For more information, see Kyrgyz Republic and the IMF

Kyrgyz Republic—Enhanced Structural Adjustment Facility
Policy Framework Paper, 1998–2000


Table 1. Kyrgyz Republic: Draft Policy Matrix, 1998–2000
Policy Area Objectives and Targets Strategies and Measures to be Adopted 1998–2000 Timing TA

Fiscal Policy
Overall Budget Maintain fiscal deficit at a level which can be financed by external assistance at concessional terms and by sale of T-bills, without accumulating arrears. 1. Reduce accrual-based budget deficit to 8.1 percent of GDP in 1998, 7.1 percent in 1999, and 5.8 percent in 2000. 1998–2000
Revenues Widen tax base to improve compliance and lower tax rates over the medium term. 2. Remove all discretionary tax exemptions described in list from Ministry of Finance of January 19, 1998 and refrain from granting new exemptions (both discretionary and in the form of amendments to the tax code). June 1998 and throughout

3. Ensure that the net effect of any amendments to the tax code proposed by the government be at least revenue neutral. Throughout

4. Complete study on criteria for land tax rates, including an assessment of rates for urban areas, and evaluate potential for land tax revenues in both rural and urban areas. Submit to parliament proposal to extend land tax to urban areas. June 1999 WB

5. Submit to parliament amendments of the tax code to introduce VAT for communal services in parallel with social protection measures, for implementation in 1999. Sept. 1998

6. Submit to parliament amendments of the tax code to include excise and custom payments into the base for the calculation of the VAT, for implementation in 1999. Sept. 1998

7. Conduct annual audits of enterprises that receive VAT refunds. Throughout

8. Submit to parliament amendments of the tax code to require payment of VAT within one month following the tax period, for implementation in 1999. Sept. 1998

9. Develop manuals and training courses to standardize practices of VAT treatment in all oblast. Dec. 1998 USAID

10. Submit to parliament amendments of the tax code to reenact provision that exempts insurance companies from paying profit taxes and instead charges 5 percent on gross premia, for implementation in 1999. Sept. 1998

11. Submit proposal to parliament to harmonize excise taxes for domestic and imported goods at the higher rate. June 1998

12. Submit to parliament legislation that allows excise rates to be determined by the government and not by Parliament. Sept. 1998

13. Submit proposal to parliament to include customs in excise tax base for ad valorem items. Sept. 1998

14. Require that all dividends and other payments received by Kyrgyz Altin (from Kumtor) be transferred to the budget. 1999 budget
Tax Administration Create a streamlined, modern and effective tax system under which tax laws can be implemented and enforced effectively while minimizing distortions, inefficiency and governance problems. Encourage compliance by closely monitoring taxpayer returns and payments. 15. Submit to parliament amendments to the respective legislative acts to allow for the appointment of regional State Tax Inspectorate (STI) directors without the approval of local government authorities. June 1998
16. Establish independent Large Taxpayer division in Bishkek Dec. 1998

17. Introduce taxpayer service desks at local offices and move staff to compliance enforcement. Sept. 1998

18. Issue internal order by the Minister of Finance to eliminate multiple audits by different local, regional and central tax authorities. Dec. 1998

19. Gradually reduce all in-kind tax payments and netting out of arrears. 2000 budget FAD

20. Require the State Customs Committee (SCC) to provide to STI complete data on export and import declarations to be used for VAT reimbursement purposes. Dec. 1998

21. Place SCC under the authority of the Ministry of Finance. Dec. 2000

22. Require SCC to use the taxpayer identification number (TIN) of the STI. Dec. 1998

23. Move to the destination principle for VAT for all countries. Dec. 1999

24. Make at least 5 additional border posts operational. March 1999

25. Start implementation of ASYCUDA system, including development of a valuation database. Dec. 1998 UN
Intergovern-mental and Budgetary Reforms Continue progress on institutionalizing a prioritization framework for spending at the central and local levels. 26. Submit to parliament the 1999 budget law in a consolidated form containing the accounts of the State Property Fund Sept. 1998
Expenditure Continue strict expenditure control, while safeguarding expenditures for health, education and social protection. 27. Institutionalize uniform tax-sharing rates across oblasts. 1999 budget and throughout WB

28. Establish accepted list of enterprises with cultural or social functions to receive direct subsidies. Sept. 1998

29. Eliminate all indirect subsidies (e.g., low bus fares) aimed at some parts of the population. If politically necessary, replace indirect subsidies by explicit budgetary transfers. March 2000 WB

