2019 Article IV Consultation-Press Release; and Staff Report

Abstract

2019 Article IV Consultation-Press Release; and Staff Report

Background

1. A new president and prime minister came to power over the past 18 months. President Jeenbekov was elected for a single six-year term in October 2017. Parliament appointed a new prime minister in April 2018. Parliamentary elections are scheduled for September 2020.

2. The Kyrgyz Republic has made progress toward macroeconomic and financial stability under eight successive Fund-supported programs (Figure 1). The latest program, a three-year arrangement under the Extended Credit Facility, ended in April 2018. During the past decade, real GDP growth reached 4.0 percent on average, in line with comparators, but was volatile. Average inflation was reduced to 1.5 percent in 2018. High development needs kept the general government budget deficit (3.7 percent of GDP on average over the last five years), the public debt (56 percent of GDP in 2018) and the current account deficit (12 percent of GDP on average over the last five years) elevated.

Figure 1.
Figure 1.

Kyrgyz Republic: Economic Setting, 2008–18

Citation: IMF Staff Country Reports 2019, 208; 10.5089/9781498324199.002.A001

Sources: Kyrgyz Republic authorities, IMF staff calculations, and World Development Indicators, World Bank, 2018 Doing Business database.1/ CCA countries include Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan.2/ Overall fiscal deficit for Kyrgyz Republic includes on-lending to energy state-owned enterprises.3/ Capital adequacy ration (CAR) is measured as regulatory capital to risk-weighted assets.4/ Non-performing loans (NPLs) is measured as a ratio of non-performing loans to total loans.5/ The World Bank Doing Business Indicators are survey-based indicators reflecting investors’ perceptions on the business environment. As they reflect perceptions, they should be interpreted with caution.

3. However, the economy remains vulnerable to external shocks. The economy still heavily relies on remittances (29 percent of GDP) and gold (37 percent of exports of goods and 9 percent of GDP). Public debt is high and mostly (79 percent) denominated in foreign currency. The current account deficit is high. Against this background, the KGS has been broadly stable against the dollar since mid-2016, supported by significant—and remarkably transparent— foreign exchange interventions relative to the size of the foreign exchange market (Figure 2).

Figure 2.
Figure 2.

Kyrgyz Republic: Recent Economic Developments

Citation: IMF Staff Country Reports 2019, 208; 10.5089/9781498324199.002.A001

Sources: Kyrgyz authorities and IMFstaff estimates.

4. Economic growth has been insufficient to significantly raise living standards and continue to reduce poverty. Potential output growth is estimated at 4 percent per year, thanks to an increase in gold production mainly financed by FDI, but the business environment remains challenging. The provision of public services suffers from weaknesses in public financial management, an oversized civil service, and untargeted social transfers and energy subsidies that reduce the space for investment in human capital and infrastructure. Below-cost-recovery residential energy tariffs do not allow for adequate maintenance of existing, and development of new, production capacity.

5. While well capitalized, the banking sector remains shallow (Figure 1 and Table 10). The banking sector is well capitalized thanks to the NBKR’s enforcement of prudential norms. The average lending rate, currently 14 percent in real terms, remains high. With credit to the economy at 23 percent of GDP in 2018, the banking sector is shallow.

Table 1.

Kyrgyz Republic: Selected Social and Economic Indicators, 2016–24

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Sources: Kyrgyz authorities and IMF staff estimates and projections.

General government comprises the State government, the Social Fund, and the Mandatory Health Insurance Fund. The State government comprises central and local governments.

Includes loans on-lent by the State government to state-owned enterprises in the energy sector.

Calculated at end-period exchange rates.

Twelve-month GDP over end-period broad money.

Gross international reserves exclude reserve assets in non-convertible currencies.

Table 2.

Kyrgyz Republic: National Accounts, 2015–24

(In percent, unless otherwise indicated)

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Sources: Kyrgyz authorities and IMF staff estimates and projections.

Until 2018, Kumtor only in line with official data. 2019 and beyond, Kumtor and others.

Table 3.

Kyrgyz Republic: Balance of Payments, 2016–24

(In millions of U.S. dollars)

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Sources: Kyrgyz authorities and IMF staff estimates and projections.

Russian debt write-off.

Public and publicly-guaranteed debt.

Net of rescheduling.

Valued at end-period exchange rate. Gross international reserves exclude reserve assets in non-convertible currencies.

Table 4.

Kyrgyz Republic: NBKR Accounts, 2016–19

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Sources: Kyrgyz authorities and IMF staff estimates and projections.

Gross international reserves exclude reserve assets in non-convertible currencies.

Reflects valuation changes owing to exchange rate movements.

Contribution is defined as change of asset stock relative to previous end -year reserve money stock (in percent).

Table 5.

Kyrgyz Republic: Monetary Survey, 2016–19

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Sources: Kyrgyz authorities and IMF staff estimates and projections.

Includes lending by the Russia-Kyrgyz Development Fund via banks.

Contribution is defined as change of asset stock relative to previous end-year broad money stock (in percent).

Twelve-month GDP over end-period broad money.

Table 6.

Kyrgyz Republic: State Government Finances, 2016–24

(In millions of soms)

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Sources: Kyrgyz authorities, and Fund staff estimates and projections.

Compared to IMF Country Report No. 18/53, transfer to the Mandatory Health Insurance Fund was reclassified from use of goods and services to transfer to Social Fund and Mandatory Health Insurance Fund.

Refers to loans on-lent by the State governement to energy sector state-owned companies that, compared to IMF Country Report No. 18/53, were recorded as capital transfers instead of acquisition of financial assets.

Table 7.

Kyrgyz Republic: State Government Finances, 2016–24

(In percent of GDP)

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Sources: Kyrgyz authorities, and Fund staff estimates and projections.

Compared to IMF Country Report No. 18/53, transfer to the Mandatory Health Insurance Fund was reclassified from use of goods and services to transfer to Social Fund and Mandatory Health Insurance Fund.

Refers to loans on-lent by the State governement to energy sector state-owned companies that, compared to IMF Country Report No. 18/53, were recorded as capital transfers instead of acquisition of financial assets.