECF arrangement for SDR 66.6 million (about US$92.4 million) was approved on April 8, 2015 (see Press Release No. 15/165).

Following the Executive Board discussion Mr. Tao Zhang, Deputy Managing Director and Acting Chair, made the following statement:

“While pressures on the economy are moderating, the near–term outlook remains challenging. A subdued external environment and weak domestic demand are constraining growth prospects. Debt and financial sector vulnerabilities remain elevated. Against this background, prudent macroeconomic policies and steadfast implementation of structural reforms are critical to rebuilding buffers and increasing the resilience of the economy. While the program is facing significant domestic and external risks, including from dwindling commodity prices, protracted regional recovery, and policy slippages in the run-up to the 2017 presidential elections, the authorities’ track record and policy commitments should provide sufficient safeguards.

“Notwithstanding the challenging environment, the Kyrgyz authorities were able to deliver on the most program commitments. All June quantitative performance criteria and indicative targets, and all but two structural benchmarks, were met.

“A full commitment to growth-friendly fiscal consolidation envisaged under the program is critical to maintaining public finances on a sustainable path. The consolidation efforts should be underpinned by credible and permanent revenue and expenditure measures. Increasing tax revenues, reducing the wage bill, streamlining nonpriority spending, and improving the public investment framework are necessary to rebuild buffers and reduce debt vulnerabilities.

Moreover, introducing a fiscal rule would support the authorities’ efforts to ensure fiscal discipline.

“The NBKR should continue to pursue a two-way flexible exchange rate policy and limit interventions only to smoothing the excessive volatility of the som. The planned gradual transition to inflation targeting is welcome.

“While the adopted Banking Law includes some improvements, the dropping of key provisions by Parliament as well as the recent amendments weaken the Law. Envisaged amendments to the Banking Law would be needed to increase central bank independence, further strengthen the resolution framework, and preserve financial sector stability in the current weak economic environment.”

Kyrgyz Republic: Selected Social and Economic Indicators, 2015–21

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Sources: Kyrgyz authorities and IMF staff estimates and projections.

General government comprises State Government and Social Fund finances. State government comprises central and local governments.

Calculated at end-period exchange rates.