Kyrgyz Republic: Fourth and Fifth Reviews Under the Three-Year Arrangement Under the Extended Credit Facility, and Request for Modification of Performance Criteria—Informational Annex
Author: International Monetary Fund. Middle East and Central Asia Dept.
Publication Date:
22 Feb 2018
eISBN:
9781484342954
Language:
English
Keywords:
ISCR; CR; Kyrgyz authorities; debt; government; deficit; Kyrgyz government; public finance; price index; monetary policy; debt service; External sector statistics; Loans
Download PDF (644.7 KB)

Fourth and Fifth Reviews under the Three-Year Arrangements under the Extended Credit Facility, and Request for Modification of Performance Criteria-Press Release; Staff Report

Abstract

Fourth and Fifth Reviews under the Three-Year Arrangements under the Extended Credit Facility, and Request for Modification of Performance Criteria-Press Release; Staff Report

Relations with the Fund

(As of October 31, 2017)

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Latest Financial Arrangements:

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Projected Payments to the Fund 1/

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

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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

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. The Banking Law, which was adopted by Parliament in September 2016, did not address all safeguards recommendations. Furthermore, the Office of the President requested amendments before signing the Law that claw back some of the improvements in central bank independence in the version originally approved by the Parliament. Key outstanding safeguards concerns include the composition of the NBKR Board, which is comprised only of executive members. 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.

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 2017 Article IV consultation discussions were held in April 2017 and were completed by the Executive Board in October 2017 (see Country Report No. SM/17/266).

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 November 13, 2017)

The World Bank has launched the preparation of the Systemic Country Diagnostic (SCD) and Country Partnership Framework (CPF) for FY18-22. The SCD is being finalized and will provide analytical foundation for the new CPF. The CPF is scheduled for the Board delivery in May 2018.

World Bank Program: Since the Kyrgyz Republic joined the World Bank in 1992, the Bank has approved $1.5 billion for the International Development Association (IDA) funded projects and Recipient Executed Trust Funds (RETF), out of which $1.19 billion has been disbursed. Fifty-two IDA investment operations for about $1.18 billion have been completed and closed, and eleven IDA investment operations for $228.45 million are ongoing.

Over 1992–2000, the Kyrgyz portfolio had a significant focus on budget support; however, there has been a gradual shift toward investment projects. To achieve macroeconomic stability in the country after the political turmoil in April 2010, the Kyrgyz government requested the Bank to provide budget support. There have been several budget support operations, including Programmatic Development Operation (DPO) series, since then.

Lending Program: Three country and two regional IDA investment operations have been scheduled for delivery in FY18. One operation – the Heat Supply Improvement Project ($46 million) – was delivered to the Board in October 2017. The rest four operations are scheduled for the Board in Q3-4: Enhancing Resilience in Kyrgyzstan ($20 million), CASA-1000 Community Support Program ($10 million), Central Asia Road Links – Phase 3 ($35 million IDA country allocation), Digital CASA ($20 million IDA country allocation).

Trust funds: In addition to the IDA portfolio, the Kyrgyz program includes a significant number of stand-alone and co-financing trust funds (TFs). The active RETFs Portfolio has a total value of about $96.7 million, out of which $40.2 million has been disbursed. Four sectors—Health, Education, Water, Environment and Natural Resources—receive most of the TFs. The largest trust funds are the Agriculture Productivity and Nutrition Improvement Project ($38 million equivalent), the Kyrgyz Global Partnership for Education ($12.7 million equivalent), the Swiss TF for the Kyrgyz Second Health and Social Protection Project ($11.9 million equivalent), the Kyrgyz Health Results-Based Financing ($11 million equivalent), the National Water Resources Management Project ($7.8 million equivalent), and the Integrated Forest Ecosystem Management ($4.1 million equivalent). TFs are mainly provided to co-finance IDA operations and to support capacity-building activities. The main bilateral contributors to the TFs have been Switzerland and Russia. Two large RETFs are being prepared for delivery in FY18 – Capacity Building in Public Financial Management – 2 ($ 3.014 million equivalent) and National Water Resource Management Project AF ($5.5 million equivalent).