30. Limit loans from the budget to agricultural enterprises to a maximum of som 50 million in 1998, 25 million in 1999 and zero in 2000. Throughout WB

31. Limit extensions of arrears payments on budget loans, wages and taxes, and initiate liquidation procedures for non-compliers. Throughout WB


32. Establish administrative procedures to ensure that no new arrears are accumulated by establishing expenditure control/warrant system for all spending units. Sept. 1998 and throughout WB

33. Strengthen PIP unit in Ministry of Finance and sectoral policy and programming units in line ministries, following World Bank recommendations. June 1998 WB

34. Move to program focused methods of estimating financial requirements for health and education. 2000 budget WB


Civil Service Reform Create an effective and transparent system of personnel management. 35. Finalize and implement action plan and legislation for civil service reform in line with TACIS recommendations. Sept. 1998 EU


36. Submit to parliament the Code of Conduct for civil servants. Dec. 1998
Pension Fund Reform Enact fundamental reform of the state pension fund that will provide sustainable financing and reduce the high social contribution rate (See also under Social Safety Net, below). 37. Agree on detailed action plan for pension fund reform. The plan will include a review of the retirement policy and measures to decrease the replacement rate, increase the ratio of contributors to beneficiaries, strengthen the link between contributions and benefits, and increase the number of years for full benefits. Sept. 1998 WB,

38. Begin converting Social Fund accounts to accrual-based system, in line with World Bank recommendations. June 1998 WB

39. Start implementing pension reform, as agreed in the detailed action plan. Dec. 1998

40. Require that the Social Fund and the STI adopt a common TIN. March 1999

Monetary and Credit Policies
and Financial Sector Deepening
Increase efficiency of NBKR’s monetary policy instruments and promote the development of banks and nonbank financial institutions 41. Develop weekly liquidity forecasts for the quarter ahead and daily forecasts for the month ahead. Continue to improve accounting practices in line with international standards. June 1998 MAE

42. Enhance the flexibility, marketability, and effectiveness of reverse repos (e.g., include repos in electronic trading system and settlement system, improve secondary market trading). June 1998 MAE

43. Increase penalty rate for noncompliance with reserve requirements to two times the three-month T-bill rate. June 1998

44. Remove surcharge for repeated use of the Lombard facility. June 1998

45. Gradually replace foreign exchange auctions with direct dealings in interbank market. June 1998 MAE

46. Improve data base on banks’ interest rates. June 1998 MAE

47. Complete introduction of faster payment and settlement system. Dec. 1998 WB

48. Complete the establishment of the central registry for pledges in two more oblasts. Sept. 1998 WB

49. Complete remaining legal steps in the liquidation process of Agroprombank and Elbank and close DEBRA. Dec. 1999 WB

50. Submit draft laws to parliament on Investment Funds, Insurance Companies, and on Leasing. Dec. 1998 WB, USAID,

51. Support the establishment of central stock depository through regulation and adoption of Law on the Securities Market, in line with TA recommendations. Dec. 1998 USAID,

52. Prepare privatization plan for the Kyrgyz Agricultural Finance Corporation (KAFC). Dec. 1999 WB

External Economic Policies
Trade Regime Continue and further liberalize the trade system 53. Submit to parliament the privatization plans for the state trading monopolies in the energy and gas sectors. Dec. 1998

54. Adopt action plan to phase out nonviable Free Economic Zones and strengthen control of the remaining ones. Sept. 1998 IFC,
Debt Management Improve external debt management and continue liberal trade system. 55. No recourse to nonconcessional external loans (with a grant element of less than 35 percent) contracted or guaranteed by the government, except as specified under the program. 1998–2000

56. Establish procedures in the debt management unit of the Ministry of Finance to ensure a comprehensive feasibility analysis of all new public or publicly guaranteed external borrowing. March 1998

57. The Ministry of Finance and NBKR will harmonize and consolidate their data bases on external debt. June 1998

Structural Policies
Privatization and Private Sector Development Complete privatization of enterprises and distribution of land and create a business environment facilitating private activity. 58. Adopt a government resolution to begin implementing the privatization program, including a timetable. June 1998

59. Submit to parliament the revised Land Code and the Law on Land Registration. Sept. 1998 WB, USAID

60. Submit the draft Mortgage Law to parliament. Dec. 1998

61. Establish policies and procedures for land use rights auctions. Dec. 1998 WB

62. Issue full fledged land use rights to those who do not yet have them. Dec. 1998

63. Complete individual privatization plans for utilities and large enterprises aimed at attracting strategic investors. Dec. 1998 WB, ADB

