IMF Executive Board Concludes 2011 Article IV Consultation with Kyrgyz Republic

Public Information Notice (PIN) No. 11/80
June 23, 2011

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On June 20, 2011, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Kyrgyz Republic.1


The Kyrgyz Republic is recovering from a deep political crisis last year. In April 2010, a popular uprising toppled the previous regime and internal ethnic conflict in June 2010 exacerbated the already difficult political situation. The subsequent constitutional referendum and parliamentary elections in October 2010 have helped to stabilize the political situation and put the economy on a path of recovery, though the political situation remains fragile with presidential elections scheduled for later this year.

The fallout from the domestic crisis has posed significant challenges. Border closures, especially with Kazakhstan, hampered Kyrgyz companies and households involved in trade. The security situation led to the lowest tourist arrivals in almost a decade. Interruptions in the spring farming season and problems in harvesting and marketing have led to losses in agricultural production. Rising global food and fuel prices have posed additional challenges. The banking sector also suffered from diminished depositor confidence and the economic effects from events in the south. Subsequently, the economy contracted by 1.4 percent and inflation rose to nearly 20 percent in 2010. To counter rising inflation, monetary policy was tightened toward the end of 2010. Early signs of recovery have started to appear this year, with the economy growing by 3.2 percent in the first four months of 2011.

On the back of political and macroeconomic stability, the Kyrgyz economy is expected to grow by 6 percent in the medium term with positive spillovers from its larger partners in the Region. Agriculture, tourism, mining and textile production will be important drivers of growth. Strong export oriented growth and fiscal consolidation will help to reduce the current account deficit in the medium term. Official development assistance, while slowing, will remain an important source of financing the current account deficit and will help to maintain an adequate reserves level.

Executive Board Assessment

Executive Directors noted that the economy is recovering from a deep political crisis, which disrupted activity and negatively affected near-term growth prospects. Directors commended the authorities for their efforts to restore macroeconomic stability and acknowledged the timely and coordinated assistance by the international community, which helped prevent the economy from falling into a deeper recession. Directors noted that the recovery remains fragile and a steadfast implementation of prudent policies and structural reforms are crucial to improving growth prospects.

Directors acknowledged the importance of supporting the nascent recovery, but underscored that fiscal consolidation is needed to rebuild policy buffers, reduce vulnerabilities, and promote inclusive growth over the medium term. In this context, Directors welcomed the revenue and expenditure measures prepared by the authorities, and encouraged them to follow through with contingency plans, possibly based on reductions in low-priority spending, if risks to the fiscal position materialized.

Directors noted the risks and governance issues associated with extra-budgetary funds and underscored the importance of channeling all public finances through the budget. They welcomed the authorities’ decision to liquidate the Special Bank Refinancing Fund and their efforts to increase the transparency of public finances through improved reporting and monitoring of large state-owned enterprises. They also encouraged the authorities to strengthen the existing targeted social assistance system, with the support of key development partners.

Directors expressed concerns on continued high inflation, and welcomed the central bank’s timely tightening of monetary policy in response to growing inflationary pressures. Most Directors agreed with the need for further policy tightening if inflation fails to decline in the period ahead. Directors noted the staff assessment that the exchange rate is broadly in line with fundamentals and highlighted that exchange rate flexibility has served the Kyrgyz Republic well.

Directors noted that developments in the banking sector have exposed shortcomings in the bank resolution framework and the central bank’s de facto lack of supervisory independence. They encouraged the authorities to take decisive action to resolve problem banks and restore confidence in the financial system, and welcomed the selection of an external auditor for Zalkar Bank. Directors stressed the need to reform the legal framework for early intervention and resolution of problem banks, and highlighted the need for enhanced supervisory vigilance and increased capital buffers for the largest state-owned bank.

Directors endorsed the authorities’ structural reform agenda, emphasizing that steadfast implementation is critical to the success of the economic program. They welcomed plans to improve the business environment, which is key to supporting private sector-led growth, and stressed that energy sector reform would create an important driver for growth in the medium term. Directors also welcomed the ongoing efforts to increase transparency and efficiency of the largest energy companies, with assistance from key development partners.

Kyrgyz Republic: Selected Economic Indicators, 2008–11
2008 2009 2010 2011
Act. Act. Prel. Proj.

Real GDP (growth in percent)

7.6 2.9 -1.4 6.0

Nongold real GDP (growth in percent)

5.4 3.4 -2.1 5.8

Consumer prices (12-month percent change, eop)

20.1 0.0 18.9 13.0

Consumer prices (12-month percent change, average)

24.5 6.8 7.8 20.0

General government finances (in percent of GDP) 1/


Total revenue and grants

29.9 32.1 31.7 34.6

Of which: Tax revenue

23.0 22.2 23.2 24.0

Total expenditure (including net lending)

29.2 36.1 38.1 42.3

Of which: Current expenditure

24.8 28.4 32.2 34.9

Capital expenditure

4.1 5.0 5.6 6.9

Overall fiscal balance

0.0 -3.5 -6.5 -7.6

Primary balance excluding grants

-1.1 -7.8 -8.6 -10.6

Banking sector


Reserve money (percent change, eop)

11.3 18.9 18.4 16.4

Broad money (percent change, eop)

12.6 20.9 21.1 15.7

Credit to private sector (percent change, eop)

26.4 -2.8 6.3 18.0

Credit to private sector (in percent of GDP)

14.2 12.9 13.0 13.0

External sector


Current account balance (in percent of GDP)

-8.1 0.7 -2.1 -8.7

Export growth (percent change)

35.4 -11.3 -6.2 23.9

Import growth (percent change)

47.5 -22.4 6.0 26.7

Gross International reserves (in millions of U.S. dollars)

1,222 1,584 1,716 1,862

Gross reserves (months of next year imports, eop)

4.0 4.9 4.2 4.1

External public debt outstanding (in percent of GDP)

41.2 52.8 57.3 51.0

Sources: Kyrgyz authorities and IMF staff estimates and projections.

1/ General government comprises State Government, Social Fund and Development Fund

(starting from September 2009) finances. State government comprises central and local governments.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summing up can be found here:


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