Analytical advisory activities: These include, among others, capacity building to the Energy Regulator, tax reforms and gender, measuring seismic risk, efficient heating technologies, improving capacity in PFM, agribusiness value-chain development.

IFC Program: Since becoming a member of IFC in 1993, the Kyrgyz Republic’s private sector has received commitments totaling more than $119.5 million from IFC’s own funds to finance 38 long-term finance projects in the financial sector, including banking and microfinance, mining, agribusiness, as well as in the pulp and paper sectors. In addition, since its inception in 2007, IFC’s Global Trade Finance Program has supported a total of $1.1 million in trade flows. As of September 31, 2017, IFC’s committed portfolio stood at $8.1 million in the financial sector. 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 a 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 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 the focus on dairy; (vii) helping producers improve compliance to food safety standards; (viii) developing public-private partnership (PPP) projects, currently in the health sector; and (ix) developing the country’s hydro potential.

MIGA Program: MIGA’s current portfolio does not include any active projects in the Kyrgyz Republic. The last MIGA contract, financed by Austrian and Italian investors, supporting the country’s manufacturing and services sector, expired in 2015.

ICSID: The Kyrgyz Republic is not a member of the ICSID (it signed the ICSID Convention in June 1995 but has to date not ratified it). However, the Kyrgyz Republic has been a party to three arbitration cases before the ICSID based on bilateral investment treaties and its investment law. They were initiated on the basis of the ICSID’s Additional Facility, which can be used for cases where one of the parties is not a member of ICSID and which was referred to in the treaties and the investment law. One of the three cases concern a tourist resort and is currently pending before the ICSID. The other two cases are concluded: one of them was settled in 2015 and the other case awarded compensation to the investor claimant in 2009. The claimant has attempted enforcement in several jurisdictions, including Canada, France, and the U.S., but has, to our knowledge, been unable to recover the outstanding amount.

Relations with the Asian Development Bank (ADB)

(As of October 31, 2017)

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, 2013–2017 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) 2018–2020 was endorsed by the Board in October 2017.

ADB is one of the major development partners in the country. The Kyrgyz Republic, a group A developing member country, is eligible for Asian Development Fund (ADF) grants and concessional ordinary capital resources lending (COL). The indicative ADF grant and COL resource allocation for 2018–2020 is $299.5 million, including $30 million from disaster risk reduction (DRR) operations.4 Cofinancing and funding from other sources, including the regional pool under concessional resources, will be explored. The 2016 debt distress classification of the Kyrgyz Republic was assessed to be at 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 in 2017, subject to a 20 percent volume discount on the grant portion of the country allocation. The indicative firm lending program for 2018–2020 is planned for $343.8 million and is subject to project readiness, and the nonlending program for $5.3 million of technical assistance (TA) grants. The final allocation will depend on available resources and the outcome of the country performance assessment. The private sector may access ADB’s ordinary capital resources (OCR) for projects, which may include lending to key sectors such as energy, transport and logistics, and finance.

As of 31 October 2017, the country received $1,677.9 million consisting of 41 loans for $1,092.6 million and 34 grants for $585.3 million. About 20 percent ($345.0 million) of the total funding resources had been provided through fourteen program operations to support policy reforms and further socioeconomic development. In 2016, two projects and one program were approved: Central Asian Regional Economic Cooperation (CAREC) Corridors 1 and 3 Connector Road Project for $95.1 million (SDR 41.9 million loan and $36.7 million grant), Toktogul Rehabilitation Phase 3 Project for $108.6 million ($58.6 million loan and $50.0 million grant) and the Second Investment Climate Improvement Program (Second ICIP), Subprogram 2, for $25.0 million ($12.5 million loan and $12.5 million grant). The Emergency Assistance for Recovery and Reconstruction Project with a total approved size of $98.24 million was closed and the Second ICIP, Subprogram 2, became effective and the tranche released in December 2016.