64. Implement ADB supported program on enterprise accounting, reporting and disclosure. Dec. 1998 ADB,
Legal and Regulatory Framework Strengthen application of legislation. Build a judiciary system capable to implement, disseminate and enforce legislation in a transparent and predictable manner across the country. 65. Adopt training program, in line with TA recommendations, for the judiciary to apply specific laws. June 1998 WB,
Agriculture Promote efficient and private agriculture. 66. Create rural advisory and development services and an agricultural market information system for private farmers. June 1999 WB

67. Develop national plan for rural roads. March 1999 WB
Energy Rationalize domestic energy use and explore new sources. Improve billing and collection performance of Kyrgyzenergo. Encourage private investment in energy generation. 68. Increase tariff in line with WB recommendations, by adopting a new rate structure which reflects economic costs. Throughout WB,

69. Gradually replace KyrgyzEnergo subsidies to low income households with direct budget transfers and ensure payment compliance of all budgetary institutions. 1999 budget and throughout WB

70. Submit to parliament privatization strategy for KyrgyzEnergo. June 1998 WB, EBRD
Environment Prevent unsustainable use of natural resources by reversing deterioration of water infrastructure that is allowing significant water losses. Introduce sustainable forestry management to stop continued deforestation. 71. Develop a water management plan and submit to Parliament draft legislation to: (i) raise user charges to cover depreciation costs; and (ii) improve management skills at local levels. Sept. 1998 WB
Communication Promptly implement the regulatory and policy framework for restructuring the sector, aimed at ensuring orderly development as well as at attracting private investors. 72. Enact Telecom law. June 1998 WB
73. Kyrgyz Telecom (KT) to rebalance tariffs and maintain debt service ratio 1.5. Dec. 1998

74. KT to eliminate all direct or indirect transfers to postal service and refrain from granting new ones. June 1998
and throughout

75. KT to assess economic and financial viability of its investment prior to their undertaking. Throughout
Transport Improve the public transportation system to meet urban population demands. Change prices to achieve cost recovery over the medium term. 76. Formulate a reform strategy for transportation, including a detailed plan for removal of privileges, in line with World Bank recommendations. Dec. 1998 WB
Statistics Improve the quality of statistics in line with the General Data Dissemination System, GDDS. 77. Implement "Program to Reform Statistics in the Kyrgyz Republic." 1998–2000 WB,

78. Export price index to be compiled. Dec. 1998

79. Move from universal to sample-based data collection for all sectors of economic activity, including informal sectors. Dec. 1999 WB

80. Reorganize the National Statistical Committee (NSC) to accommodate the role of regions in data flows. Dec. 1998

Social Safety
Welfare Improve targeting of welfare benefits and reliability of provisions of essential social services, especially for the poor and children. 81. Implement plan to ensure improved targeting of benefits, so that the poorest quintile will receive 60 percent of benefits, as monitored by the household surveys. June 1998 and throughout WB
Health care Continue to emphasize a cost effective focus on primary health care services, reduction of in-patient hospital care, and focus on the rural population and the most vulnerable. 82. Prepare analysis of funding levels to the health sector. June 1998 WB
83. Extend the medical care provider system from Issyk-kul to Bishkek and Chui. Dec. 1998 WB

84. Develop compulsory medical insurance, including appropriate arrangements for financial management and the definition of the basic package that would be provided. March 2000 WHO/WB
Education Improve sustainability of sector by improving resource mobilization and rationalize staff and public spending on education. Improve access and equity in basic education. 85. Complete education program in line with TA from ADB. Dec. 2000 ADB
Labor market Improve incentives to increase work effort, in order to improve labor mobility and resource allocation. 86. Submit to parliament a revised labor law according to WB recommendations. Dec. 1998 WB

87. Tighten eligibility to unemployment insurance to avoid participation for multiple periods. June 1998 WB

88. Implement new eligibility criteria for unemployment benefits and determine the level of benefits annually to avoid arrear buildup. Dec. 1998 WB

