Press Release: IMF Approves Augmented ESAF Loan for the Kyrgyz Republic

December 11, 1995

The International Monetary Fund (IMF) today approved an augmented second annual loan equivalent to SDR 32.25 million (about $48 million) for the Kyrgyz Republic under the enhanced structural adjustment facility (ESAF)1 in support of the Government's economic and structural reform program through September 1996. The decision, based on the strength of the program, raises access under the second annual loan by SDR 8.6 million (about $13 million). The total three-year ESAF loan has also been increased to SDR 88.15 million (about $131 million) from the original SDR 70.95 million (about $105 million) approved on July 20, 1994 (see Press Release No. 94/53).


The Kyrgyz Republic has achieved significant progress in its reform and stabilization efforts under the first annual ESAF loan. The monthly inflation rate has averaged less than 1 percent since March 1995, while monetary and credit targets were largely on track. The exchange rate for the som remained stable against the U.S. dollar, and was accompanied by an accumulation of reserves. External trade expanded rapidly, as it shifted away from former Soviet Union trading partners, and the Government made significant progress on structural reforms, particularly in privatization and enterprise restructuring. The Kyrgyz Republic has accepted the obligations of Article VIII of the IMF Articles of Agreement in March 1995 (see Press Release No. 95/16) and maintains a fully convertible currency.

The Program through September 1996

The program covering the period through September 1996 that is supported by the second annual ESAF loan aims at achieving real GDP growth of 2.5 percent in 1996, at halving the rate of annual inflation to 15 percent by end-1996, and at further strengthening international reserves. To these ends, the program envisages a reduction in the budget deficit to 5.5 percent of GDP in 1996 from 11.3 percent in 1995 through a combination of revenue and expenditure measures. On the revenue side, the focus will be on improved tax collection and administration; on the expenditure side, a rationalization of outlays will allow for a reduction of government expenditure relative to GDP without impairing the social safety net. The authorities will maintain a tight monetary and credit stance, as well as a fully liberalized exchange and trade system.

Structural Reforms

Under the program, the Kyrgyz Government intends to deepen structural reforms in several areas, including privatization and state enterprise restructuring, financial sector reform, as well as to implement legal, regulatory, and institutional reforms. Full privatization has been completed for 500 enterprises, and in January 1996, the Government will adopt the 1996-1997 Privatization Program with the intention of offering for sale all remaining enterprises by no later than end-1997. The Government further intends to make the energy sector increasingly self-financing rather than dependent on public or external assistance.

Social Issues

The Government's social strategy focuses on improving the targeting of social assistance and ensuring the provision of basic services, while remaining within the program's fiscal objectives. Priorities include strengthening the financial position of the Social Fund and the rationalization of social expenditures.

The Challenge Ahead

The program is underpinned by major fiscal adjustment, with the budget deficit projected to stabilize at 2-3 percent of GDP by 1997 from 11.3 percent in 1995. The authorities are planning to withstand pressures for additional expenditures that could jeopardize the impressive stabilization gains already achieved. The program goes a long way to put the Kyrgyz economy on the path of sustained output and export growth and to overcome the difficulties stemming from the steeper-than-expected decline in output in 1994.

The Kyrgyz Republic joined the IMF on May 8, 1992. Its quota2 is SDR 64.5 million (about $96 million), and its outstanding use of IMF credit currently totals SDR 67.5 million (about $104 million).

The Kyrgyz Republic: Selected Economic Indicators

  1994 1995 1996* 1997*

(percent change)
Real GDP growth –26.5 1.3 2.4 4.1
Consumer prices
    (end of period)
87.2 30.3 15.1 8.0
(percent of GDP)
Government budget, excluding grants
    (deficit –)
–8.0 –11.3 –5.5 –3.7
External current account balance, excluding grants
    (deficit –)
–18.6 –13.5 –14.0 –11.4
(months of imports)
Foreign exchange reserves 2.6 2.3 3.0 3.4

Sources: Kyrgyz authorities; and IMF staff estimates and projections.

1. The ESAF is a concessional IMF lending facility for assisting low-income members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent and are repayable over 10 years with a 5 1/2-year grace period.

2. A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.


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