As of 31 October 2017, the total portfolio included 13 projects totaling $653.1 million which were being implemented through 11 Asian Development Fund (ADF) loans ($360.3 million) and 14 ADF grants ($292.8 million) including one JFPR grant ($1.5 million). Of the overall portfolio, transport and energy sectors continue to be leading sectors in terms of ADB financing volume and number of projects, with 7 projects accounting for 76.2percent of the total active portfolio, 34.5 percent and 41.7 percent respectively. They are followed by public sector management projects and programs which accounts for 16.3 percent.

ADB has also provided 96 technical assistance (TA) projects amounting to $56.3 million as of today. ADB also provides TA through the regional technical assistance facility. Two Project Preparatory TAs were approved in 2017: TA Uch Kurgan Hydropower Plant Modernization for $1,1 million and TA Climate Resilience and Disaster Risk Reduction in Water Resources Management for $1,1 million.

The year-end performance of ADB’s portfolio was satisfactory in 2016 with 82 percent projects on track. Contract awards and disbursements in 2016 reached $47 million and $61 million (47 percent and 170 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.

As of 31 October 2017, cumulative sovereign official cofinancing in the Kyrgyz Republic amounted to $379.06 million. This figure comprises both contractual (including ADB-administered trust funds) and collaborative cofinancing. Total cumulative contractual cofinancing for the same period amounted to $161.56 million, of which $156.08 million is for 10 investment projects and $5.48 million is for 11 TA projects.

ADB private sector operations in the Kyrgyz Republic began in 2012 with the signing of a $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 $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 November, 2017)

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 October 2017, the Bank signed 160 projects accounting for a net cumulative business volume of €665 million. The Bank’s portfolio amounted to €251 million in 64 active projects. The current private sector portfolio ratio (as a percentage of the total portfolio) is 59 percent which is in line with the 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 inward investments.

  • 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 consultants 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.

  • To support the Kyrgyz exporters by facilitating access to finance and improving standards, Bank provided financing to one exporter for a total of EUR 0.5 million through ETC Risk Sharing facility; and signed 3 new TFP lines, and PFIs financed 9 transactions for a total of EUR 2 million.

  • To Promote FDIs bringing skills, technology, and increased competition and standards into the country, Bank mobilized in 2016 around EUR 237 m in FDI and supported development and ongoing operations of Kumtor mine (incl. energy efficiency improvements and setting standards for corporate governance) and improved regulatory practices in the country. Loan fully disbursed, setting the stage for a good TI delivery in coming years.

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 2016 the Bank signed eight corporate sector projects all with local SMEs.

  • SME. Under the Risk-Sharing Facility (RSF), jointly with local partner banks the Bank supported expansion to Jalalabad of one of the leading flour producing companies; 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 hotel modernization with energy efficiency investment; helped local resort 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 products in the southern area to refurbish its manufacturing workshop.

  • Financial Sector. Improving access to finance by developing local financial sector remained a priority for the Bank in supporting SMEs. In 2016, the Bank signed eight new loan agreements with local banks and MFIs. Out of which five on-lending MSME loans in local currency with local banks and non-bank MFIs, including with the largest local bank, Optima bank; as part of the Bank’s Local Currency and Local Capital Market Initiative. In 2016, Bank provided KR’s first local currency conversion for a corporate loan, which will enable the client to repay the remainder of the loan in local currency, increasing its resilience and competitiveness - issued $3m in synthetic Kyrgyz som floating rate notes, contributing to the development of KR’s local capital market as well as encouraging use of LCY among investors.

  • KyrSEFF. Loans to local financial institutions also included three credit lines to three participating financial institutions (KICB, Bai Tushum and First Micro CerditCompany) provided under the $35 million Kyrgyz Sustainable Energy Efficiency Facility II (KyrSEFF) which includes not only energy efficiency but also water efficiency component; KYRSEFF II 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 provides financing for small-size energy efficiency improvements in the residential, service, agribusiness, SME, and industry sectors. USD 6.5 million were signed and committed in 2016 and 2017 (as of November) to six financial institutions in the country.

  • Advice for Small Businesses. EBRD connects small and medium-sized enterprises to the expertise that can help transform their businesses. Depending on the nature of the company’s needs, EBRD 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.