89. Improve employment and unemployment statistics based on household, as opposed to enterprise, surveys. Dec. 1998

Legend of Acronyms
ADB: Asian Development Bank
ASYCUDA: Automated System for Customs Data
CG: Consultative Group
DEBRA: Debt Resolution Agency
EBRD: European Bank for Reconstruction and Development
ERRA: Enterprise Reform and Resolution Agency
EU TACIS: Technical Assistance for Commonwealth of Independent States
FAD: Fiscal Affairs Department
GDDS: General Data Dissemination System
GTZ: Gesellschaft Fur Technische Zusammenarbeit
IFC: International Finance Corporation
ILO: International Labor Organization
IMF: International Monetary Fund
KAFC: Kyrgyz Agricultural Finance Corporation
KT: Kyrgyz Telecom
LRF: Land Redistribution Fund
MAE: Monetary and Exchange Affairs Department
NBKR: National Bank of the Kyrgyz Republic
NSC: National Statistical Committee
OECD: Organization for Economic Cooperation and Development
PIP : Public Investment Program
SCC: State Customs Committee
STI: State Tax Inspectorate
TA: Technical Assistance
TIN: Tax Identification Number
UN: United Nations
UNDP: United Nations Development Programme
USAID: United States Agency for International Development
VAT: Value Added Tax.
WB: World Bank
WTO: World Trade Organization
Table 2. Kyrgyz Republic: Selected Economic Indicators, 1997-2004

  1997 1998 1999 2000 2004


   Nominal GDP (in billions of soms) 29.3 35.1 40.0 44.5 64.6
   Nominal GDP (in millions of U.S. dollars, at average exchange rate)  1,686  1,884  2,005  2,161  2,909
   Real GDP (growth in percent) 6.5 6.0 4.6 4.5 4.0
Prices and wages
   GDP deflator (percent change) 17.5 13.2 8.8 6.6 5.0
   Consumer prices (percent change, December - December) 14.7 12.0 8.0 5.5 4.5
   Consumer prices (percent change, average) 25.5 11.6 9.5 6.4 4.6
   Average real wage (1992=100) 81.8 85.6 87.9 90.8 99.8
   Average monthly wage (in U.S. dollars) 36.2 39.3 40.4 42.9 53.1
State government finances (In percent of GDP)
   Total revenue and grants 17.0 18.0 17.8 18.0 19.0
      Of which: tax revenue 13.1 13.5 13.8 14.2 15.2
   Total expenditure, of which 26.3 26.1 24.9 24.2 23.2
      Public Investment Program 3.2 4.7 4.6 4.2 3.5
      State government non-interest current expenditure 20.1 19.2 17.1 16.7 16.2
         Of which: wages and Social Fund contributions 7.1 7.0 6.7 6.7 6.8
   Overall fiscal balance (cash basis) -9.4 -8.5 -7.1 -6.2 -4.2
   Overall fiscal balance (accrual basis) -9.4 -8.1 -7.1 -6.2 -4.2
   Overall fiscal balance after measures ... ... ... -5.8 -4.2
   External financing 8.2 6.9 5.3 4.5 3.5
   Domestic financing 1.2 1.7 1.8 1.3 0.6
   Financing gap 0.0 0.0 0.0 0.4 0.0
   Domestic balance1 -6.9 -5.2 -3.6 -2.9 -1.3
   Expenditure arrears (end-period) 0.5 0.0 0.0 0.0 0.0
External sector2
   Export growth (goods and services, percent change, in U.S. dollars) 17.7 5.1 6.3 8.2 7.0
   Import growth (goods and services, percent change, in U.S. dollars) -21.5 3.4 5.5 4.0 6.3
   Current account balance (in millions of U.S. dollars)  -139.1  -141.5  -138.9  -108.7 -63.2
   Current account balance (in percent of GDP) -8.2 -7.5 -6.9 -5.0 -2.2
   Gross international reserves (months of imports, end-period) 3.0 3.3 3.5 3.7 2.2
   External debt outstanding/GDP 55.4 59.6 65.4 68.1 64.2
   External debt outstanding/GDP (NPV terms) 42.9 44.4 46.8 48.1 43.4
   NPV-of-debt/Exports (percent) 114.6 126.3 129.1 129.3 114.4
   Debt service ratio3 8.0 11.5 10.1 13.9 8.7
   Exchange rate (soms per U.S. dollar, average) 17.4 18.6 19.9 ... ...
Money and credit (Percent change, except velocity)
   Base money (end-of-period) 21.1 15.5 9.0 ... ...
   Broad money (end-of-period) 24.7 16.5 10.5 ... ...
   Net domestic assets of the banking system4 8.2 12.4 7.8 ... ...
      Of which
         Credit to the government4 9.0 5.4 4.0 ... ...
         Credit to the economy4 5.2 5.3 3.8 ... ...
   Velocity of broad money5 8.9 8.9 8.8 ... ...
Savings and investment balances
   Total Investment 13.1 12.9 13.5 13.7 14.9
      Government 4.2 6.0 6.0 5.7 5.8
      Private 8.9 6.9 7.5 7.9 9.1
   Total savings 4.9 5.4 6.6 8.6 12.7
      Government -5.4 -3.3 -1.6 -0.1 1.6
      Private 10.2 8.7 8.1 8.7 11.1
   Current account balance -8.2 -7.5 -6.9 -5.0 -2.2