  • EBRD 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. EBRD has undertaken 59 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 €3.5 million.

  • EBRD 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. EBRD also works 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 November 2017, EBRD in Kyrgyz Republic has undertaken 1074 projects with 272 local consultants. More than 66 percent of the enterprises assisted are located outside of the capital city Bishkek. Following one year after consulting projects’ completion, turnover increased by nearly 65 percent of EBRD beneficiary companies, while 57 beneficiaries secured external investments, for a total investment of €31 million. EBRD has committed and disbursed over €3.48 million as grants.

Promoting Sustainability of Public Utilities through Commercialization and Private Sector Participation

  • Energy. In October 2016, EBRD signed EUR 4 million loan to JSC Oshelectro distribution company. The Bank proceeds to be used for rehabilitation and modernization of low and medium voltage distribution networks in two south regions of Kyrgyzstan. The project also incorporates installation of the advance metering system with meters capable of remote disconnection and meter reading. EBRD loan proceeds will be complemented by EUR 1 million grant financing from EU / Investment Fund for Central Asia (IFCA).

  • Municipality. 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, Balykchy, 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 Mailuu-Suu, Toktogul, Balykchy and Uzgen cities in 2017. The new loans in total amount to USD 6.8 million (USD2.75 for Uzgen, USD1.21 million for Toktogul, USD1.6 million for Mailuu-Suu and USD 1.21 million for Balykchy) and are co-financed by capital grants in total amount of €15.6 million (€5 million for Uzgen, €3.2 million for Toktogul and €4.2 million for Mailuu-Suu and €3.2 million for Balykchy) from the European Union’s Investment Facility for Central Asia (EU IFCA) and loan from European Investment Bank in total amount of €6.15 million (€2.5 million for Uzgen, € 1.1 million for Toktogul, €1.45 million for Mailuu-Suu and €1.1 million for Balykchy). The proceeds of loans and the grants would be used to finance supplementary renovation of the Company’s water supply infrastructure, as well as wastewater management improvements. 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 to support 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 old dumpsite. The project will help optimize solid waste collection including 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 the development and implementation of resettlement and livelihood restoration in connection with the existing landfill.

  • The Bank continued implementation of the Bishkek Public Transport project with 79 new high-land low-floor trolleybuses delivered to Bishkek in 2014. For all municipal projects gender was taken into consideration with respect to improving equality of access to the new services. In September, 2017 the Bank provided additional loan of €5 million in total to finance the second phase of the Bishkek Public Transport project for procurement of additional up to 50 new trolleybuses. The Bank loan is co- financed by €3.4 million capital grant from EBRD SSF.

  • At the beginning of 2016 EBRD declared effective the Osh Public Transport, the first transport project in South, which is supporting development of public transport in Osh City. The EBRD has provided total financing of over €10 million to the project which is intended to double the number of passengers for the municipal Osh Auto Transport Company. The total package consisted of a €5.7 million sovereign loan and a €3.1 million investment grant from the EBRD Shareholder Special Fund, while €1.2 million is being spent on technical cooperation program which is also financed by EBRD grants. The program includes the introduction of a new automated fare-collection system, as well as corporate development plan for the company and gender inclusion plan. 30 brand new buses arrived in Osh at the end of December, 2016 and all 23 trolleybuses have arrived at the beginning of April, 2017.

Policy Dialogue

EBRD is continuing to support 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.

Climate Resilience. Since October 2015, on behalf of the Kyrgyz Government and with support from the IFI and donor community, the EBRD is playing a leading role in implementing the Climate Investment Funds’ Pilot Program for Climate Resilience (PPCR) in the Kyrgyz Republic. PPCR provided USD 1.5 million technical assistance grant to help the Kyrgyz authorities mainstream climate change considerations into development planning through:

  • Establishing a well-functioning climate finance coordination mechanism for managing flow of international climate and development finance for investment projects; and

  • Designing a business plan (Strategic Programme for Climate Resilience) with viable and financeable investment projects in sectors particularly vulnerable to climate change, including energy, water resources, agriculture and transport, to attract funding from various sources, including the Green Climate Funds (GCF), the Climate Investment Funds (CIF), and MDBs as well as development partners for their implementation.