   Sources: Kyrgyz authorities; and Fund staff projections.
   1Revenues (excluding grants) less current expenditures, capital investments and net lending.
   2Includes the operations of the Kumtor Gold Mining Company.
   3Excludes Kumtor debt service and exports.
   4End-of-period as a percent of beginning period broad money.
   5Annualized quarterly GDP/end-of-period broad money.
Table 3. Kyrgyz Republic: Demographic and Social Indicators


Population mid-1996 (in millions)


Population density (per km2)


Population growth (in percent per year, average 1990–96)


Labor force growth (in percent per year, average 1990–96)


Urban population (in percent of total population)


Social indicators (most recent estimates)

Poverty index (in percent of households)


Access to safe water (in percent of population)


Illiteracy (in percent of population over 15 years)


Gross primary school enrollment (in percent of school-age population)


Life expectancy at birth (in years)


Infant mortality (per 1,000 live births)


Hospital beds (per 1,000 inhabitants)


Sources: Kyrgyz authorities, World Bank and Fund staff estimates.
Table 4. Kyrgyz Republic: External Financing Requirements, 1997-2000
(In millions of US dollars)

    1997   1998   1999   2000   1998-2000

Trade balance   -15.3   -16.6   -20.3   -10.6   -47.5  
Exports, fob   630.8   662.1   709.6   776.2   2,147.9  
      FSU countries   346.2   370.6   397.6   431.6   1,199.8  
      Non-FSU   284.5   291.5   312.0   344.6   948.1  
         Of which  
            Gold (Kumtor)   184.0   173.6   180.5   200.3   554.4  
Imports, fob   646.1   678.7   729.9   786.8   2,195.4  
      FSU countries   396.0   412.5   442.3   476.1   1,330.9  
      Non-FSU   250.1   266.2   287.6   310.7   864.6  
         Of which  
            Gold (Kumtor)   25.0   27.0   27.0   30.0   84.0  
Net noninterest services   -134.6   -127.1   -125.9   -109.8   -362.8  
Net private transfers   2.2   2.4   2.4   2.4   7.3  
Non-interest current account - before grants   -149.3   -143.0   -145.8   -120.0   -408.8  
Debt service   -82.1   -123.2   -148.3   -157.7   -429.2  
   Amortization   -25.3   -55.2   -85.2   -98.9   -239.4  
      CIS   -6.7   -7.0   0.0   -17.8   -24.7  
      Non-CIS (including IMF)   -18.7   -48.3   -85.2   -81.2   -214.7  
   Interest    -56.8   -68.0   -63.1   -58.7   -189.8  
      CIS   -8.3   -11.6   -8.7   -8.6   -28.9  
      Non-CIS (including IMF)   -48.5   -56.4   -54.4   -50.1   -160.9  
Change in NBKR official reserves (- = increase)   -67.8   -27.6   -28.2   -27.3   -83.1  
Commercial banks   0.8   0.0   0.0   0.0   0.0  
Gross financing requirement   -298.4   -293.9   -322.3   -305.0   -921.1  
Sources of financing - including grants   298.4   293.9   322.3   305.0   921.1  
      Of which  
         Grants    67.0   69.5   70.0   70.0   209.5  
Sources of financing - excluding grants   231.3   224.4   252.3   235.0   711.6  
   Foreign direct investments   83.0   28.6   35.0   52.9   116.5  
   Loans (including IMF)   211.1   194.3   190.4   162.2   546.9  
      CIS   12.5   21.5   25.0   0.0   46.5  
      Non-CIS    198.6   172.8   165.4   162.2   500.4  
         IDA   65.4   51.4   45.5   56.8   153.7  
         IMF 1/   44.0   29.0   29.1   29.2   87.3  
         ADB   55.8   56.8   55.5   36.8   149.1  
         Others    33.4   35.5   35.3   39.4   110.2  
   Other, including change in arrears   25.0   1.5   0.0   0.0   1.5  
   Financing gap   0.0   0.0   -26.9   -19.9   -46.7  
   Errors and omissions and short-term capital   -87.8   0.0   0.0   0.0   0.0  

   Sources: Kyrgyz authorities; and Fund staff estimates and projections.
   1Projected Fund disbursements in 1998-2000 assume access of 100 percent of quota.