The Bank, with support of national and international climate finance experts, is implementing a TC assessing current capacities to manage climate finance and developing a framework for structuring viable investment projects that are in line with country’s debt sustainability principles. Furthermore, in the context of this work, the Bank is assessing how the use of concessional climate co-finance could support the Kyrgyz Government in funding major infrastructure and development investment priorities, while meeting the IMF debt sustainability limits.

The Bank is also providing support in structuring an institutional capacity building program to strengthen country’s preparedness for accessing and managing climate finance.

The Bank is continuing dialogue with the authorities and private sector entities to identify new business opportunities that could be supported by international climate finance funds, MDBs and development partners.

Technical Assistance Provided by the Fund

(February 2003–October 2017)

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List of Resident Advisors

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Statistical Issues

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.

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.

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

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.

The November 2008 STA mission on national accounts assisted the staff of the National Accounts Division in NSC 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. A May 2017 mission reviewed thoroughly the quarter GDP compilation processes and gave hands-on advice to the NSC. Quarter GDP estimates by production and expenditure in accordance with international standards are expected to be disseminated by March 2018.

Price and Labor Market Statistics

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 households residing in the country.

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 July 2007 and its weights were updated in 2014.

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.

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 (GFS)

The Social Fund is now part of the General Government sector. In 2016, for the first time, data on the general government sector for 2015 were compiled in a format based on GFSM 2014, including the balance sheet and functional classification of expense, and they were submitted to STA. During the April 2017 mission, quarterly GFS data were updated and a report on gross central government debt for 2014-2016 was prepared, including credits and debt securities, with a breakdown by residency, counterpart sector, maturity, and currency. Data for whole general government sector were transmitted to STA for their publication in GFS Yearbook. Monthly GFS data are reported to STA for publication in the International Financial Statistics (IFS).

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 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)

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). In addition, the April 2016 MFS TA mission extended the coverage of SRF 2SR by including other deposit taking institutions and developed procedures for compiling SRF 4SR for other financial corporations (OFC). SRF 1SR for the NBKR and SRF 2SR for other depository corporations, with full sector coverage on other depository corporations (ODCs), are reported on a regular basis to STA for publication in the IFS. The NBKR is currently working on regular data compilation for SRF 4SR for OFCs.

The NBKR submits all core and nine encouraged Financial Soundness Indicators (FSIs) for deposit taking institutions as well as some encouraged FSIs for other sectors on a regular basis to STA for publication on the IMF website.

External Sector Statistics (ESS)

Data on the balance of payments and international investment position (IIP) are compiled and disseminated on a quarterly basis. The Kyrgyz Republic was one of the three beneficiary countries that are covered by the 18-month project on improving ESS finance by the Switzerland Government (SECO). Three TA missions in ESS have been conducted during the project. Before the project, the coverage, compilation techniques, temporal consistency, and timeliness of balance of payments, IIP, and external debt needed improvement. A specific concern was the accuracy of private sector external debt statistics. With the missions’ assistance, the BPM6 was implemented in all three datasets. Also, the reporting of external debt data for all institutional sectors to the World Bank Quarterly External Debt Statistics database was resumed. Specific focus was on further improving the foreign direct investment data, estimation of shuttle trade, and of remittances. Concerns remain 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, as well as to reconcile the trade statistics and the exports/imports in the national account.

Kyrgyz Republic: Table of Common Indicators Required for Surveillance

(as of November 15, 2017)

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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.

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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.

Other IMF Content

Other Publishers

Cover IMF Staff Country Reports
Kyrgyz Republic: Fourth and Fifth Reviews under the Three-Year Arrangements under the Extended Credit Facility, and Request for Modification of Performance Criteria-Press Release; Staff Report
Author: International Monetary Fund. Middle East and Central Asia Dept.
Volume/Issue:
Volume 2018: Issue 053
Publisher:
International Monetary Fund
ISBN:
9781484342954
ISSN:
1934-7685
Pages:
106
DOI:
https://doi.org/10.5089/9781484342954.002